<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 6, 1998
REGISTRATION NO. 333-49743
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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UNIVERSAL HOSPITAL SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
MINNESOTA 7352 41-0760940
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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1250 NORTHLAND PLAZA
3800 WEST 80TH STREET
BLOOMINGTON, MINNESOTA 55431-4442
(612) 893-3200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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DAVID E. DOVENBERG
UNIVERSAL HOSPITAL SERVICES, INC.
1250 NORTHLAND PLAZA
3800 WEST 80TH STREET
BLOOMINGTON, MINNESOTA 55431-4442
(612) 893-3200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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Copies to:
VINCENT J. PISANO
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 735-3000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
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If this form is a post-effective amendment filed pursuant to rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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If delivery of the prospectus is expected to be made pursuant to rule 434,
please check the following box. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 6, 1998
PROSPECTUS
OFFER FOR ALL OUTSTANDING 10 1/4% SENIOR NOTES DUE 2008
IN EXCHANGE FOR 10 1/4% SENIOR EXCHANGE NOTES DUE 2008
UNIVERSAL HOSPITAL SERVICES, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON 1998, UNLESS EXTENDED
------------------------
Universal Hospital Services, Inc., a Minnesota corporation (the "Company" or
"UHS"), hereby offers, upon the terms and subject to the conditions set forth in
this Prospectus and the accompanying Letter of Transmittal (which together
constitute the "Exchange Offer"), to exchange an aggregate principal amount of
up to $100,000,000 of its 10 1/4% Senior Exchange Notes due 2008 (the "New
Notes"), which have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), for a like principal amount of its issued and
outstanding 10 1/4% Senior Notes due 2008 (the "Old Notes" and, together with
the New Notes, the "Notes") from the holders thereof. The terms of the New Notes
are identical in all material respects to the Old Notes, except for certain
transfer restrictions and registration rights relating to the Old Notes and
except that, if the Exchange Offer is not consummated by September 23, 1998, the
interest rate on the Old Notes from and including such date until but excluding
the date of consummation of the Exchange Offer will increase by 0.5%. The Old
Notes were issued by the Company on February 25, 1998 pursuant to an offering
(the "Offering"), which was exempt from registration under the Securities Act.
The Offering was made in connection with, and the proceeds from the Offering
provided a portion of the financing for, the Recapitalization (as defined) of
the Company. See "The Recapitalization."
Interest on the Notes will accrue from the date of original issuance and
will be payable semiannually in arrears on March 1 and September 1 of each year,
commencing September 1, 1998 at the rate of 10 1/4% per annum. The Notes will be
redeemable, in whole or in part, at the option of the Company on or after March
1, 2003 at the redemption prices set forth herein, plus accrued interest to the
date of redemption. In addition, the Notes are not redeemable by the Company
prior to March 1, 2003, except that, at any time on or prior to March 1, 2001,
the Company, at its option, may redeem with the net cash proceeds of one or more
Equity Offerings (as defined) up to 35% of the aggregate principal amount of the
Notes originally issued, at a redemption price equal to 110 1/4% of the
principal amount thereof, plus accrued interest to the date of redemption;
provided, that at least 65% of the aggregate principal amount of the Notes
originally issued remains outstanding immediately following such redemption.
The Notes will be general unsecured obligations of the Company, will rank
pari passu in right of payment to all existing and future unsubordinated
indebtedness of the Company and will rank senior in right of payment to all
subordinated obligations of the Company. The Notes will effectively be
subordinated to any secured indebtedness of the Company, including indebtedness
under the Revolving Credit Facility (as defined). As of March 31, 1998, after
giving effect to the Recapitalization, the Company had $115.4 million of senior
indebtedness outstanding, which includes $15.4 million of secured indebtedness
and excludes unused and available commitments of $15.2 million under the
Revolving Credit Facility. See "Selected Historical Financial Data" and
"Description of Revolving Credit Facility."
(continued on next page)
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SEE "RISK FACTORS" COMMENCING ON PAGE 15 OF THIS PROSPECTUS FOR A
DESCRIPTION OF CERTAIN RISKS TO BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD
NOTES IN THE EXCHANGE OFFER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE> 3
Upon a Change of Control (as defined), each holder of the Notes will have
the right to require the Company to repurchase such holder's notes at a price
equal to 101% of the principal amount thereof, plus accrued and unpaid interest
to the repurchase date. In addition, the Company may, at its option, at any time
prior to March 1, 2003 and within 180 days after a Change of Control, redeem the
Notes for an amount equal to the principal amount thereof plus accrued interest,
if any, to the redemption date, plus an Applicable Premium (as defined) The
Company will be obligated to offer to repurchase the Notes at 100% of the
principal amount thereof plus accrued and unpaid interest to the date of
repurchase in the event of certain Asset Sales (as defined). However, there can
be no assurance that in the event of a Change of Control, the Company will have
or be able to acquire sufficient funds to repurchase the Notes. See "Description
of the Notes."
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. The New Notes will bear interest from the most recent date to which
interest has been paid on the Old Notes or, if no interest has been paid on the
Old Notes, from February 25, 1998. Accordingly, if the relevant record date for
interest payment occurs after the consummation of the Exchange Offer, registered
holders of New Notes on such record date will receive interest accruing from the
most recent date to which interest has been paid or, if no interest has been
paid, from February 25, 1998. If, however, the relevant record date for interest
payment occurs prior to the consummation of the Exchange Offer, registered
holders of Old Notes on such record date will receive interest accruing from the
most recent date to which interest has been paid or, if no interest has been
paid, from February 25, 1998. Old Notes accepted for exchange will cease to
accrue interest from and after the date of the consummation of the Exchange
Offer, except as set forth in the immediately preceding sentence. Holders of Old
Notes whose Old Notes are accepted for exchange will not receive any payment in
respect of interest on such Old Notes otherwise payable on any interest payment
date the record date for which occurs on or after consummation of the Exchange
Offer.
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Registration Agreement dated
February 25, 1998 among the Company and BT Alex. Brown Incorporated (the
"Initial Purchaser") (the "Registration Rights Agreement"). Based on
interpretations by the staff of the Securities and Exchange Commission (the
"Commission") as set forth in no-action letters issued to third parties, the
Company believes that New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold and otherwise
transferred by holders thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such New Notes are acquired in the ordinary
course of such holder's business and such holder has no arrangement with any
person to participate in the distribution of such New Notes. However, the
Company does not intend to request the Commission to consider, and the
Commission has not considered, the Exchange Offer in the context of a no-action
letter and there can be no assurance that the staff of the Commission would make
a similar determination with respect to the Exchange Offer as in such other
circumstances. Each holder, other than a broker-dealer, must acknowledge that it
is not engaged in, and does not intend to engage in, a distribution of such New
Notes and has no arrangement or understanding to participate in a distribution
of New Notes. If any holder is an affiliate of the Company or is engaged in or
intends to engage in or has any arrangement with any person to participate in
the distribution of the New Notes to be acquired pursuant to the Exchange Offer,
such holder (i) could not rely on the applicable interpretations of the staff of
the Commission and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction, including the delivery of a prospectus which contains the
information with respect to any selling holder required by the Securities Act.
Each broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The Company
has agreed that, for a period of 180 days after the Expiration Date (as defined
herein), it will make this Prospectus available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer. Tenders of Old
Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date. This Exchange Offer will remain open for thirty (30) days from
the date of this Prospectus (unless otherwise extended by the Company). The
Registration Statement of which this Prospectus constitutes a part will remain
in effect until the consummation of the Exchange Offer which will occur promptly
after the Expiration Date. In the event the Company terminates the Exchange
Offer and does not accept for exchange any Old Notes, the Company will promptly
return the Old Notes to the holders thereof. See "The Exchange Offer."
Prior to the Exchange Offer there has been no established trading market for
the Old Notes or the New Notes. Although the Initial Purchaser has advised the
Company that it currently intends to make a market in the New Notes, it is not
obligated to do so and may discontinue such market-making at any time without
notice. Accordingly, no assurance can be given as to the future development of
an active market for the New Notes, or the ability of the holders of New Notes
to sell their New Notes or the price that such holders may obtain for their New
Notes upon any sale. The Company does not intend to apply for listing of the New
Notes on any securities exchange or for quotation through any automated
quotation system. To the extent that a market for the New Notes does develop,
the New Notes could trade at a discount from their principal amount. see "Risk
Factors -- Lack of Established Market for the Notes."
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AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act, with respect to the
New Notes being offered by this Prospectus. This Prospectus does not contain all
the information set forth in the Registration Statement and the exhibits
thereto, to which reference is hereby made. Any statements made in this
Prospectus concerning the provisions of certain documents are not necessarily
complete and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement.
The Registration Statement and the exhibits thereto may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will
also be available for inspection and copying at the regional offices of the
Commission located at 7 World Trade Center, New York, New York 10048 and at
Citicorp Center, 500 West Madison Street (Suite 1400), Chicago, Illinois 60661.
Copies of such material may also be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Company is not currently subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). As a result of the Exchange Offer, the Company will become subject to
such requirements and, in accordance therewith, will file periodic reports and
other information with the Commission. The Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants, such as the Company, that file electronically with the
Commission and the address of such site is http://www.sec.gov. In the event the
Company is not required to be subject to the reporting requirements of the
Exchange Act in the future, the Company will be required under the Indenture,
pursuant to which the Old Notes have been, and the New Notes will be, issued, to
continue to file with the Commission and to furnish to holders of the Notes the
information, documents and other reports specified in Sections 13 and 15(d) of
the Exchange Act, including reports on Form 10-K, 10-Q and 8-K, for so long as
any Notes are outstanding.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the financial statements and notes thereto, appearing elsewhere in this
Prospectus. The Company's fiscal year ends December 31 of each year.
THE COMPANY
The Company is a leading nationwide provider of movable medical equipment
to more than 2,800 hospitals and alternate care providers through its equipment
rental and outsourcing programs. The Company's principal rental program is its
innovative Pay-Per-Use(TM) program whereby health care providers are charged a
per use rental fee based on daily use of equipment per patient. The Company also
offers other rental programs whereby customers are charged on a daily, weekly or
monthly basis. All of the Company's rental programs include a comprehensive
range of support services which include equipment delivery, training, technical
and educational support, inspection, maintenance, and comprehensive
documentation. The Company also offers total equipment outsourcing through its
Asset Management Partnership ("AMP") program whereby the Company provides,
maintains, manages and tracks substantially all, or a significant portion of, a
customer's movable medical equipment. In addition, the Company sells disposable
supplies related to the equipment it rents. The Company is able to maintain high
utilization of its rental equipment through pooling and redeploying its
equipment among a diverse customer base and adjusting pricing on a customer by
customer basis to compensate for varying utilization levels.
The Company believes that its equipment rental and outsourcing programs are
more cost effective for health care providers than the purchase or lease of
movable medical equipment for the following reasons:
- Increase Equipment Utilization Rates. Health care providers' movable
medical equipment needs fluctuate on a daily basis due to varying patient
census levels and severity of illness and condition. Therefore, a health
care provider's equipment utilization will vary for a given fixed level
of equipment. By utilizing the Company's rental programs, health care
providers can increase the utilization rates of their medical equipment
which allows them to reduce capital expenditures and related costs.
Furthermore, the Company's rental programs, especially its Pay-Per-Use
program, allow customers to more effectively match the costs of variable
equipment use with actual patient charges.
- Outsource Support Services. The Company's full range of support services
are included in its rental fee and the Company believes it can often
provide these support services at a lower cost than customers can
themselves. Accordingly, health care providers can reduce the substantial
operating costs associated with equipment ownership or lease.
- Minimize Equipment Obsolescence Risk. Health care providers can
effectively eliminate the risk of equipment obsolescence through the
Company's short-term rental and Pay-Per-Use programs. The risk of
obsolescence to the Company is reduced because the Company can maintain
high utilization of its equipment.
The Company owns a rental pool of over 56,000 pieces of movable medical
equipment in four primary categories: critical care, monitoring, respiratory
therapy and newborn care. The Company, which is one of only two national
providers of movable medical equipment rental and outsourcing programs,
currently operates through 46 district offices and eight regional service
centers, serving customers in 46 states and the District of Columbia.
MARKET OVERVIEW
Historically, hospitals have purchased a majority of their movable medical
equipment. In response to increasing cost containment pressures, however,
hospitals and other health care providers are seeking ways to reduce their
movable equipment purchases and related capital and service costs. In making
medical equipment procurement decisions, hospitals and other health care
providers consider factors such as utilization levels of equipment and the costs
of quality assurance, regulatory documentation, maintenance, repair, storage
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and obsolescence. The Company estimates that utilization rates of movable
medical equipment owned by hospitals average between 45-68%, based on over 300
studies conducted by the Company and/or these hospitals. The Company believes
that such studies show that hospitals can reduce their capital expenditures and
related costs associated with movable medical equipment by participating in
rental programs such as those offered by the Company. In addition, these
programs allow health care providers to outsource the servicing of their movable
medical equipment, which can reduce their operating costs.
COMPANY STRENGTHS
The Company attributes its historical success and its significant
opportunities for continued growth and increased profitability to the following
strengths:
SUPERIOR SERVICE AND STRONG CUSTOMER RELATIONSHIPS. The Company distinguishes
itself by being a leading service company rather than solely an equipment rental
provider and competes on the basis of the value-added, full-service features of
its rental programs in addition to price. The Company's support services include
24-hour-a-day, 365-day-a-year delivery of "patient ready" equipment, technical
support, training in equipment use, quality assurance services, regular
inspections and maintenance of all equipment rented from the Company. As a
result of its focus on service, the Company enjoys strong customer
relationships, as evidenced by the fact that 85 of the Company's 100 largest
customers as of January 1, 1992 are still customers today.
NATIONAL NETWORK. The Company is one of only two national providers of a broad
range of movable medical equipment rental and outsourcing programs. The
Company's national network of 46 district offices and eight regional service
centers serves hospital and alternate care customers in 46 states and the
District of Columbia. This broad network allows the Company to meet the
equipment rental and service needs of independent health care facilities,
national and regional health care chains and group purchasing organizations. The
Company's national network also enables it to efficiently redeploy equipment
throughout its system in order to maintain high levels of equipment utilization
and customer service.
SOPHISTICATED USE OF INFORMATION TECHNOLOGY. Through its commitment to
information technology, the Company has developed proprietary systems designed
to enhance the Company's and its customers' operating efficiencies. The Company
maintains a complete service history of all rental equipment, including data on
length of placement, transfers, modifications, repairs, maintenance and
inspections which is used to monitor and schedule preventive maintenance and
safety testing programs as well as to maximize equipment utilization. In
addition, the Company's systems provide information that helps customers meet
their equipment documentation needs under applicable industry standards and
regulations. The Company also offers its customers software that allows a health
care provider to track location, utilization and availability of all equipment
rented, owned or leased by that health care provider. These proprietary systems
were designed by the Company's MIS staff which continues to upgrade these
systems and develop new applications.
DEPTH AND BREADTH OF EQUIPMENT RENTAL POOL; PURCHASING POWER. The Company owns
a rental pool of over 57,000 pieces of movable medical equipment in four primary
categories: critical care, monitoring, respiratory therapy and newborn care. The
Company's diversified equipment rental pool includes equipment purchased from
over 50 suppliers in 1997 and enables the Company to offer its customers
numerous models from different manufacturers within each primary equipment
category. The breadth of its product offerings provides the Company with a
competitive strength compared to manufacturers and regional equipment rental
firms that may offer a limited range of models within an equipment category. In
addition, the amount of the Company's annual equipment purchases enables it to
obtain favorable pricing terms from many equipment vendors. As of March 31,
1998, approximately 58% of the Company's rental pool (valued at original cost)
was purchased within the last four years. The Company generally purchases only
new equipment for its rental pool.
EXPERIENCED AND COMMITTED MANAGEMENT TEAM. As part of the Recapitalization, the
Company installed a new senior management team comprised of existing senior
operating managers who have an average of 20 years of experience with the
Company. This team, led by David E. Dovenberg, previously the Company's CFO who
became President and CEO, intends to refocus and expand the Company's growth
strategy. The new senior management team and certain other continuing members of
management (collectively, the
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"Management Investors") retained 100% of their shares and options in the Company
which, after the Recapitalization and together with the Management Investors'
new investments, represent approximately 20% of the capital stock of the Company
on a fully diluted basis.
ATTRACTIVE RETURN ON RENTAL POOL. The Company's pricing strategy is designed to
generate a pay-back period which is substantially shorter than the useful life
of a particular piece of equipment. The Company calculates its rental rates to
recoup the equipment's purchase price generally within 16 to 18 months.
Excluding related service and support costs, the Company achieves a two year
pay-back period on the original purchase price of the entire rental pool. In
contrast, the average useful life of the equipment in the rental pool has
historically been 8.3 years.
LARGE AND DIVERSIFIED CUSTOMER BASE. The Company provides movable medical
equipment to over 1,670 hospitals and over 1,190 alternate care providers
including home care providers, nursing homes, surgicenters, subacute care
facilities and outpatient centers throughout the United States. In 1997, the
Company's top ten customers accounted for less than 14% of total revenues.
GROWTH STRATEGY
The Company believes that continuing trends toward an aging population,
increased life expectancy and managed care will provide significant growth
opportunities in both hospital and alternate care settings. The Company's
strategy is to achieve continued growth by: (i) increasing business with
existing customers; (ii) providing comprehensive equipment management programs;
(iii) developing business with new customers; (iv) establishing new district
offices; (v) pursuing strategic alliances; and (vi) pursuing strategic
acquisitions.
INCREASE BUSINESS WITH EXISTING CUSTOMERS. The Company seeks to increase the
amount of business it conducts with existing customers by providing additional
equipment to these customers and reaching additional departments within its
existing hospital customer base. Because these customers are familiar with the
Company's programs and their benefits, the Company believes that its existing
customer base represents a significant expansion opportunity. The Company
generates an average monthly rental revenue per customer census bed (i.e.,
occupied bed) of approximately $19. However, the Company's two largest district
offices generate an average monthly rental revenue per customer census bed of
approximately $76.
PROVIDE COMPREHENSIVE EQUIPMENT MANAGEMENT PROGRAMS. The Company offers a total
equipment management outsourcing program called Asset Management Partnership, or
AMP. Through this program, the Company provides, maintains, manages and tracks
substantially all, or a significant portion of, a customer's movable medical
equipment. The AMP program allows health care providers to control capital
spending and certain operating costs through outsourcing and improved
utilization. The Company plans to increase conversions of existing customers
into the AMP program as well as promote the AMP program to a target list of
potential customers. As of March 31, 1998, the Company had 15 AMP accounts, ten
of which the Company has added since January 1, 1996. The average monthly rental
revenue at these ten accounts increased 126% after conversion to AMP accounts.
DEVELOP BUSINESS WITH NEW CUSTOMERS. The Company plans to further penetrate the
hospital and alternate care markets by establishing new customer relationships
either individually or through group purchasing organizations. To date, the
Company has signed agreements with several independent group purchasing
organizations, including Premier Purchasing Partners L.P. ("Premier"), the
nation's largest health care alliance enterprise, which gives the Company
preferred supplier status to over 2,100 hospitals in its existing markets. The
Company also plans to expand business with alternate care providers which
increased to 16% of rental revenue for 1997 from 4% in 1992.
ESTABLISH NEW DISTRICT OFFICES. In order to expand its geographic coverage, the
Company plans to establish two new district offices in 1998 and three to four
new district offices in each of the subsequent several years. In choosing
locations for its district offices, the Company considers the nature and size of
the potential customer market, customer concentration within the market,
demographics and vendor relationships. While the major
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metropolitan areas will remain a primary focus for expansion, regional clusters
of hospitals are also expected to provide attractive expansion opportunities.
PURSUE STRATEGIC ALLIANCES. The Company intends to pursue strategic alliances
with major manufacturers of movable medical equipment. The nature of these
alliances could include joint marketing arrangements and/or revenue sharing
agreements whereby the Company's rental programs and services would be marketed
by the manufacturer's sales distribution network. Under these agreements, such
manufacturers would not offer the rental programs and services of any other
company.
PURSUE STRATEGIC ACQUISITIONS. The Company plans to pursue strategic
acquisitions that will increase its market share in existing markets, enable the
Company to more quickly penetrate new markets and/or improve the Company's
overall operating efficiencies. In August 1996, the Company acquired Biomedical
Equipment Rental and Sales, Inc. ("BERS") which had revenues of approximately
$5.7 million in 1996. The acquisition of BERS greatly expanded the Company's
market share and service capabilities in several Southeastern markets.
THE RECAPITALIZATION
The Recapitalization was effected through the merger (the "Merger") of UHS
Acquisition Corp., a newly-formed Minnesota corporation ("Merger Sub")
controlled by J.W. Childs Equity Partners, L.P. ("Childs"), with and into the
Company (the Merger, together with the financings and related transactions
described below, the "Recapitalization"). In connection with the
Recapitalization: (i) the Company's existing shareholders (other than the
Management Investors) received, in consideration for the cancellation of
approximately 5.3 million shares of Common Stock, par value $.01 per share, of
the Company (the "Common Stock") and options to purchase approximately 344,000
shares of the Common Stock, cash in the aggregate amount of approximately $84.7
million (net of aggregate option exercise price), or $15.50 per share; (ii) the
Company repaid outstanding borrowings of approximately $35.5 million under
existing loan agreements; (iii) the Company paid estimated fees and expenses of
$11.5 million related to the Recapitalization; and (iv) the Company paid
approximately $3.3 million in severance payments to certain non-continuing
members of management. In order to finance the Recapitalization, the Company:
(i) received an equity contribution of approximately $21.3 million in cash from
Childs and affiliates and the Management Investors; (ii) issued $100.0 million
in aggregate principal amount of Old Notes in the Offering; and (iii) borrowed
approximately $14.3 million under the Revolving Credit Facility. In addition,
the Management Investors retained their existing shares of Common Stock and
options to purchase shares of Common Stock which have a total value of $3.7
million based upon the Merger Consideration (as defined) and represent, together
with new investments by such persons, approximately 20% of the capital stock of
the Company on a pro forma, fully diluted basis. Following the Recapitalization,
Childs and affiliates and the Management Investors hold securities representing
approximately 80% and 20%, respectively, of the outstanding voting stock of the
Company on a fully diluted basis. See "The Recapitalization," "Management" and
"Principal Shareholders."
The Merger was effected pursuant to the Agreement and Plan of Merger, dated
as of November 25, 1997, by and among Merger Sub, Childs and the Company (the
"Merger Agreement"). The Merger Agreement provided that (i) Merger Sub would be
merged with and into the Company, with the Company as the surviving corporation,
and (ii) each outstanding share of Common Stock (other than shares owned
directly or indirectly by Childs or the Company, shares in respect of which
appraisal rights are properly exercised and shares held by the Management
Investors), together with certain associated shareholders' rights, would be
converted into the right to receive $15.50 in cash (the "Merger Consideration").
As of the effective time of the Recapitalization, the shares of the Common Stock
were no longer quoted on The Nasdaq National Stock Market (the "Nasdaq Stock
Market"), and the registration of the Common Stock under the Exchange Act was
terminated.
THE INVESTOR
Childs is a $463 million institutional private equity fund managed by J.W.
Childs Associates, L.P., a Boston-based private investment firm ("Childs
Associates"). Childs invests in equity positions primarily in
7
<PAGE> 9
established middle-market growth companies. Childs' investment strategy is to
leverage on the operating and financial experience of its partners and to
invest, along with management, in growing companies with a history of profitable
operations. In addition to seven partners with financial backgrounds, Childs has
three "operating" partners who have each had prior experience as the chief
executive officer of a successful leveraged buyout. Its principal executive
offices are located at One Federal Street, 21st Floor, Boston, Massachusetts
02110. Childs is a Delaware limited partnership.
THE COMPANY
The Company's executive offices are located at 1250 Northland Plaza, 3800
West 80th Street, Bloomington, Minnesota 55431-4442. The Company's telephone
number is (612) 893-3200.
8
<PAGE> 10
THE EXCHANGE OFFER
Securities Offered......... Up to $100,000,000 aggregate principal amount of
10 1/4% Senior Exchange Notes due 2008. The terms
of the New Notes and the Old Notes are identical in
all material respects, except for certain transfer
restrictions and registration rights relating to
the Old Notes and except that, if the Exchange
Offer is not consummated by September 23, 1998, the
interest rate on the Old Notes from and including
such date until but excluding the date of
consummation of the Exchange Offer will increase by
0.5%. See "-- Summary Description of the New Notes"
and "Description of the Notes -- General."
The Exchange Offer......... The New Notes are being offered in exchange for a
like aggregate principal amount of Old Notes. The
issuance of the New Notes is intended to satisfy
obligations of the Company contained in the
Registration Rights Agreement. For procedures for
tendering the Old Notes, see "The Exchange
Offer -- Procedures for Tendering Old Notes."
Tenders; Expiration Date;
Withdrawal............... The Exchange Offer will expire at 5:00 p.m. New
York City time, on , 1998, or such
later date and time to which it is extended. The
tender of Old Notes pursuant to the Exchange Offer
may be withdrawn at any time prior to the
Expiration Date. Any Old Notes not accepted for
exchange for any reason will be returned without
expense to the tendering holder thereof as promptly
as practicable after the expiration or termination
of the Exchange Offer. See "The Exchange Offer --
Terms of the Exchange Offer; Period for Tendering
Old Notes" and "The Exchange Offer -- Withdrawal."
Certain Conditions to
Exchange Offer........... The Company shall not be required to accept for
exchange, or to issue New Notes in exchange for,
any Old Notes and may terminate or amend the
Exchange Offer if at any time before the acceptance
of the Old Notes for exchange or the exchange of
the New Notes for such Old Notes certain events
have occurred, which in the reasonable judgment of
the Company, make it inadvisable to proceed with
the Exchange Offer and/or with such acceptance for
exchange or with such exchange. Such events include
(i) any threatened, instituted or pending action
seeking to restrain or prohibit the Exchange Offer,
(ii) a general suspension of trading in securities
on any national securities exchange or in the over-
the-counter market, (iii) a general banking
moratorium, (iv) the commencement of a war or armed
hostilities involving the United States and (v) a
material adverse change or development involving a
prospective material adverse change in the
Company's business, properties, assets,
liabilities, financial condition, operations,
results of operations or prospects that may affect
the value of the Old Notes or the New Notes. In
addition, the Company will not accept for exchange
any Old Notes tendered, and no New Notes will be
issued in exchange for any such Old Notes, at any
such time any stop order shall be threatened or in
effect with respect to the Registration Statement
of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust
Indenture Act of 1939. See "The Exchange
Offer -- Certain Conditions to the Exchange Offer."
9
<PAGE> 11
Federal Income Tax
Consequences............. The exchange pursuant to the Exchange Offer will
not result in gain or loss to the holders or the
Company for federal income tax purposes. See
"Certain U.S. Federal Income Tax Considerations."
Use of Proceeds............ There will be no proceeds to the Company from the
exchange pursuant to the Exchange Offer. See "Use
of Proceeds."
Exchange Agent............. First Trust National Association is serving as
exchange agent (the "Exchange Agent") in connection
with the Exchange Offer.
CONSEQUENCES OF EXCHANGING OR FAILURE TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions in
the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon as
a consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register Old Notes under the Securities Act. See "Description of the
Notes -- Registration Rights."
Based on interpretations by the staff of the Commission, as set forth in
no-action letters issued to third parties, the Company believes that New Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold or otherwise transferred by holders thereof (other than any
holder which is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holders' business and such
holders have no arrangement with any person to participate in the distribution
of such New Notes. However, the Company does not intend to request the
Commission to consider, and the Commission has not considered, the Exchange
Offer in the context of a no-action letter and there can be no assurance that
the staff of the Commission would make a similar determination with respect to
the Exchange Offer as in such other circumstances. Each holder, other than a
broker-dealer, must acknowledge that it is not engaged in, and does not intend
to engage in, a distribution of New Notes and has no arrangement or
understanding to participate in a distribution of New Notes. If any holder is an
affiliate of the Company, is engaged in or intends to engage in or has any
arrangement or understanding with respect to the distribution of the New Notes
to be acquired pursuant to the Exchange Offer, such holder (i) could not rely on
the applicable interpretations of the staff of the Commission and (ii) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. Each broker-dealer
that receives New Notes for its own account in exchange for Old Notes must
acknowledge that such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities and that it will deliver
a prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution." In addition, to comply with the state securities laws,
the New Notes may not be offered or sold in any state unless they have been
registered or qualified for sale in such state or an exemption from registration
or qualification is available and is complied with. The offer and sale of the
New Notes to "qualified institutional buyers" (as such term is defined under
Rule 144A of the Securities Act) is generally exempt from registration or
qualification under the state securities laws. The Company currently does not
intend to register or qualify the sale of the New Notes in any state where an
exemption from registration or qualification is required and not available. See
"The Exchange Offer -- Consequences of Exchanging Old Notes" and "Description of
the Notes -- Registration Rights."
10
<PAGE> 12
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in all material
respects, except for certain transfer restrictions and registration rights
relating to the Old Notes and except that, if the Exchange Offer is not
consummated by September 23, 1998, the interest rate on the Old Notes from and
including such date until but excluding the date of consummation of the Exchange
Offer will increase by 0.5%. The New Notes will bear interest from the most
recent date to which interest has been paid on the Old Notes or, if no interest
has been paid on the Old Notes, from February 25, 1998. Accordingly, if the
relevant record date for interest payment occurs after the consummation of the
Exchange Offer, registered holders of New Notes on such record date will receive
interest accruing from the most recent date to which interest has been paid or,
if no interest has been paid, from February 25, 1998. If, however, the relevant
record date for interest payment occurs prior to the consummation of the
Exchange Offer registered holders of Old Notes on such record date will receive
interest accruing from the most recent date to which interest has been paid or,
if no interest has been paid, from February 25, 1998. Old Notes accepted for
exchange will cease to accrue interest from and after the date of consummation
of the Exchange Offer, except as set forth in the immediately preceding
sentence. Holders of Old Notes whose Old Notes are accepted for exchange will
not receive any payment in respect of interest on such Old Notes otherwise
payable on any interest payment date the record date for which occurs on or
after consummation of the Exchange Offer.
Notes Offered.............. Up to $100,000,000 aggregate principal amount of
10 1/4% Senior Notes due 2008.
Maturity Date.............. March 1, 2008.
Interest Payment Dates..... Interest on the Notes will accrue from the date of
original issuance (the "Issue Date") and will be
payable semi-annually in arrears on March 1 and
September 1 of each year, commencing September 1,
1998.
Optional Redemption........ The Notes will be redeemable, in whole or in part,
at the option of the Company on or after March 1,
2003 at the redemption prices set forth herein,
plus accrued interest to the date of redemption. In
addition, the Notes are not redeemable by the
Company prior to March 1, 2003, except that, at any
time on or prior to March 1, 2001, the Company, at
its option, may redeem, with the net cash proceeds
of one or more Equity Offerings (as defined) up to
35% of the aggregate principal amount of the Notes
originally issued, at a redemption price equal to
110 1/4% of the principal amount thereof, plus
accrued interest to the date of redemption;
provided that at least 65% of the aggregate
principal amount of the Notes originally issued
remains outstanding immediately following such
redemption. See "Description of the
Notes -- Redemption."
Change of Control.......... Upon a Change of Control (as defined), each holder
of the Notes will have the right to require the
Company to repurchase such holder's Notes at a
price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest to the
repurchase date. In addition, the Company may, at
its option, at any time prior to March 1, 2003 and
within 180 days after a Change of Control, redeem
the Notes for an amount equal to the principal
amount thereof plus accrued and unpaid interest, if
any, to the redemption date, plus an Applicable
Premium (as defined) to be based on the greater of
(i) 1.0% of the then outstanding principal amount
of such Notes and (ii) the excess of (A) the
present value at such time of (1) the redemption
price of such Notes at March 1, 2003 plus (2) all
remaining required interest payments due on such
Notes through March 1, 2003, computed using a
discount rate equal to the Treasury Rate (as
defined) plus 50 basis points, over (B) the then
outstanding principal amount of such Notes.
However, there can be no assurance that in the
event of a Change of Control, the Company will
11
<PAGE> 13
have or be able to acquire sufficient funds to
repurchase the Notes. See "Description of the
Notes -- Change of Control."
Ranking.................... The Notes will be general unsecured obligations of
the Company and will rank pari passu in right of
payment to all existing and future unsubordinated
indebtedness of the Company and will rank senior in
right of payment to all subordinated obligations of
the Company. The Notes will effectively be
subordinated to any secured indebtedness of the
Company, including indebtedness under the Revolving
Credit Facility (as defined). As of March 31, 1998,
the Company had an aggregate of $115.4 million of
senior indebtedness outstanding, which includes
$15.4 million of secured indebtedness and excludes
unused and available commitments of $15.2 million
under the Revolving Credit Facility. See "Use of
Proceeds," "Capitalization," "Unaudited Pro Forma
Condensed Financial Data" and "Description of the
Revolving Credit Facility."
Certain Covenants.......... The Indenture contains certain covenants with
respect to the Company and its subsidiaries that
restrict, among other things, (a) the incurrence of
additional indebtedness, (b) the payment of
dividends and other restricted payments, (c) the
creation of certain liens, (d) the use of proceeds
from sales of assets and subsidiary stock and (e)
transactions with affiliates. The Indenture also
restricts the Company's ability to consolidate or
merge with or into, or to transfer all or
substantially all of its assets to, another person.
In addition, under certain circumstances, the
Company will be required to offer to purchase the
Notes, in whole or in part, at a purchase price
equal to 100% of the principal amount thereof, plus
accrued and unpaid interest to the date of
repurchase, with the proceeds of certain Asset
Sales. These restrictions and requirements are
subject to a number of important qualifications and
exceptions. See "Description of the
Notes -- Certain Covenants."
Registration Rights........ Holders of New Notes are not entitled to any
registration rights with respect to the New Notes.
Pursuant to the Registration Rights Agreement, the
Company agreed that it would, at its cost, use its
best efforts to cause a registration statement to
be declared effective under the Securities Act for
the exchange of Old Notes for registered notes. The
Registration Statement of which this Prospectus is
a part constitutes the registration statement for
purposes of the Registration Rights Agreement.
Under certain circumstances, certain holders of
Notes (including holders who may not participate in
the Exchange Offer or who may not freely resell New
Notes received in the Exchange Offer) may require
the Company to use its best efforts to file, and
cause to become effective, a shelf registration
statement under the Securities Act, which would
cover resales of Notes by such holders. See
"Description of the Notes -- Registration Rights."
For additional information regarding the Notes, see "Description of the
Notes."
RISK FACTORS
Prospective holders of New Notes should consider carefully all of the
information set forth in this Prospectus and, in particular, should evaluate the
specific factors set forth under "Risk Factors" before making a decision to
tender their Old Notes in the Exchange Offer.
12
<PAGE> 14
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The summary historical and unaudited pro forma financial data presented
below, excluding rental equipment units adjusted EBITDA and EBITDA and related
data, are derived from the audited financial statements of the Company (the
"Financial Statements") and the unaudited pro forma financial statements of the
Company, which are presented elsewhere herein. The financial data for the three
months ended March 31, 1997 and 1998 and the twelve months ended March 31, 1998
("LTM") are derived from the unaudited pro forma financial information included
elsewhere in this registration statement. The unaudited pro forma financial data
are not necessarily indicative of the Company's financial position or results of
operations that might have occurred had the transactions they give effect to
been completed as of the dates indicated and do not purport to represent what
the Company's financial position or results of operations might be for any
future period or date. For additional information see "Capitalization,"
"Selected Historical Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements.
<TABLE>
<CAPTION>
PRO FORMA(1)
-----------------------------------
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED LTM ENDED
--------------------------------------------- MARCH 31, MARCH 31,
PRO FORMA ---------------------- ---------
1995 1996 1997 1997(1) 1997 1998 1998
-------- -------- -------- --------- ----------- ------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Equipment rentals...................... $ 45,870 $ 50,743 $ 54,489 $54,489 $14,523 $15,137 $55,103
Sales of supplies and equipment, and
other................................ 7,166 6,198 5,586 5,586 1,439 1,297 5,444
-------- -------- -------- ------- ------- ------- -------
Total revenues........................... 53,036 56,941 60,075 60,075 15,962 16,434 60,547
-------- -------- -------- ------- ------- ------- -------
Costs of rentals and sales:
Cost of equipment rentals.............. 11,841 13,332 13,577 13,577 3,254 3,619 13,942
Rental equipment depreciation.......... 10,800 12,603 14,435 14,435 3,400 3,825 14,860
Cost of supplies and equipment sales... 5,352 4,423 3,838 3,838 1,005 824 3,657
Write-down of DPAP inventories(2)...... -- 2,213 -- -- -- -- --
-------- -------- -------- ------- ------- ------- -------
Total costs of rentals and sales......... 27,993 32,571 31,850 31,850 7,659 8,268 32,459
-------- -------- -------- ------- ------- ------- -------
Gross profit............................. 25,043 24,370 28,225 28,225 8,303 8,166 28,088
Selling, general and administrative...... 18,560 19,695 18,448 17,462 4,996 4,808 17,274
Recapitalization and transaction
costs(3)............................... -- 306 1,719 -- -- -- --
-------- -------- -------- ------- ------- ------- -------
Operating income......................... 6,483 4,369 8,058 10,763 3,307 3,358 10,814
-------- -------- -------- ------- ------- ------- -------
Interest expense......................... 1,784 2,518 3,012 12,258 3,125 3,032 12,165
-------- -------- -------- ------- ------- ------- -------
Income (loss) before provision (benefit)
for income taxes....................... 4,699 1,851 5,046 1,495 182 326 (1,351)
-------- -------- -------- ------- ------- ------- -------
Provision (benefit) for income taxes..... 1,949 919 2,347 (400) 82 147 (335)
-------- -------- -------- ------- ------- ------- -------
Net income (loss)........................ $ 2,750 $ 932 $ 2,699 $ 1,095 $ 100 $ 179 $(1,016)
======== ======== ======== ======= ======= ======= =======
OTHER DATA:
Net cash provided by operating
activities............................. $ 13,071 $ 14,657 $ 20,001 -- -- -- --
Net cash used in investing activities.... (19,725) (26,859) (18,026) -- -- -- --
Net cash (used in) provided by financing
activities............................. 6,654 12,400 (2,172) -- -- -- --
EBITDA(4)................................ 18,246 18,266 24,129 $26,834 $ 7,118 $ 7,668 $26,760
Adjusted EBITDA(5)....................... 18,246 20,785 25,848 26,834 7,118 7,668 26,760
Adjusted EBITDA margin(6)................ 34.4% 36.5% 43.0% 44.7% 44.6% 46.7% 44.2%
Ratio of earnings to fixed charges(7).... 3.6 1.7 2.7 0.9 1.1 1.1 0.9
Adjusted ratio of earnings to fixed
charges(8)............................. 3.6 2.7 3.2 0.9 1.1 1.1 0.9
Depreciation and amortization............ $ 11,763 $ 13,897 $ 16,071 $16,071 $ 3,811 $ 4,310 $15,948
Capital expenditures..................... 19,911 15,210 19,144 19,144 4,514 6,992 17,071
Pro forma cash interest expense(9)....... -- -- -- 11,342 2,896 2,803 10,258
Ratio of Adjusted EBITDA to pro forma
cash interest expense.................. -- -- -- 2.4x 2.5x 4.2x 2.6x
Rental equipment (units at end of
period)................................ 45,000 52,000 56,000 56,000
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------------------- ---------
1995 1996 1997 1998
-------- -------- -------- ---------
(ACTUAL)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital(10)....................... $ 5,059 $ 8,573 $ 7,617 $ 12,539
Total assets.............................. 66,849 79,707 81,186 91,933
Total debt................................ 23,588 37,150 33,945 115,373
Shareholders' equity (deficiency)......... 28,712 29,128 33,000 (34,971)
</TABLE>
- ---------------
(1) Pro forma financial data are presented as if consummation of the
Recapitalization occurred at the beginning of the applicable period. Pro
forma financial data are provided for comparative purposes only and are not
necessarily indicative of the actual results that would have been achieved
had the Recapitalization occurred on the date indicated or that may be
achieved in the future.
(2) The Company experienced declining sales of Demand Positive Airway Pressure
("DPAP") devices for adult obstructive sleep apnea during 1996. Because
market acceptance of the DPAP devices did not meet expectations, the
Company's assessment resulted in a write-down of $2.2 million in 1996.
(3) Reflects expenses, consisting primarily of legal, investment banking and
special committee fees, incurred by the Company, prior to December 31,
1997, in the process of exploring strategic alternatives to enhance
shareholder value. As part of the Recapitalization, the Company, subsequent
to December 31, 1997, incurred expenses consisting primarily of legal,
investment bank and severance payments. Pro forma results for the year
ended December 31, 1997, the three months ended March 31, 1997 and 1998 and
the LTM ended March 31, 1998 exclude $1.7 million, $0.6 million, $5.0
million and $6.1 million, respectively, in Recapitalization and transaction
costs.
(4) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization. Management believes that EBITDA is generally
accepted as providing useful information regarding a company's ability to
service and/or incur debt. However, EBITDA should not be considered in
isolation or as a substitute for net income, cash flows or other income or
cash flow data prepared in accordance with generally accepted accounting
principles ("GAAP") or as a measure of a company's profitability or
liquidity.
(5) Adjusted EBITDA reflects EBITDA, adjusted to exclude the write-down of DPAP
inventories of $2.2 million for 1996 and Recapitalization and transaction
costs of $0.3 million, and $1.7 million for the years ended December 31,
1996 and 1997, respectively. Adjusted EBITDA should not be considered in
isolation or as a substitute for net income, cash flows or other income or
cash flow data prepared in accordance with GAAP or as a measure of a
company's profitability or liquidity.
(6) Adjusted EBITDA margin represents the ratio of Adjusted EBITDA to total
revenues.
(7) For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of income before income taxes and fixed charges. Fixed
charges consist of interest expense, which includes the amortization of
deferred debt issuance costs.
(8) For the purpose of determining the adjusted ratio of earnings to fixed
charges, earnings consist of income before income taxes, fixed charges,
write down of DPAP inventories and Recapitalization and transaction costs.
Fixed charges consist of interest expense, which includes the amortization
of deferred debt issuance costs.
(9) Pro forma cash interest expense is defined as interest expense less
amortization of debt issuance costs. Interest expense was calculated using
10.25% for the Notes, 8.25% for borrowings under the Revolving Credit
Facility and a 0.50% commitment fee on the unused portion thereunder. This
calculation also includes an estimate of interest expense related to
seasonal borrowings.
(10) Represents total current assets (excluding cash and cash equivalents) less
total current liabilities, excluding current portion of long-term debt.
14
<PAGE> 16
RISK FACTORS
Prospective holders of New Notes should consider carefully all of the
information set forth in this Prospectus and, in particular, should evaluate the
following risks before tendering their Old Notes in the Exchange Offer, although
the risk factors set forth below (other than "-- Consequences of Failure to
Exchange Old Notes") are generally applicable to the Old Notes as well as the
New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions in
the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon as
a consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless reregistered under the Securities Act, except pursuant
to an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register Old Notes under the Securities Act. See "The Exchange Offer --
Consequences of Exchanging Old Notes."
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
The Company has significant indebtedness. As of March 31, 1998, after
giving effect to the Recapitalization, the Company had $115.4 million of senior
indebtedness outstanding, which includes $15.4 million of secured indebtedness
and excludes unused and available commitments of $15.2 million under the
Revolving Credit Facility. See "Capitalization." The Company may incur
additional indebtedness in the future, including senior indebtedness, subject to
limitations imposed by the Indenture and the Revolving Credit Facility.
The level of the Company's indebtedness could have important consequences
to the holders of the Notes, including, but not limited to, the following: (i) a
substantial portion of the Company's cash flow from operations must be dedicated
to debt service and will not be available for other purposes; (ii) the Company's
ability to obtain additional debt financing in the future for working capital,
capital expenditures or acquisitions may be limited; and (iii) the Company's
level of indebtedness could limit its flexibility in reacting to changes in the
industry and economic conditions. Certain of the Company's competitors may
currently operate on a less leveraged basis and therefore could have
significantly greater operating and financing flexibility than the Company.
The Offering and other borrowings made as part of the Recapitalization
resulted in a significant increase in the Company's interest expense. The
Company's ability to make cash payments with respect to the Notes and to satisfy
or refinance its other debt obligations will depend upon its future operating
performance. The Company believes, based on current circumstances, that its cash
flow, together with available borrowings under the Revolving Credit Facility,
will be sufficient to permit it to service its debt requirements as they become
due for the foreseeable future. This belief assumes, among other things, that
the Company will succeed in implementing its business strategy and that there
will be no material adverse developments in the business, liquidity or capital
requirements of the Company. However, if the Company is unable to generate
sufficient cash flow from operations, it will be forced to adopt an alternate
strategy that may include actions such as reducing or delaying acquisitions and
capital expenditures, selling assets, restructuring or refinancing its
indebtedness, including the Notes, or seeking additional equity capital. There
can be no assurance that any of these strategies could be effected on
satisfactory terms, if at all. If the Company is unable to repay its debt,
including the Notes, at maturity, it may have to obtain alternative financing.
If it is unable to do so, the purchasers of the Notes could lose some or all of
their investment. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
15
<PAGE> 17
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture restricts, among other things, the Company's ability to:
incur additional indebtedness; pay dividends or make certain other restricted
payments; create certain liens; use proceeds from sales of assets and subsidiary
stock; and enter into certain sale and leaseback transactions and transactions
with affiliates. If the Company fails to comply with these covenants, it would
be in default under the Indenture and the principal and accrued interest on the
Notes would become due and payable. In addition, the Revolving Credit Facility
contains other and more restrictive covenants and prohibits the Company from
prepaying its indebtedness (including the Notes). The Revolving Credit Facility
also requires the Company to maintain specified financial ratios and satisfy
certain financial condition tests. The Company's ability to meet those financial
ratios and tests may be affected by events beyond its control and there can be
no assurance that the Company will meet those ratios and tests. A breach of any
of these covenants could result in a default under the Revolving Credit Facility
and/or the Indenture. If an event of default should occur under the Revolving
Credit Facility, the lenders can elect to declare all amounts of principal
outstanding under the Revolving Credit Facility, together with all accrued
interest, to be immediately due and payable. If the Company were unable to repay
those amounts, the lenders could proceed against the collateral granted to them
to secure that indebtedness. If the Revolving Credit Facility indebtedness were
to be accelerated, there can be no assurance that the assets of the Company
would be sufficient to repay in full that indebtedness and the other
indebtedness of the Company, including the Notes. Substantially all of the
assets of the Company are pledged as security under the Revolving Credit
Facility. See "Description of the Notes" and "Description of the Revolving
Credit Facility."
LIMITATIONS ON REPURCHASE OF NOTES UPON CHANGE OF CONTROL
Upon a Change of Control, each holder of Notes will have certain rights to
require the Company to repurchase all or a portion of such holder's Notes. See
"Description of the Notes." If a Change of Control were to occur, there can be
no assurance that the Company would have sufficient funds to pay the repurchase
price for all Notes tendered by the holders thereof and such failure would
result in an event of default under the Indenture. In addition, a Change of
Control would constitute a default under the Revolving Credit Facility and is
otherwise restricted by the Revolving Credit Facility and may be prohibited or
limited by, or create an event of default under, the terms of other agreements
relating to borrowings which the Company may enter into from time to time,
including other agreements relating to secured indebtedness. If the Company's
obligations under the Revolving Credit Facility or any other secured
indebtedness of the Company were accelerated due to a default thereunder, the
lenders thereunder would have a priority claim on the proceeds from the sale of
the collateral securing such Indebtedness.
UNCERTAINTIES AS TO HEALTH CARE REFORM; REIMBURSEMENT OF MEDICAL EQUIPMENT COSTS
There are widespread efforts to control health care costs in the United
States and abroad. As an example, the Balanced Budget Act of 1997 significantly
reduces the growth in federal spending on Medicare and Medicaid over the next
five years by reducing annual payment updates to hospitals, changing payment
systems for both skilled nursing facilities and home health care services from
cost-based to prospective payment systems, eliminating annual payment updates
for durable medical equipment, and allowing states greater flexibility in
controlling Medicaid costs at the state level. Until the Health Care Financing
Administration (the "HCFA") issues regulations implementing this legislation in
1998, the Company cannot reliably predict the timing of or the exact effect
which these initiatives could have on the pricing and profitability of, or
demand for, the Company's products. The Company also believes it is likely that
the efforts by governmental and private payors to contain costs through managed
care and other efforts and to reform health systems will continue in the future.
There can be no assurance that current or future initiatives will not have a
material adverse effect on the Company's business, financial condition or
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Industry Assessment," and
"Business -- Third Party Reimbursement."
Substantially all of the payments to the Company are received directly from
health care providers, rather than from private insurers, other third party
payors or governmental entities. Under current reimbursement
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<PAGE> 18
regulations, the Company is prohibited from billing the insurer or the patient
directly for services provided for hospital inpatients or outpatients. Payment
to health care providers by third party payors for the Company's services
depends substantially upon such payors' reimbursement policies. Consequently,
those policies have a direct effect on health care providers' ability to pay for
the Company's services and an indirect effect on the Company's level of charges.
Ongoing concerns about rising health care costs may cause more restrictive
reimbursement policies to be implemented in the future. Restrictions on
reimbursements to health care providers may affect such providers' ability to
pay for the services offered by the Company and could indirectly have a material
adverse effect on the Company's business, financial condition or results of
operations. See "Business -- Third Party Reimbursement."
GENERAL ABSENCE OF FORMALIZED AGREEMENTS WITH CUSTOMERS
The Company's Pay-Per-Use program offers customers a flexible approach to
obtaining movable medical equipment. The Company's customers are generally not
obligated to rent the Company's equipment under formalized agreements requiring
long-term commitments or otherwise fixing the rights and obligations of the
parties regarding matters such as billing, liability, warranty or use.
Therefore, the Company faces risks such as fluctuations in usage, inaccurate or
false reporting of usage by customers and disputes over liabilities related to
equipment use. See "Business -- Equipment Management Programs."
MEDICAL EQUIPMENT LIABILITY
Although the Company does not manufacture any medical equipment, the
Company's business entails the risk of claims related to the medical equipment
that it rents and services. The Company has not suffered a material loss due to
a claim. However, any such claims, if made, could have a material adverse effect
on the Company's business, financial condition or results of operations.
Although the Company believes that its current insurance coverage is adequate,
there can be no assurance that claims exceeding such coverage will not be made
or that the Company will be able to continue to obtain liability insurance at
acceptable levels of cost and coverage. See "Business -- Liability and
Insurance."
COMPETITION
The Company believes that the strongest competition to its programs is the
purchase alternative for obtaining movable medical equipment. Currently, many
health care providers view rental primarily as a means of meeting short-term or
peak supplemental needs, rather than as a long term alternative to purchase.
Although the Company believes that it is able to demonstrate the
cost-effectiveness of renting medical equipment on a long term basis, the
Company believes that many health care providers will continue to purchase a
substantial portion of their movable medical equipment. Additionally, in a
number of its geographic and product markets, the Company competes with one
principal competitor and various smaller equipment rental companies that may
compete primarily on the basis of price and who may be able to offer certain
customers lower prices depending on utilization levels and other factors. See
"Business -- Competition."
RELATIONSHIPS WITH KEY SUPPLIERS
The Company purchased its movable medical equipment from over 50 suppliers
and its related disposable medical supplies from over 55 suppliers in 1997. The
Company's five largest suppliers of movable medical equipment, which supplied
approximately 70% of the Company's direct movable medical equipment purchases
for 1997 are: Nellcor Puritan Bennett Inc., Alaris Medical Systems Inc., The
Kendall Company, Abbott Laboratories, Inc. and Baxter Healthcare Corporation.
Adverse developments concerning key suppliers or the Company's relationships
with them could have a material adverse effect on the Company's business,
financial condition or results of operations. See "Business -- Operations" and
"-- Sales of Disposable Products."
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FRAUDULENT CONVEYANCE RISKS
The obligations of the Company under the Notes may be subject to review
under relevant federal and state fraudulent conveyance laws if a bankruptcy case
or a lawsuit (including in circumstances where bankruptcy is not involved) is
commenced by or on behalf of any unpaid creditor of the Company or a
representative of the Company's creditors. If a court in such a lawsuit were to
find that, at the time the Company issued the Notes, the Company (i) intended to
hinder, delay or defraud any existing or future creditor or contemplated
insolvency with a design to prefer one or more creditors to the exclusion in
whole or in part of others or (ii) did not receive fair consideration or
reasonably equivalent value for issuing such Notes and the Company (a) was
insolvent; (b) was rendered insolvent by reason of such incurrence; (c) was
engaged in a business or transaction for which the assets remaining with the
Company constituted unreasonably small capital; or (d) intended to incur, or
believed that it would incur, debts beyond its ability to pay such debts as they
matured, such court could avoid the Company's obligations thereunder, and direct
the return of any amounts paid thereunder to the Company or to a fund for the
benefit of its creditors. Alternatively, in such event, claims of the holders of
such Notes could be subordinated to claims of the other creditors of the
Company.
The measure of insolvency used by a court will vary depending upon the law
of the jurisdiction being applied. Generally, however, a company will be
considered insolvent for these purposes if at the time it incurs indebtedness,
either (i) the fair market value (or fair salable value) of its assets is less
than the amount required to pay its total existing debts and liabilities
(including the probable liability on contingent liabilities) as they become
absolute and matured or (ii) it is incurring debts beyond its ability to pay as
such debts become due.
The Company believes that it will receive fair consideration and reasonably
equivalent value for the Notes and that at the time of, and after giving effect
to, the incurrence of the indebtedness and obligations evidenced by the Notes,
the Company (i) will (A) neither be insolvent nor rendered insolvent thereby,
(B) have sufficient capital to operate its business effectively and (C) be
incurring debts within its ability to pay or refinance as the same mature or
become due and (ii) will have sufficient resources to satisfy any probable money
judgment against it in any pending action. In reaching the foregoing
conclusions, the Company has relied upon its analysis of internal cash flow
projections and estimated values of assets and liabilities of the Company. There
can be no assurance, however, that such analysis will prove to be correct or
that a court passing on such questions would reach the same conclusions.
Additionally, under federal bankruptcy or applicable state insolvency law,
if certain bankruptcy or insolvency proceedings are initiated by or against the
Company within 90 days (or a longer period if the holder of the Notes was deemed
to be an "insider") after any payment by the Company with respect to the Notes
or if the Company anticipated becoming insolvent at the time of such payment,
all or a portion of such payment could be avoided as a preferential transfer and
the recipient of such payment could be required to return such payment.
DEPENDENCE ON KEY PERSONNEL
The Company's business is managed by a number of key personnel, the loss of
whom could have a material adverse effect on the Company's business, financial
condition or results of operations. In addition, the Company believes that its
future success will depend greatly on its continued ability to attract and
retain highly skilled and qualified personnel. The Company has entered into
employment agreements with David E. Dovenberg, Gerald L. Brandt, Robert H.
Braun, Randy C. Engen, Michael R. Johnson and Gary L. Preston. See
"Management -- Employment Agreements." However, there can be no assurance that
key personnel will continue to be employed by the Company after the expiration
of such employment agreements or that the Company will be able to attract and
retain qualified personnel in the future. Failure by the Company to attract or
retain such personnel could have a material adverse effect on the Company's
business, financial condition or results of operations.
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<PAGE> 20
DEPENDENCE ON SALES REPRESENTATIVES AND SERVICE SPECIALISTS
The Company believes that to be successful it must continue to hire, train
and retain highly qualified sales representatives and service specialists. The
Company's sales growth has been supported by hiring and developing new sales
representatives and adding, through acquisitions, established sales
representatives whose existing customers generally have become customers of the
Company. Due to the relationships developed between the Company's sales
representatives and its customers, upon the departure of a sales representative
the Company faces the risk of losing the representative's customers, especially
if the representative were to act as a representative of one of the Company's
competitors. In addition, there has been, and the Company expects that there
will continue to be, intense competition in its industry for divisional managers
and experienced sales representatives. There can be no assurance that the
Company will be able to retain or attract qualified personnel in the future.
Failure by the Company to attract or retain such personnel could have a material
adverse effect on the Company's business, financial condition or results of
operations. From February 10, 1997 through September 22, 1997, the Company
experienced a gradual loss of employees as a result of uncertainties regarding
district office closures and administrative consolidation in connection with the
MEDIQ Transaction. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- MEDIQ Transaction."
EFFECTIVE SUBORDINATION OF THE NOTES
The Old Notes are, and the New Notes will be, general unsecured obligations
of the Company that are effectively subordinated to all secured indebtedness of
the Company to the extent of the value of the assets securing such indebtedness.
As of March 31, 1998, after giving effect to the Recapitalization, the Company
had $15.4 million of secured indebtedness, excluding unused and available
commitments of $15.2 million under the Revolving Credit Facility. Borrowings
under the Revolving Credit Facility will be secured by substantially all of the
assets of the Company. The Indenture limits, but does not prohibit, the ability
of the Company to incur additional secured indebtedness.
CONTROL BY INVESTORS
The Company is controlled by Childs, which, with its affiliates,
beneficially owns shares representing approximately 80% of the fully diluted
common equity in the Company. Accordingly, Childs and its affiliates have the
power to elect the Company's board of directors, appoint new management and
cause the approval of any action requiring the approval of the holders of the
Common Stock, including adopting amendments to the Company's Articles of
Incorporation and approving mergers or sales of substantially all of the
Company's assets. The directors elected by Childs have the authority to make
decisions affecting the capital structure of the Company, including the issuance
of additional indebtedness and the declaration of dividends.
LACK OF ESTABLISHED MARKET FOR THE NOTES
The New Notes are being offered to the holders of the Old Notes. The Old
Notes were issued on February 25, 1998 to a small number of institutional
investors and institutional accredited investors and are eligible for trading in
the Private Offering, Resale and Trading through Automated Linkages ("PORTAL")
Market, the National Association of Securities Dealers' screenbased, automated
market for trading of securities eligible for resale under Rule 144A. To the
extent that Old Notes are tendered and accepted in the Exchange Offer, the
trading market for the remaining untendered Old Notes could be adversely
affected. Prior to the Exchange Offer there has been no established trading
market for the Old Notes or the New Notes. Although the Initial Purchaser has
informed the Company that it currently intends to make a market in the New
Notes, it is not obligated to do so and any such market making may be
discontinued at any time without notice. Accordingly, there can be no assurance
regarding the future development of an active market for the New Notes, or the
ability of holders of the New Notes to sell their New Notes or the price at
which such holders may be able to sell their New Notes. The Company does not
intend to apply for listing or quotation of the New Notes on any securities
exchange or stock market. To the extent that a market for the New Notes does
develop, the New Notes could trade at a discount from their principal amount.
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<PAGE> 21
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of management as well as
assumptions made by, and information currently available to, management and
which involve risks and uncertainties. The Company's actual results may differ
materially with those discussed in such forward-looking statements. Such
forward-looking statements are principally contained in the sections "Prospectus
Summary," "Business -- Company Strengths," "Business -- Growth Strategy,"
"Business -- Operations," "Business -- Competition" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and include,
without limitation, the Company's expectations and estimates as to development
of its services and programs and expansion of its customer base and into new
markets, future financial performance, including growth in revenues and earnings
and the effect on the Company's finances of new strategic alliances and
strategic acquisitions, cash flows from operations, positive impact upon results
and operations of the Recapitalization and related change in management, capital
expenditures, the availability of funds from credit facilities, the sale of
securities, and the cost and timely implementation of the Company's Year 2000
compliance modifications. In addition, in those and other portions of this
Prospectus, the words "believes," "does not believe," "no reason to believe,"
"expects," "plans," "intends," "estimates," "anticipated" or "anticipates" and
similar expressions, as they relate to the Company or the Company's management,
are intended to identify forward-looking statements. Such statements reflect the
current views of the Company with respect to future events and are subject to
certain risks, uncertainties and assumptions, including the risk factors
described in this Prospectus. The following factors, among others, could cause
the Company's actual results to differ materially from those expressed in any
forward-looking statements made by the Company: (i) adverse regulatory
developments affecting, among other things, the ability of the Company's
customers to obtain reimbursement of payments made to the Company; (ii) changes
and trends in customer preferences, including increased purchasing of movable
medical equipment; (iii) difficulties or delays in the Company's continued
expansion into certain markets and development of new markets; (iv)
unanticipated costs or difficulties or delays in implementing the components of
the Company's strategy and plan; (v) loss of or restrictions imposed by, a
significant supplier; (vi) availability, terms and deployment of capital,
including the ability to service or refinance indebtedness; (vii) effects of and
changes in economic conditions, including inflation and monetary conditions;
(viii) actions by competitors; (ix) availability and ability to retain qualified
personnel; and (x) unanticipated costs or difficulties or delays in implementing
the Company's Year 2000 compliance modifications. See "Risk Factors." The
Company assumes no responsibility to update forward-looking information
contained herein.
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THE RECAPITALIZATION
The Recapitalization was effected through the Merger. In connection with
the Recapitalization: (i) The Company's existing shareholders (other than the
Management Investors) received, in consideration for the cancellation of
approximately 5.3 million shares of Common Stock and options to purchase
approximately 344,000 shares of Common Stock, cash in the aggregate amount of
approximately $84.7 million (net of aggregate option exercise price); (ii) the
Company repaid outstanding borrowings of approximately $35.5 million under
existing loan agreements; (iii) the Company paid estimated fees and expenses of
$11.5 million related to the Recapitalization; and (iv) the Company paid
approximately $3.3 million in severance payments to certain non-continuing
members of management. In order to finance the Recapitalization, the Company:
(i) received an equity contribution of approximately $21.3 million in cash from
Childs and affiliates and the Management Investors; (ii) issued $100.0 million
in aggregate principal amount of Old Notes in the Offering; and (iii) borrowed
approximately $14.3 million under the Revolving Credit Facility. In addition,
the Management Investors retained their existing shares of capital stock and
options which have a total value of $3.7 million based upon the Merger
Consideration and represent, together with new investments by such persons,
approximately 20% of the capital stock of the Company on a pro forma, fully
diluted basis. Following the Recapitalization, Childs and affiliates and the
Management Investors hold securities representing approximately 80% and 20%,
respectively, of the outstanding voting stock of the Company on a fully diluted
basis. See "Management" and "Principal Shareholders."
The Merger was effected pursuant to the Merger Agreement which provided
that, subject to approval by the shareholders of the Company and the receipt of
financing and the satisfaction or waiver of the other conditions to the Merger,
(i) Merger Sub would be merged with and into the Company, with the Company as
the surviving corporation, and (ii) each outstanding share of Common Stock
(other than shares owned directly or indirectly by Childs or the Company, shares
in respect of which appraisal rights are properly exercised and shares held by
the Management Investors), together with certain associated shareholders'
rights, would be converted into the right to receive the Merger Consideration.
As of the effective time of the Recapitalization, the shares of the Common Stock
were no longer quoted on The Nasdaq Stock Market, and the registration of the
Common Stock under the Exchange Act was terminated.
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
The Old Notes were sold by the Company on February 25, 1998 to the Initial
Purchaser pursuant to a Purchase Agreement, dated February 23, 1998, entered
into by and among the Company and the Initial Purchaser. Upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal (which together constitute the Exchange Offer), the
Company will accept for exchange Old Notes which are properly tendered on or
prior to the Expiration Date and not withdrawn as permitted below. As used
herein, the term "Expiration Date" means 5:00 p.m., New York City time, on
, 1998; provided, however, that if the Company in its sole
discretion, has extended the period of time for which the Exchange Offer is
open, the term "Expiration Date" means the latest time and date to which the
Exchange Offer is extended.
As of the date of this Prospectus, $100,000,000 aggregate principal amount
of the Old Notes was outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about , 1998, to all holders
of Old Notes known to the Company. The Company's obligation to accept Old Notes
for exchange pursuant to the Exchange Offer is subject to certain conditions as
set forth below under "-- Certain Conditions to the Exchange Offer. "
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Old Notes, by giving oral or
written notice of such extension to the holders thereof as described below.
During any such extension, all Old Notes previously tendered will remain subject
to the Exchange Offer and may be accepted for exchange by the Company. Any Old
Notes not accepted for exchange for any reason will be returned without expense
to the tendering holder thereof as promptly as practicable after the expiration
or termination of the Exchange Offer.
Old Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 and any integral multiple thereof.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not therefore accepted for
exchange, upon the occurrence of any of the events specified below under
"-- Certain Conditions to the Exchange Offer." The Company will give oral or
written notice of any extension, amendment, non-acceptance or termination to the
holders of the Old Notes as promptly as practicable, such notice in the case of
any extension to be issued by means of a press release or other public
announcement no later than 9:00 a.m., New York City time, on the next business
day after the previously scheduled Expiration Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a holder who wishes to tender
Old Notes for exchange pursuant to the Exchange Offer must transmit either (i) a
properly completed and duly executed Letter of Transmittal, including all other
documents required by such Letter of Transmittal, to First Trust National
Association, as Exchange Agent, at the address set forth below under
"-- Exchange Agent" on or prior to the Expiration Date, or (ii) if such Old
Notes are tendered pursuant to the procedures for book-entry transfer set forth
below, a holder tendering Old Notes may transmit an Agent's Message (as defined
herein) to the Exchange Agent in lieu of the Letter of Transmittal on or prior
to the Expiration Date. In addition, either (i) certificates for such Old Notes
must be received by the Exchange Agent along with the Letter of Transmittal,
(ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Old Notes, if such procedure is available, into the
Exchange Agent's account at The Depository Trust Company (the "Book-Entry
Transfer Facility") pursuant to the procedure for book-entry transfer described
below, along with the Letter of Transmittal or an Agent's Message, as the case
may be, must be received by the Exchange Agent prior to the
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Expiration Date, or (iii) the holder must comply with the guaranteed delivery
procedures described below. The term "Agent's Message" means a message,
transmitted to the Book-Entry Transfer Facility and received by the Exchange
Agent and forming a part of the Book-Entry Confirmation, which states that the
Book-Entry Transfer Facility has received an express acknowledgment from the
tendering Participant (as defined herein) that such Participant has received and
agrees to be bound by the Letter of Transmittal and the Company may enforce the
Letter of Transmittal against such Participant.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL OR AGENT'S
MESSAGE AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF
TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined herein). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust company
having an office or correspondent in the United States (collectively, "Eligible
Institutions"). If Old Notes are registered in the name of a person other than a
signer of the Letter of Transmittal, the Old Notes surrendered for exchange must
be endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Company in its
sole discretion, duly executed by, the registered Holder with the signature
thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right to waive
any defects or irregularities or conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including the
right to waive the ineligibility of any holder who seeks to tender Old Notes in
the Exchange Offer). The interpretation of the terms and conditions of the
Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the Letter of Transmittal and the instructions
thereto) by the Company shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
for exchange must be cured within such reasonable period of time as the Company
shall determine. Neither the Company, the Exchange Agent nor any other person
shall be under any duty to give notification of any defect or irregularity with
respect to any tender of Old Notes for exchange, nor shall any of them incur any
liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than
the registered holder or holders of Old Notes, such Old Notes must be endorsed
or accompanied by appropriate powers of attorney, in either case signed exactly
as the name or names of the registered holder or holders that appear on the Old
Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
By tendering, each holder will represent to the Company that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the person receiving such New Notes,
whether or not such person is the holder, and that neither the holder nor such
other person has any arrangement or understanding with any person to participate
in the distribution of the New
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Notes. In the case of a holder that is not a broker-dealer, each such holder, by
tendering, will also represent to the Company that such holder is not engaged
in, or intends to engage in, a distribution of the New Notes. If any holder or
any such other person is an "affiliate," as defined under Rule 405 of the
Securities Act, of the Company, or is engaged in or intends to engage in or has
an arrangement or understanding with any person to participate in a distribution
of such New Notes to be acquired pursuant to the Exchange Offer, such holder or
any such other person (i) could not rely on the applicable interpretations of
the staff of the Commission and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. Each broker-dealer that receives New Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution." The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of the
Old Notes. See "-- Certain Conditions to the Exchange Offer." For purposes of
the Exchange Offer, the Company shall be deemed to have accepted properly
tendered Old Notes for exchange when, as and if the Company has given oral or
written notice thereof to the Exchange Agent, with written confirmation of any
oral notice to be given promptly thereafter.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount at maturity equal to that of the
surrendered Old Note. Interest on the New Notes will accrue from February 25,
1998, the date of original issuance of the Old Notes. If the Exchange Offer is
not consummated by September 23, 1998, the interest rate on the Old Notes from
and including such date until but excluding the date of consummation of the
Exchange Offer will increase by 0.5%. Payments of such interest, if any, on Old
Notes in exchange for which the New Notes were issued will be made to the
persons who, at the close of business on March 1 or September 1 next preceding
the interest payment date, are registered holders of such Old Notes if such
record date occurs prior to such exchange, or are registered holders of the New
Notes if such record date occurs on or after the date of such exchange, even if
Notes are cancelled after the record date and on or before the interest payment
date.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents or, in the case of a Book-Entry
Confirmation, an Agent's Message in lieu thereof. If any tendered Old Notes are
not accepted for any reason set forth in the terms and conditions of the
Exchange Offer or if Old Notes are submitted for a greater principal amount than
the holder desired to exchange, such unaccepted or non-exchanged Old Notes will
be returned without expense to the tendering holder thereof (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the Book-Entry Transfer Facility pursuant to the book-entry procedures described
below, such non-exchanged Old Notes will be credited to an account maintained
with such Book-Entry Transfer Facility) as promptly as practicable after the
expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected
24
<PAGE> 26
through book-entry transfer at the Book-Entry Transfer Facility, the Letter of
Transmittal or facsimile thereof, with any required signature guarantees, or an
Agent's Message in lieu of a Letter of Transmittal, and any other required
documents, must, in any case, be transmitted to and received by the Exchange
Agent at one of the addresses set forth below under "-- Exchange Agent" on or
prior to the Expiration Date or the guaranteed delivery procedures described
below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent received from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Old Notes and the amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that within three New
York Stock Exchange ("NYSE") trading days after the date of execution of the
Notice of Guaranteed Delivery, the certificates for all physically tendered Old
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent and (iii) the
certificates for all physically tendered Old Notes, in proper form for transfer,
or a Book-Entry Confirmation, as the case may be, and all other documents
required by the Letter of Transmittal, are received by the Exchange Agent within
three NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under "--
Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes to
be withdrawn (including the principal amount of such Old Notes), and (where
certificates for Old Notes have been transmitted) specify the name in which such
Old Notes are registered, if different from that of the withdrawing holder. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates the withdrawing
holder must also submit the serial numbers of the particular certificates to be
withdrawn and signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such holder is an Eligible Institution. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes
and otherwise comply with the procedures of such facility. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company, whose determination shall be final and
binding on all parties. Any Old Notes so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the Exchange Offer. Any Old
Notes which have been tendered for exchange but which are not exchanged for any
reason will be returned to the holder thereof without cost to such holder (or,
in the case of Old Notes tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described above, such Old Notes will be credited to an
account maintained with such Book-Entry Transfer Facility for the Old Notes) as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following one
of the procedures described under "-- Procedures for Tendering Old Notes" above
at any time on or prior to the Expiration Date.
25
<PAGE> 27
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue New Notes in exchange
for, any Old Notes and may terminate or amend the Exchange Offer, if at any time
before the acceptance of such Old Notes for exchange or the exchange of the New
Notes for such Old Notes, any of the following events shall occur:
(a) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission, (i) seeking to restrain
or prohibit the making or consummation of the Exchange Offer or any other
transaction contemplated by the Exchange Offer, or assessing or seeking any
damages as a result thereof, or (ii) resulting in a material delay in the
ability of the Company to accept for exchange or exchange some or all of
the Old Notes pursuant to the Exchange Offer; or any statute, rule,
regulation, order or injunction shall be sought, proposed, introduced,
enacted, promulgated or deemed applicable to the Exchange Offer or any of
the transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government, governmental authority,
agency or court, domestic or foreign, that in the reasonable judgment of
the Company might directly or indirectly result in any of the consequences
referred to in clauses (i) or (ii) above or, in the reasonable judgment of
the Company, might result in the holders of New Notes having obligations
with respect to resales and transfers of New Notes which are greater than
those described in the interpretation of the Commission referred to on the
cover page of this Prospectus, or would otherwise make it inadvisable to
proceed with the Exchange Offer; or
(b) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any national
securities exchange or in the over-the-counter market, (ii) any limitation
by any governmental agency or authority which may adversely affect the
ability of the Company to complete the transactions contemplated by the
Exchange Offer, (iii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or any
limitation by any governmental agency or authority which adversely affects
the extension of credit or (iv) a commencement of a war, armed hostilities
or other similar international calamity directly or indirectly involving
the United States, or, in the case of any of the foregoing existing at the
time of the commencement of the Exchange Offer, a material acceleration or
worsening thereof; or
(c) any change (or any development involving a prospective change)
shall have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of the Company that, in the reasonable judgment of the Company,
is or may be adverse to the Company, or the Company shall have become aware
of facts that, in the reasonable judgment of the Company, have or may have
adverse significance with respect to the value of the Old Notes or the New
Notes;
which in the reasonable judgment of the Company in any case, and regardless of
the circumstances (including any action by the Company) giving rise to any event
described above, makes it inadvisable to proceed with the Exchange Offer and/or
with such acceptance for exchange or with such exchange.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indentures under the Trust Indenture Act of 1939 (the
"TIA").
26
<PAGE> 28
EXCHANGE AGENT
First Trust National Association has been appointed as the Exchange Agent
for the Exchange Offer. All executed Letters of Transmittal should be directed
to the Exchange Agent at one of the addresses set forth below. Questions and
requests for assistance, requests for additional copies of this Prospectus or of
the Letter of Transmittal and requests for Notices of Guaranteed Delivery should
be directed to the Exchange Agent addressed as follows:
Delivery To: First Trust National Association, Exchange Agent
<TABLE>
<S> <C>
By Mail: By Overnight Courier or Hand:
First Trust National Association First Trust National Association
Corporate Trust 180 East 5th Street
P.O. Box 64485 4th Floor Window
St. Paul, Minnesota 55101-9549 St. Paul, Minnesota 55101
Attention: Specialized Finance
</TABLE>
By Facsimile:
(612) 244-1537
Confirm by Telephone:
(612) 973-5800
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers, or others
soliciting acceptances of the Exchange Offer.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
$ .
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
the Company to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
CONSEQUENCES OF EXCHANGING OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions in
the Indentures regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon as
a consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register Old Notes under the Securities Act. See "Description of the
Notes -- Registration Rights." Based on interpretations by the staff of the
Commission, as set forth in no-action letters issued to third parties, the
Company believes that New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold or otherwise
transferred by holders thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities
27
<PAGE> 29
Act, provided that such New Notes are acquired in the ordinary course of such
holders' business and such holders have no arrangement or understanding with any
person to participate in the distribution of such New Notes. However, the
Company does not intend to request the Commission to consider, and the
Commission has not considered, the Exchange Offer in the context of a no-action
letter and there can be no assurance that the staff of the Commission would make
a similar determination with respect to the Exchange Offer as in such other
circumstances. Each holder, other than a broker-dealer, must acknowledge that it
is not engaged in, and does not intend to engage in, a distribution of New Notes
and has no arrangement or understanding to participate in a distribution of New
Notes. If any holder is an affiliate of the Company, is engaged in or intends to
engage in or has any arrangement or understanding with respect to the
distribution of the New Notes to be acquired pursuant to the Exchange Offer,
such holder (i) could not rely on the applicable interpretations of the staff of
the Commission and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. See "Plan of Distribution." In addition, to comply with the
state securities laws, the New Notes may not be offered or sold in any state
unless they have been registered or qualified for sale in such state or an
exemption from registration or qualification is available and is complied with.
The offer and sale of the New Notes to "qualified institutional buyers" (as such
term is defined under Rule 144A of the Securities Act) is generally exempt from
registration or qualification under the state securities laws. The Company
currently does not intend to register or qualify the sale of the New Notes in
any state where an exemption from registration or qualification is required and
not available.
28
<PAGE> 30
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. The net
proceeds of the Offering were used to provide a portion of the funds necessary
to consummate the Recapitalization and to pay fees and expenses related thereto.
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
as of March 31, 1998 on an actual basis. This table should be read in
conjunction with "The Recapitalization," "Description of the Notes,"
"Description of the Revolving Credit Facility" and the Financial Statements.
<TABLE>
<CAPTION>
AS OF
MARCH 31,
1998
-----------
ACTUAL
-----------
(DOLLARS IN
THOUSANDS)
<S> <C>
Total debt:
Existing credit facility.................................. $ --
Revolving Credit Facility(1).............................. 14,850
Capital Leases............................................ 523
Notes offered hereby...................................... 100,000
--------
Total debt............................................. 115,373
Total shareholders' equity (deficiency)..................... (34,951)
--------
Total capitalization.............................. $ 80,422
========
</TABLE>
- ---------------
(1) As of March 31, 1998, after giving effect to the Recapitalization, the
Company had availability of $15.2 million under the Revolving Credit
Facility. See "Description of the Revolving Credit Facility."
29
<PAGE> 31
UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA
The following unaudited pro forma condensed financial data are based on the
historical financial statements of the Company included elsewhere in this
Prospectus, adjusted to give effect to the pro forma adjustments described in
the notes thereto. The unaudited pro forma condensed statements of income gives
effect to the Recapitalization as though it had occurred on January 1, 1997.
The pro forma adjustments are based upon available data and certain
assumptions that the Company believes are reasonable. The unaudited pro forma
condensed financial data are not necessarily indicative of the Company's results
of operations that might have occurred had the aforementioned transactions been
completed as of the dates indicated above and do not purport to represent what
the Company's results of operations might be for any future period or date. The
unaudited pro forma condensed financial data should be read in conjunction with
the Financial Statements and the information contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Offering Memorandum.
The transactions are accounted for as a leveraged recapitalization,
pursuant to which all assets, liabilities and shareholders' equity of the
Company are carried over at historical cost basis.
30
<PAGE> 32
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR THE
HISTORICAL RECAPITALIZATION PRO FORMA
---------- ---------------- ---------
<S> <C> <C> <C>
Revenues:
Equipment rentals.................................... $54,489 $54,489
Sales of supplies and equipment, and other........... 5,586 5,586
------- -------
Total revenues.................................... 60,075 60,075
------- -------
Costs of rentals and sales:
Cost of equipment rentals............................ 13,577 13,577
Rental equipment depreciation........................ 14,435 14,435
Cost of supplies and equipment sales................. 3,838 3,838
------- -------
Total costs of rentals and sales.................. 31,850 31,850
------- -------
Gross profit...................................... 28,225 28,225
Selling, general and administrative.................. 18,448 $ (986)(a) 17,462
Recapitalization and transaction costs............... 1,719 (1,719)(b) --
------- ------- -------
Operating income (loss)........................... 8,058 (2,705) 10,763
Interest expense..................................... 3,012 9,246(c) 12,258
------- ------- -------
Income (loss) before provision (benefit) for income
taxes................................................ 5,046 (6,514) (1,495)
------- ------- -------
Provision (benefit) for income taxes................... 2,347 (2,747)(d) (400)
------- ------- -------
Net income (loss)................................. $ 2,699 $(3,794) $(1,095)
======= ======= =======
</TABLE>
See accompanying notes to unaudited pro forma condensed statement of income.
31
<PAGE> 33
UNIVERSAL HOSPITAL SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Revenues:
Equipment rentals....................................... $14,523 $14,523
Sales of supplies and equipment, and other.............. 1,439 1,439
------- -------
Total revenues....................................... 15,962 15,962
------- -------
Costs of rentals and sales:
Cost of equipment rentals............................... 3,254 3,254
Rental equipment depreciation........................... 3,400 3,400
Cost of supplies and equipment sales.................... 1,005 1,005
------- -------
Total costs of rentals and sales..................... 7,659 7,659
------- -------
Gross profit......................................... 8,303 8,303
Selling, general and administrative..................... 5,243 (247)(a) 4,996
Recapitalization and transaction costs.................. 642 (642)(b) --
------- ------- -------
Operating income..................................... 2,418 889 3,307
Interest expense........................................ 772 2,353(c) 3,125
------- ------- -------
Income (loss) before provision (benefit) for income
taxes................................................... 1,646 (1,464) 182
Provision (benefit) for income taxes...................... 757 (675)(d) 82
------- ------- -------
Net income (loss).................................... $ 889 $ (789) $ 100
======= ======= =======
</TABLE>
32
<PAGE> 34
UNIVERSAL HOSPITAL SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Revenues:
Equipment rentals....................................... $15,137 $15,137
Sales of supplies and equipment, and other.............. 1,297 1,297
------- -------
Total revenues....................................... 16,434 16,434
------- -------
Costs of rentals and sales:
Cost of equipment rentals............................... 3,619 3,619
Rental equipment depreciation........................... 3,825 3,825
Cost of supplies and equipment sales.................... 824 824
------- -------
Total costs of rentals and sales..................... 8,268 8,268
------- -------
Gross profit......................................... 8,166 8,166
Selling, general and administrative..................... 4,984 (176)(a) 4,808
Recapitalization and transaction costs.................. 5,028 (5,028)(b) --
------- ------- -------
Operating (loss) income................................. (1,846) (5,204) 3,358
Interest expense........................................ 1,516 1,516(c) 3,032
------- ------- -------
(Loss) income before (benefit) provision for income taxes
and extraordinary charge................................ (3,362) 3,688 326
(Benefit) provision for income taxes...................... (340) 487(d) 147
------- ------- -------
(Loss) income before extraordinary charge................. $(3,022) $ 3,201 $ 179
Extraordinary charge, net of tax benefit of $1,300........ $ 1,863 $(1,863)(e) --
------- ------- -------
Net (loss) income......................................... $(4,885) $ 5,064 $ 179
======= ======= =======
</TABLE>
33
<PAGE> 35
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
The following Notes to Unaudited Pro Forma Condensed Statements of Income
describe adjustments to the Company's historical statements of income for the
year ended December 31, 1997 and for the three months ended March 31, 1998 and
1997 to give effect to the Recapitalization as thought it had occurred on
January 1, 1997. Other than the pro forma adjustments described in Notes (a),
(b) and (e) below (net of income tax effect, as applicable), the Company does
not expect any other material nonrecurring charges resulting directly from the
Recapitalization which will be included in the income of the Company within the
12 months following the Recapitalization.
(a) In connection with the Recapitalization, seven of the eleven members of
senior management did not continue employment with the Company after the
completion of the transaction. The Company's former Chief Financial Officer
(the current Chief Executive Officer) and five other senior managers
entered into employment agreements with the Company as part of the
Recapitalization and will comprise the Company's senior management team at
compensation levels that are less than the compensation level of the
members of senior management prior to the Recapitalization. The adjustments
reflect the resulting decrease in the senior management team compensation
(salary and fringe benefits) of $1,226, $307 and $213 for the year ended
December 31, 1997 and the three month periods ended March 31, 1997 and
March 31, 1998, respectively. The pro forma condensed statement of income
does not make any adjustment for accrued bonuses for all eleven members of
senior management totaling $220, $220 and $374 for the year ended
December 31, 1997 and the three month periods ended March 31, 1997 and
1998, respectively. The adjustment also reflects Childs Associates annual
management fee of $240 for the year ended December 31, 1997 and $60,000 for
the three months ended March 31, 1997 and 1998.
(b) Reflects Recapitalization and transaction costs consisting primarily of
legal, investment banking and special committee fees, incurred by the
Company in connection with the Recapitalization and the process of
exploring strategic alternatives to enhance shareholder value prior to the
date of the Recapitalization.
(c) Reflects the net change in interest expense as a result of the
Recapitalization:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS THREE MONTHS
DECEMBER 31, ENDED ENDED
1997 MARCH 31, 1997 MARCH 31, 1998
------------ -------------- --------------
<S> <C> <C> <C>
Interest expense related to the Notes offered
hereby.......................................... $10,250 $2,563 $1,608
Interest expense related to the Revolving Credit
Facility and capital leases..................... 973 307 186
Elimination of historical interest expense related
to debt retired using the proceeds of the
Offering........................................ (3,012) (772) (440)
Amortization of deferred placement costs incurred
in the Offering, over the 10-year term of the
Notes and the 5-year term of the Revolving
Credit Facility................................. 916 229 144
Commitment fee of 0.5% on unused portion of
Revolving Credit Facility....................... 94 20 12
Annual administrative agent's fee, related to the
Revolving Credit Facility....................... 25 6 6
------- ------ ------
Net increase in interest expense.................. $ 9,246 $2,353 $1,516
======= ====== ======
</TABLE>
Interest expense and commitment fee related to the Revolving Credit
Facility is determined based on monthly average borrowings (including
seasonal borrowings) of $11,267, $14,300 and $14,300 for the year ended
December 31, 1997 and the three month periods ended March 31, 1997 and
1998, respectively. Interest expense was calculated using the following
rates: (a) Revolving Credit Facility -- 8.25%, (b) Notes -- 10.25%.
(d) Represents the reduction in income to record the income tax benefit related
to pro forma adjustments, computed using a marginal income tax rate
consistent with the historic effective rate for those periods.
(e) Represents the elimination of an extraordinary charge of $1,863 net of tax
benefit of $1,300 for the write-off of unamortized deferred financing fees
and prepayment penalty related to debt retired using proceeds of the
offering.
34
<PAGE> 36
SELECTED HISTORICAL FINANCIAL DATA
The selected financial data set forth below (excluding rental equipment
units) for and as of each of the years in the five year period ended December
31, 1997 are derived from the Company's audited financial statements. The
selected financial data for the three months ended March 31, 1997 and 1998 are
derived from the Company's unaudited interim financial statements, which in the
opinion of management, includes all normal, recurring adjustments (except for
recapitalization and transaction costs) necessary to state fairly the data
included therein in accordance with GAAP for interim financial information.
Interim results are not necessarily indicative of the results to be expected for
the entire fiscal 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 and statistical
information included elsewhere in this Offering Memorandum, including the
information contained under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- ------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Equipment rentals.............................. $ 36,162 $ 38,980 $ 45,870 $ 50,743 $ 54,489 $14,523 $ 15,137
Sales of supplies and equipment, and other..... 9,993 8,309 7,166 6,198 5,586 1,439 1,297
-------- -------- -------- -------- -------- ------- --------
Total revenues................................... 46,155 47,289 53,036 56,941 60,075 15,962 16,434
-------- -------- -------- -------- -------- ------- --------
Costs of rentals and sales:
Cost of equipment rentals...................... 9,052 10,018 11,841 13,332 13,577 3,254 3,619
Rental equipment depreciation.................. 8,699 9,527 10,800 12,603 14,435 3,400 3,825
Cost of supplies and equipment sales........... 7,872 6,419 5,352 4,423 3,838 1,005 824
Write-down of DPAP inventories(1).............. -- -- -- 2,213 -- -- --
-------- -------- -------- -------- -------- ------- --------
Total costs of rentals and sales................. 25,623 25,964 27,993 32,571 31,850 7,659 8,268
-------- -------- -------- -------- -------- ------- --------
Gross profit..................................... 20,532 21,325 25,043 24,370 28,225 8,303 8,166
Selling, general and administrative.............. 15,769 16,561 18,560 19,695 18,448 5,243 4,984
Recapitalization and transaction costs(2)........ -- -- -- 306 1,719 642 5,028
-------- -------- -------- -------- -------- ------- --------
Operating income................................. 4,763 4,764 6,483 4,369 8,058 2,418 (1,846)
-------- -------- -------- -------- -------- ------- --------
Interest expense................................. 1,071 1,268 1,784 2,518 3,012 772 1,516
-------- -------- -------- -------- -------- ------- --------
Income (loss) before provision for income taxes
and extraordinary charge....................... 3,692 3,496 4,699 1,851 5,046 1,646 (3,362)
-------- -------- -------- -------- -------- ------- --------
Provision (benefit) for income taxes............. 1,522 1,499 1,949 919 2,347 757 (340)
-------- -------- -------- -------- -------- ------- --------
Income (loss) before extraordinary charge........ 2,170 1,997 2,750 932 2,699 889 (3,022)
Extraordinary charge net of tax benefit of
$1,300......................................... -- -- -- -- -- -- 1,863
-------- -------- -------- -------- -------- ------- --------
Net income (loss)................................ $ 2,170 $ 1,997 $ 2,750 $ 932 $ 2,699 $ 889 $ (4,885)
======== ======== ======== ======== ======== ======= ========
OTHER DATA:
Net cash provided by (used in) operating
activities..................................... $ 11,672 $ 11,550 $ 13,071 $ 14,657 $ 20,001 4,566 (3,711)
Net cash used in investing activities............ (10,919) (15,534) (19,725) (26,859) (18,026) (4,291) (7,093)
Net cash (used in) provided by financing
activities..................................... (753) 3,984 6,654 12,400 (2,172) (473) 11,890
EBITDA(3)........................................ 14,260 15,160 18,246 18,266 24,129 6,229 2,464
Adjusted EBITDA(4)............................... 14,260 15,160 18,246 20,785 25,848 6,871 7,492
Adjusted EBITDA margin(5)........................ 30.9% 32.1% 34.4% 36.5% 43.0% 43.0% 45.6%
Ratio of earnings to fixed charges(6)............ 4.4x 3.8x 3.6x 1.7x 2.7x 3.1 (1.2)
Adjusted ratio of earnings to fixed charges(7)... 4.4x 3.8x 3.6x 2.7x 3.2x 4.0 2.1
Depreciation and amortization.................... $ 9,497 $ 10,396 $ 11,763 $ 13,897 $ 16,071 3,811 4,310
Capital expenditures............................. $ 11,394 $ 15,921 $ 19,911 $ 15,210 $ 19,144 4,514 6,992
Rental equipment (units at end of period)........ 33,000 38,000 45,000 52,000 56,000 -- --
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital(8)............................... $ 5,193 $ 5,354 $ 5,059 $ 8,573 $ 7,617 $ 7,416 $ 12,539
Total assets..................................... 46,152 53,184 66,849 79,707 81,186 81,215 91,933
Total debt....................................... 13,650 17,135 23,588 37,150 33,945 37,589 115,373
Shareholders' equity (deficiency)................ 23,883 26,035 28,712 29,128 33,000 30,208 (34,971)
</TABLE>
35
<PAGE> 37
- ---------------
(1) The Company experienced declining sales of Demand Positive Airway Pressure
("DPAP") devices for adult obstructive sleep apnea during 1996. Because
market acceptance of the DPAP devices did not meet expectations, the
Company's assessment resulted in a write-down of $2.2 million in 1996.
(2) Reflects expenses, consisting primarily of legal, investment banking and
special committee fees, incurred prior to December 31, 1997 by the Company
in the process of exploring strategic alternatives to enhance shareholder
value. Expenses subsequent to December 31, 1997, consist primarily of legal,
investment banking, and severance payments incurred by the Company related
to the Recapitalization.
(3) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization. Management believes that EBITDA is generally
accepted as providing useful information regarding a company's ability to
service and/or incur debt. However, EBITDA should not be considered in
isolation or as a substitute for net income, cash flows or other income or
cash flow data prepared in accordance with generally accepted accounting
principles or as a measure of a company's profitability or liquidity.
(4) Adjusted EBITDA reflects EBITDA, adjusted to exclude the write-down of DPAP
inventories of $2.2 million for the year ended December 31, 1996, and
Recapitalization and transaction costs of $0.3 million, $1.7 million, $0.6
million and $5 million for the years ended December 31, 1996 and 1997, and
the three months ended March 31, 1997 and 1998, respectively. Adjusted
EBITDA should not be considered in isolation or as a substitute for net
income, cash flows or other income or cash flow data prepared in accordance
with GAAP or as a measure of a company's profitability or liquidity.
(5) Adjusted EBITDA margin represents the ratio of Adjusted EBITDA to total
revenues.
(6) For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of income before income taxes, and fixed charges. Fixed
charges consist of interest expense, which includes the amortization of
deferred debt issuance costs.
(7) For the purpose of determining the adjusted ratio of earnings to fixed
charges, earnings consist of income before income taxes, fixed charges,
write down of DPAP inventories and Recapitalization and transaction costs.
Fixed charges consist of interest expense, which includes the amortization
of deferred debt issuance costs.
(8) Represents total current assets (excluding cash and cash equivalents) less
total current liabilities, excluding current portion of long-term debt.
36
<PAGE> 38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of the Company should be read in conjunction with the
accompanying Financial Statements and notes thereto appearing elsewhere in this
Prospectus.
GENERAL
The Company is a leading nationwide provider of movable medical equipment
to more than 2,800 hospitals and alternate care providers through its equipment
rental and outsourcing programs.
The following discussion addresses the financial condition of the Company
as of December 31, 1997 and the results of operations and cash flows for the
years ended December 31, 1997, 1996 and 1995. This discussion should be read in
conjunction with the Financial Statements included elsewhere herein.
INDUSTRY ASSESSMENT
The Company's customers, primarily hospitals and alternate care providers,
have been and continue to be faced with cost containment pressures and
uncertainties with respect to health care reform and reimbursement. The Company
believes that market reform is continuing with movement toward managed care,
health care related consolidations and the formation of integrated health care
systems. There is an effort by providers of health care to coordinate all
aspects of patient care irrespective of delivery location. Likely changes in
reimbursement methodology, and a gradual transition toward fixed, per-capita
payment systems and other risk-sharing mechanisms, will reward health care
providers who improve efficiencies and effectively manage their costs, while
providing care in the most appropriate setting. Although future reimbursement
policies remain uncertain and unpredictable, the Company believes that the
recently approved five-year budget and Taxpayer Relief Act of 1997, which will
be financed largely through cuts in the growth of Medicare spending, will
continue to place focus on cost containment in health care.
The Company believes its Pay-Per-Use and other rental programs respond
favorably to the current reform efforts by providing high quality equipment
through programs which help health care providers improve their efficiency while
effectively matching costs to patient needs, wherever that care is being
provided. While the Company's strategic focus appears consistent with health
care providers' efforts to contain costs and improve efficiencies, there can be
no assurances as to how health care reform will ultimately evolve and the impact
it will have on the Company.
Because the capital equipment procurement decisions of health care
providers are significantly influenced by the regulatory and political
environment for health care, historically the Company has experienced certain
adverse operating trends in periods when significant health care reform
initiatives were under consideration and uncertainty remained as to their likely
outcome. To the extent general cost containment pressures on health care
spending and reimbursement reform, or uncertainty as to possible reform, causes
hospitals and alternate care providers to defer the procurement of medical
equipment, reduce their capital expenditures or change significantly their
utilization of medical equipment, there could be a material adverse effect on
the Company's business, financial condition and results of operations.
MEDIQ TRANSACTION
On February 10, 1997, the Company and MEDIQ entered into a definitive
agreement for MEDIQ to acquire the Company for $17.50 per share of Common Stock.
Including the assumption of the Company's debt, the total purchase price would
have been approximately $138.0 million excluding fees and expenses. On September
22, 1997 (the "Termination Date"), the Company and MEDIQ mutually terminated
their agreement (the agreement and its termination, collectively, the "MEDIQ
Transaction"). This termination resulted from the likelihood of a protracted
administrative proceeding before the Federal Trade Commission ("FTC") and the
uncertainty of the outcome and the costs associated with continuing to defend
against the efforts of the FTC to prevent the merger of MEDIQ and the Company on
anti-competitive grounds.
37
<PAGE> 39
From February 10, 1997 through the Termination Date, the Company
experienced a gradual loss of employees as a result of uncertainties regarding
district office closures and administrative consolidation which were discussed
by MEDIQ. In addition, during this period, some potential and existing customers
of the Company deferred entering into new rental agreements while others
terminated rental agreements with the Company, each as a result of uncertainty
regarding the ownership of the Company. The loss of employees and customer
uncertainties discussed above may continue to adversely affect near term rental
revenues. Management believes, however, that the disruption resulting from the
MEDIQ Transaction, has been largely mitigated by: (i) the termination of the
agreement with MEDIQ; (ii) the public announcement of the Recapitalization; and
(iii) the addition of 16 employees from the Termination Date through December
31, 1997.
SEASONALITY.
Quarterly operating results are typically affected by seasonal factors.
Historically, the Company's first and fourth quarter are the most profitable,
reflecting increased hospital utilization during the fall and winter months.
RESULTS OF OPERATIONS
The following table provides information on the percentages of certain
items of selected financial data to total revenues.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
-------------------------------------------
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------- ----------------
1995 1996 1997 1997 1998
----- ----- ----- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals................................ 86.5% 89.1% 90.7% 91.0% 92.1%
Sales of supplies and equipment, and other....... 13.5 10.9 9.3 9.0 7.9
----- ----- ----- ----- -----
Total revenues..................................... 100.0 100.0 100.0 100.0 100.0
Costs of rentals and sales:
Cost of equipment rentals........................ 22.3 23.4 22.6 20.4 22.0
Rental equipment depreciation.................... 20.4 22.1 24.0 21.3 23.3
Cost of supplies and equipment sales............. 10.1 7.8 6.4 6.3 5.0
Write-down of DPAP inventories................... 0.0 3.9 0.0 0.0 0.0
----- ----- ----- ----- -----
Gross profit....................................... 47.2 42.8 47.0 52.0 49.7
----- ----- ----- ----- -----
Selling, general and administrative................ 35.0 34.6 30.7 32.9 30.4
Recapitalization and transaction costs............. 0.0 0.6 2.9 4.0 30.6
Interest expense................................... 3.3 4.4 5.0 4.8 9.2
----- ----- ----- ----- -----
Income before provision (benefit) for income taxes
and extraordinary charge......................... 8.9 3.2 8.4 10.3 (20.5)
----- ----- ----- ----- -----
Provision (benefit) for income taxes............... 3.7 1.6 3.9 4.7 (2.1)
----- ----- ----- ----- -----
Income (loss) before extraordinary charge.......... 5.2 1.6 4.5 5.6 (18.4)
----- ----- ----- ----- -----
Extraordinary charge............................... 0.0 0.0 0.0 0.0 11.3
----- ----- ----- ----- -----
Net income (loss).................................. 5.2% 1.6% 4.5% 5.6% (29.7)%
===== ===== ===== ===== =====
</TABLE>
THREE MONTH ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Equipment Rental Revenues. Equipment rental revenues were $15.1 million
for the first three months of 1998, representing $0.6 million or 4.2% increase
from equipment rental revenues of $14.5 million for the same period of 1997.
This growth compares to a decrease of 2.3% in the fourth quarter of 1997
compared to the fourth quarter of 1996. This rental revenue increase resulted
from continued growth at acute care hospitals and
38
<PAGE> 40
at both established and new offices, while being partially offset by a decline
in rental revenues from alternate care customers due to lower customer demand
which the Company believes is not an indicator of the long term market prospects
of this sector.
Effective February 1, 1997, the Company entered into a two year agreement
with Premier, one of the nation's largest health care alliance enterprises, for
medical equipment rentals and services. This agreement is expected to produce
significant savings for Premier's 1,750 hospitals and health system owners and
affiliates, as it offers special rates, discounts and incentives on equipment
rentals. The Premier agreement and some longer term commitments the Company has
established with some of its larger customers have required some price
concessions. Management believes that these agreements will contribute to future
rental revenue growth.
Sales of Supplies and Equipment, and Other. Sales of supplies and
equipment, and other were $1.3 million for the first three months of 1998,
representing a $0.1 million, or 9.9%, decrease from sales of supplies and
equipment, and other of $1.4 million for the same period of 1997. Sales of
supplies and equipment, and other were adversely impacted by the continuing
trend of a major vendor of disposables to market its products directly to some
of the Company's larger customers. The Company does not emphasize sales of
supplies and offers them to be a full service provider for its customers.
Cost of Equipment Rentals. Cost of equipment rentals were $3.6 million for
the first three months of 1998, representing a $0.3 million, or 11.2%, increase
from cost of equipment rentals of $3.3 million for the same period of 1997. Cost
of equipment rentals, as a percentage of equipment rental revenues, increased to
23.9% for the first three months of 1998 from 22.4% for the same period of 1997.
During 1998, the Company changed its emphasis to increase support staff activity
while redirecting and decreasing its promotional staff. This change resulted in
higher rental costs offset by reduced promotional expenses in the Selling,
General and Administrative expense area.
Rental Equipment Depreciation. Rental equipment depreciation was $3.8
million for the first three months of 1998, representing $0.4 million or 12.5%,
increase from rental equipment depreciation of $3.4 million for the same period
of 1997. Rental equipment depreciation as a percentage of equipment rental
revenues increased to 25.3% in the first three months of 1998 from 23.4% for the
same period of 1997. This increase was the result of the impact of a full year's
depreciation on 1997 equipment acquisitions not being matched by growth in
rental revenues.
Gross Profit. Total gross profit was $8.2 million for the first three
months of 1998, representing a $0.1 million, or 1.7%, decrease from total gross
profits of $8.3 million for the same period of 1997. Total gross margin
decreased to 49.7% of the total revenues for the first three months of 1998 from
52.0% of total revenues for the same period of 1997. Gross profit on rentals
represents equipment rental revenues reduced by the cost of equipment rentals
and rental equipment depreciation. Gross margin on equipment rentals decreased
to 50.8% for the first three months of 1998 from 54.2% for the same period in
1997. This decrease was predominately due to the previously discussed increases
in cost of equipment rentals and rental equipment depreciation as a percent of
equipment rental revenues.
Gross margin on sales of supplies and equipment, and other increased to
36.5% in the first three months of 1998 from 30.2% for the same period of 1997.
This increase in gross margin was due to a vendor selling lower margined
products directly to hospitals, which resulted in a higher margin percentage on
a lower volume of total sales.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $5.0 million in the first three months of 1998,
representing a $0.2 million, or 4.9%, decrease from selling, general and
administrative expenses of $5.2 million for the same period of 1997. Selling,
general and administrative expenses as a percentage of total revenue decreased
to 30.4% for the first three months of 1998 from 32.9% for the same period in
1997. The decrease primarily reflected the reduction in promotional expense as
mentioned under the Cost of Equipment Rentals category above.
Recapitalization and Transaction Costs. During the first quarter of 1998,
the Company incurred $5.0 million of non-recurring expenses, consisting mainly
of legal, accounting, and other advisory related fees, associated with the
Recapitalization.
39
<PAGE> 41
During the first quarter of 1997, the Company incurred $0.6 million of
non-recurring expenses, consisting primarily of legal, investment banking and
special committee fees, associated with the Company's subsequently mutually
terminated acquisition agreement with MEDIQ.
Interest Expense. Interest expense was $1.5 million for the first three
months of 1998, representing an increase of $0.7 million, or 96.4%, from
interest expense of $0.8 in the same period of 1997. This increase primarily
reflects incremental borrowings associated with capital equipment additions and
the recapitalization of the Company. Average borrowings increased to $74.2
million during the first three months of 1998 from $37.4 million for the same
period in 1997.
Income Taxes. The Company's effective income tax rate for the first three
months of 1998 was 10.1%. This is primarily due to the effect of non-deductible
expenses associated with the Recapitalization on the Company's taxable loss.
Extraordinary Charge. As a result of the Recapitalization and Senior Note
issuance, the Company prepaid existing notes and a credit facility totaling
$35.5 million, incurred a prepayment penalty of $2.9 million, and wrote off
deferred finance expense of $0.3 million. This amount was reduced by the tax
affect of these expenses of approximately $1.3 million.
Net (Loss) Income. The Company incurred a net loss during the first
quarter of 1998 as a result of the previously mentioned Recapitalization related
expenses.
EBITDA. The Company believes earnings before interest, taxes,
depreciation, and amortization ("EBITDA") to be a measurement of operating
performance. EBITDA for the first three months of 1998 was $2.5 million versus
$6.2 million for the same period of 1997. Adjusted EBITDA, which adjusts for
non-recurring Recapitalization and transaction costs, was $7.5 million and $6.8
million for the respective periods in 1998 and 1997.
Rental Equipment Build Up. The Company acquired its equipment pool of
Bazooka portable specialty beds under an exclusive agreement which was
terminated by the Company in March 1996. The Company does not expect to acquire
any additional Bazooka beds and further expects that future purchases of
equipment will be in response to customer driven demand, consistent with the
Company's current and historical strategy. Utilization of Bazooka beds in the
Company's pool is currently below the desired level and declined steadily during
1997 but has remained steady for the first three months of 1998. The Company
believes the decline in utilization of Bazooka beds is temporary and that the
supply/demand imbalance will be reduced. The Company has performed an impairment
analysis based upon projected undiscounted cash flows in accordance with the
current accounting literature and has determined that the current book value of
these assets is currently fully recoverable. However, in the event that
anticipated growth in customer demand for this product does not occur, the
Company's margin on these products could be adversely affected. As of March 31,
1998 the net book value of Bazooka bed inventory was $5.0 million.
1997 COMPARED TO 1996
Equipment Rental Revenues. Equipment rental revenues were $54.5 million in
1997, representing a $3.7 million, or 7.4%, increase from equipment rental
revenues of $50.7 million in 1996. This increase resulted primarily from the
acquisition of BERS, completed on August 13, 1996, which contributed
approximately $2.4 million to the increase in rental revenues in the first six
months of 1997. BERS' offices in Baltimore, Richmond, and Charlotte were
integrated into the corresponding Company offices early in the third quarter of
1997 and, consequently, separate 1997 third and fourth quarter revenue data for
BERS is not available. Excluding revenue from BERS, the increase in equipment
rental revenues resulted from continued growth from hospitals and alternate care
customers, as well as from newer offices. This growth was accomplished despite
the continuing gradual decline in hospital census rates and the increase in
consolidations in the health care industry. The Company expects equipment rental
revenues generated from the alternate care market to continue to increase,
reflecting the trend toward treating the patient in the most cost effective
environment.
Sales of Supplies and Equipment, and Other. Sales of supplies and
equipment, and other were $5.6 million in 1997, representing a $0.6 million, or
9.9%, decrease from sales of supplies and equipment, and other
40
<PAGE> 42
of $6.2 million in 1996. This decrease was primarily due to a decline in the
sales of the DPAP devices as the Company decided to abandon the sleep apnea
market in December 1996. Sales of supplies and equipment, and other were also
adversely impacted by the continuing trend of a major vendor of disposables to
market its products directly to some of the Company's larger customers. This
trend resulted in a $0.3 million decline in sales in 1997. The Company does not
emphasize sales and offers them to be a full service provider for its customers.
Cost of Equipment Rentals. Cost of equipment rentals were $13.6 million in
1997, representing a $0.3 million, or 1.8%, increase from cost of equipment
rentals of $13.3 million in 1996. Cost of equipment rentals as a percentage of
equipment rental revenues decreased to 24.9% in 1997 from 26.3% in 1996. This
decrease resulted from the Company purchasing a newer generation of a particular
line of equipment. The older generation of this equipment had been rented from
the manufacturer on a short term basis in 1996 due to perceived obsolescence
risk. In addition, the decrease reflected the loss of some rental support staff
as a result of the MEDIQ Transaction.
Rental Equipment Depreciation. Rental equipment depreciation was $14.4
million in 1997, representing a $1.8 million, or 14.5%, increase from rental
equipment depreciation of $12.6 million in 1996. Rental equipment depreciation
as a percentage of equipment rental revenues increased to 26.5% in 1997 from
24.8% in 1996. This increase was the result of the impact of a full year of
depreciation on equipment acquisitions made in 1996 (including higher
depreciation as a percentage of equipment rental revenues from BERS) and the
Company's purchase of equipment that was previously rented as discussed above.
Gross Profit. Total gross profit was $28.2 million in 1997, representing a
$3.8 million, or 15.8%, increase from total gross profit of $24.4 million in
1996. Total gross margin increased to 47.0% of total revenues in 1997 from 42.8%
of total revenues in 1996. Total gross profit in 1996 was reduced by $2.2
million, or 3.9% of total revenues, due to the write-down of DPAP inventories.
Gross profit on rentals represents equipment rental revenues reduced by the cost
of equipment rentals and rental equipment depreciation. Gross margin on
equipment rentals decreased to 48.6% in 1997 from 48.9% in 1996. This decrease
was predominantly due to the previously discussed increase in rental equipment
depreciation as a percentage of equipment rental revenues partially offset by
the previously discussed decrease in cost of equipment rentals as a percentage
of equipment rental revenues.
Gross margin on sales of supplies and equipment, and other (which excludes
the write-down of DPAP inventories) increased to 31.3% in 1997 from 28.6% in
1996. This increase in sales gross margin was due to a vendor selling lower
margin products directly to hospitals, which resulted in a higher margin
percentage on a lower volume of total sales, and the addition of higher margin
BERS sales. See "- 1996 Compared to 1995 - Write-down of DPAP Inventories."
Selling, General and Administrative Expenses. Selling general and
administrative expenses ("SG&A") was $18.4 million in 1997, representing a $1.3
million, or 6.3%, decrease from SG&A of $19.7 million in 1996. SG&A as a
percentage of total revenues decreased to 30.7% in 1997 from 34.6% in 1996. This
decrease was due to the cost savings associated with the Company's expense
control initiatives implemented in late 1996. Additionally, the loss of
employees due to the MEDIQ Transaction reduced SG&A for 1997.
Shareholder Value Expenses. The Company incurred costs of approximately
$1.7 million in 1997, compared to $0.3 million in 1996, reflecting expenses
consisting primarily of legal, investment banking and special committee fees,
incurred by the Company in the process of exploring strategic alternatives to
enhance shareholder value.
Adjusted EBITDA. Primarily as a result of factors stated above, Adjusted
EBITDA was $25.8 million in 1997, representing a $5 million, or 24.0%, increase
from Adjusted EBITDA of $20.8 million in 1996. Adjusted EBITDA as a percentage
of total revenues increased to 43.0% in 1997 from 36.5% in 1996. See Note 5 to
"Selected Historical Financial Data."
Interest Expense. Interest expense was $3.0 million in 1997, representing
an increase of $0.5 million, or 19.6%, from interest expense of $2.5 million in
1996. This increase primarily reflects interest on the BERS
41
<PAGE> 43
acquisition debt and incremental borrowings associated with capital equipment
additions. Average borrowings increased to $34.6 million in 1997 from $30.5
million in 1996.
Income Taxes. The Company's effective income tax rate decreased to 46.5%
in 1997 from 49.6% for 1996. This decrease was primarily due to the effect of
non-deductible expenses on the Company's lower taxable income in 1996.
1996 COMPARED TO 1995
Equipment Rental Revenues. Equipment rental revenues were $50.7 million in
1996, representing a $4.8 million, or 10.6%, increase from equipment rental
revenues of $45.9 million in 1995. This increase was partially as a result of
the acquisition of BERS which contributed $1.8 million to the 1996 equipment
rental revenue increase. The remaining $3.1 million increase in equipment rental
revenues, representing a 6.8% increase from 1995, resulted from continued growth
from hospitals and established offices, from substantially higher growth rates
in equipment rental revenues from alternate care customers and from newer
offices.
Sales of Supplies and Equipment, and Other. Sales of supplies and
equipment, and other were $6.2 million in 1996, representing a $1.0 million, or
13.5%, decrease from sales of supplies and equipment, and other of $7.2 million
in 1995. This decrease was primarily due to a continued decline in the sales of
the DPAP devices first introduced in February 1995. The Company decided to
abandon the sleep apnea market in December 1996. Sales of DPAP devices were $0.8
million in 1995 and $0.4 million in 1996. See "-- Write-down of DPAP
Inventories." Sales of supplies and equipment, and other were also adversely
impacted by the continuing trend of a major vendor of disposables to market its
products directly to some of the Company's larger customers. The acquisition of
BERS contributed $0.3 million to sales of supplies and equipment, and other in
1996.
Cost of Equipment Rentals. Cost of equipment rentals were $13.3 million in
1996, representing a $1.5 million, or 12.6% increase from costs of equipment
rentals of $11.8 million in 1995. Cost of equipment rentals as a percentage of
equipment rental revenues increased to 26.3% in 1996 from 25.8% for the same
period of 1995. This increase reflected planned expense increases primarily
associated with several new AMP accounts, the opening of six new offices since
January 1, 1995 and the acquisition of BERS.
Rental Equipment Depreciation. Rental equipment depreciation was $12.6
million in 1996, representing a $1.8 million, or 16.7% increase from rental
equipment depreciation of $10.8 million in 1995. Rental equipment depreciation
as a percentage of equipment rental revenues increased to 24.8% in 1996 from
23.5% in 1995. This increase was the result of a full year of depreciation on
equipment acquisitions made in 1995 which were not matched by a growth in
equipment rental revenues as well as depreciation expense on surplus Bazooka
beds.
Gross Profit. Total gross profit was $24.4 million in 1996, representing a
$0.7 million, or 2.7% decrease from total gross profit of $25.0 million in 1995.
Total gross margin decreased to 42.8% in 1996 from 47.7% in 1995. These
decreases were primarily due to the write-down of DPAP inventories. Gross margin
on equipment rentals decreased to 44.5% in 1996 from 50.6% in 1995. This
decrease was primarily due to the increase in the cost of equipment rentals and
rental equipment depreciation expenses discussed above.
Gross margin on sales of supplies and equipment, and other improved to
28.6% in 1996 from 25.3% in 1995. This improvement was due to a vendor selling
lower margin products directly to hospitals, which resulted in a higher margin
percentage on lower volume of total sales and, in 1995 due to the impact of
higher margin DPAP sales. See "-- Write-down of DPAP Inventories."
Selling, General and Administrative Expenses. SG&A was $19.7 million in
1996, representing a $1.1 million, or 6.1% increase from SG&A of $18.6 million
in 1995. SG&A as a percentage of total revenues remained substantially the same
at 34.6% in 1996 compared with 35.0% for 1995 as a result of a cut in
performance based incentive and profit sharing expenses, including approximately
$0.8 million related to BERS SG&A and related goodwill amortization.
Expense Control Initiatives. During the second half of 1996, as a result
of slower than anticipated rental revenue growth and lower margins, the Company
instituted expense control initiatives to reduce or defer costs.
42
<PAGE> 44
In August 1996, the Company announced executive salary cuts, a moratorium on new
hires and the deferral of the opening of the previously announced offices to be
located in Oklahoma City, OK and Nashville, TN. In October 1996, the Company
announced the elimination of 10 corporate positions and the cutting of
nonessential activities and changed the Company's employee medical benefit
program from a total company-paid plan to a shared-cost program, effective
January 1, 1997. The Company expects the cost reduction in 1997 to be
approximately $1.0 million for the full year, beginning in the first quarter of
1997.
Write-down of DPAP Inventories. The Company experienced declining sales of
DPAP devices for adult obstructive sleep apnea during 1996. Because market
acceptance of the DPAP devices did not meet expectations, the Company's
quarterly assessment resulted in a write-down of $1.0 million in the second
quarter of 1996 and a write-down of the $1.2 million remaining carrying value of
DPAP inventories in the fourth quarter of 1996.
Adjusted EBITDA. Primarily as a result of factors stated above, Adjusted
EBITDA was $20.8 million in 1996, representing a $2.5 million, or 13.9% increase
from Adjusted EBITDA of $18.3 million in 1995. Adjusted EBITDA as a percentage
of total revenues increased to 36.5% in 1996 from 34.4% in 1995. See Note 5 to
"Selected Historical Financial Data."
Interest Expense. Interest expense was $2.5 million in 1996, representing
a $0.7 million or 41.1%, increase from interest expense of $1.8 million in 1995.
This increase primarily reflects, in 1996, interest of approximately $0.4
million on the BERS acquisition debt and incremental borrowings associated with
capital equipment additions. Average borrowings, which increased to $30.5
million in 1996 from $21.4 million in 1995, were also affected by the carrying
cost of surplus Bazooka and DPAP inventories.
Income Taxes. The Company's effective tax rate increased to 49.7% in 1996
from 41.5% in 1995. This increase was primarily due to the effect of
non-deductible expenses on the Company's lower taxable income.
Completed BERS Acquisition. On August 13, 1996, the Company completed its
acquisition of BERS pursuant to a stock purchase agreement among the Company and
the shareholders of BERS. As a result of the acquisition, the Company acquired
all of the outstanding capital stock of BERS, and BERS became a wholly-owned
subsidiary of the Company. In connection with the acquisition, the Company paid
approximately $11.0 million to the shareholders of BERS and repaid approximately
$1.7 million of outstanding indebtedness of BERS. BERS results are included in
the financial statements only from the date of acquisition.
43
<PAGE> 45
SELECTED QUARTERLY FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
MARCH 31, 1998
--------------
<S> <C>
Total revenues................................ $16,434
Gross profit.................................. 8,166
Gross margin.................................. 49.7%
Net loss...................................... $(4,885)
Adjusted EBITDA(1)............................ 7,492
Net cash used in operating activities......... (3,732)
Net cash used in investing activities......... (7,093)
Net cash provided by financing activities..... $11,910
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Total revenues................................ $15,962 $15,341 $ 14,186 $14,586
Gross profit.................................. 8,303 7,525 6,120 6,277
Gross margin.................................. 52.0% 49.1% 43.1% 43.0%
Net income.................................... $ 889 $ 976 $ 502 $ 332
Adjusted EBITDA(1)............................ 6,871 6,838 5,972 6,166
Net cash provided by operating activities..... 4,566 6,015 5,812 3,608
Net cash used in investing activities......... (4,291) (5,271) (3,616) (4,848)
Net cash (used in) provided by financing
activities.................................. $ (473) $ (743) $ (2,197) $ 1,241
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Total revenues................................ $14,392 $13,634 $ 13,749 $15,166
Gross profit(2)............................... 7,020 5,256 6,340 5,755
Gross margin(2)............................... 48.8% 38.6% 46.1% 38.0%
Net income (loss)(2).......................... $ 922 $ (38) $ 540 $ (492)
Adjusted EBITDA(1)............................ 5,174 4,774 5,187 5,651
Net cash provided by operating activities..... 2,657 4,205 3,563 4,232
Net cash used in investing activities......... (6,341) (2,917) (14,664) (2,937)
Net cash provided (used in) by financing
activities.................................. $ 3,684 $(1,288) $ 11,538 $(1,534)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Total revenues................................ $13,166 $13,150 $ 13,130 $13,590
Gross profit.................................. 6,482 6,228 6,041 6,292
Gross margin.................................. 49.2% 47.4% 46.0% 46.3%
Net income.................................... $ 859 $ 623 $ 594 $ 674
Adjusted EBITDA(1)............................ 4,531 4,437 4,652 4,627
Net cash provided by operating activities..... 4,064 2,170 3,304 3,533
Net cash used in investing activities......... (6,102) (5,298) (4,871) (3,454)
Net cash provided (used in) by financing
activities.................................. $ 2,038 $ 3,128 $ 1,566 $ (78)
</TABLE>
- ---------------
(1) Adjusted EBITDA reflects EBITDA, adjusted to exclude the write-down of DPAP
inventories of $1.0 million and $1.2 million for the three months ended June
30, 1996 and December 31, 1996, respectively, and Recapitalization and
transaction costs of $0.3 million, $0.6 million, $0.3 million, $0.2 million,
$0.6 million and $5.0 million for the three months ended December 31, 1996,
March 31, 1997, June 30, 1997, September 30, 1997, December 31, 1997 and
March 31, 1998, respectively. Adjusted EBITDA should
44
<PAGE> 46
not be considered in isolation or as a substitute for net income, cash flows
or other income or cash flow data prepared in accordance with GAAP or as a
measure of a company's profitability or liquidity.
(2) Includes expense related to the write-down of DPAP inventories of $1.0
million in the second quarter and a further write-down in the fourth quarter
of 1996 of the remaining $1.2 million carrying value of DPAP inventories.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its equipment purchases primarily
through internally generated funds and borrowings under its existing revolving
credit facility. As an asset intensive business, the Company has required
continued access to capital to support the acquisition of equipment for rental
to its customers. The Company purchased $19.1 million of rental equipment in
1997. The Company expects to purchase $24.0 million of rental equipment in 1998.
During the first three months of 1998 and 1997, net cash flows (used in)
provided by operating activities were ($3.7) million and $4.6 million,
respectively. Net cash flows used in investing activities were $7.1 million and
$4.3 million, respectively, in each of these periods. Net cash flows provided by
(used in) financing activities were $11.9 million and ($0.5) million,
respectively, in each period.
During 1997 and 1996, net cash flows provided by operating activities were
$20.0 million and $14.7 million, respectively. Net cash flows used in investing
activities were $18.0 million and $26.9 million, respectively, in each of these
periods. The decrease from 1996 resulted from the impact of the BERS
acquisition. Net cash flows (used in) provided by financing activities were
($2.2 million) and $12.4 million respectively in each period.
During 1996 and 1995, net cash flows provided by operating activities were
$14.7 million and $13.1 million, respectively. Net cash flows used in investing
activities were $26.9 million and $19.7 million, respectively, in each of the
periods. The increase in 1996 resulted from the impact of the BERS acquisition.
Net cash flows provided by financing activities were $12.4 million and $6.7
million, respectively, in each of the periods.
POST-RECAPITALIZATION
The Company's principal sources of liquidity are expected to be cash flows
from operating activities and borrowings under the Revolving Credit Facility. It
is anticipated that the Company's principal uses of liquidity will be to fund
capital expenditures related to purchases of movable medical equipment, provide
working capital, meet debt service requirements and finance the Company's
strategic plans.
The Company is capitalized with $100.0 million of Notes and a $30.0 million
senior secured Revolving Credit Facility ($14.9 million of which was outstanding
on March 31, 1998). Interest on loans outstanding under the Credit Agreement is
payable at a rate per annum, selected at the option of the Company, equal to the
Base Rate plus a margin of 1.00% (the "Base Rate Margin"), or the adjusted
Eurodollar Rate plus a margin of 2.25% (the "Eurodollar Rate Margin").
Commencing September 30, 1998, the Eurodollar Rate Margin and the Base Rate
Margin used to calculate such interest rates may be adjusted if the Company
satisfies certain leverage ratios. The Credit Agreement contains restrictive
covenants which, among other things, limit the incurrence of additional
indebtedness, dividends, transactions with affiliates, asset sales,
acquisitions, mergers and consolidations, liens and encumbrances, and
prepayments of other indebtedness. See "Description of the Revolving Credit
Facility."
The Company believes that, based on current levels of operations and
anticipated growth, its cash from operations, together with other sources of
liquidity, including borrowings available under the Revolving Credit Facility,
will be sufficient over the next several years to fund anticipated capital
expenditures and make required payments of principal and interest on its debt,
including payments due on the Notes and obligations under the Revolving Credit
Facility. The Company believes that its ability to repay the Notes and amounts
outstanding under the Revolving Credit Facility at maturity will require
additional financing. There can be no assurance, however, that any such
financing will be available at such time to the Company, or that any such
financing will be on terms favorable to the Company. In addition, the Company
continually evaluates potential
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<PAGE> 47
acquisitions and expects to fund such acquisitions from its available sources of
liquidity, including borrowings under the Revolving Credit Facility.
The Company's expansion and acquisition strategy may require substantial
capital, and no assurance can be given that the Company will be able to raise
any necessary additional funds through bank financing or the issuance of equity
or debt securities on terms acceptable to the Company, if at all. The Company
anticipates new offices will break even in their fifth or sixth quarter of
operation, on a direct margin level, including depreciation expense of
approximately $60,000 to $80,000. The Company anticipates new offices to incur a
total margin loss of approximately $170,000 to $200,000 per office by that time.
There can be no assurance, however, that such new offices will break even when
the Company expects, or that such new offices will not incur unforeseen
expenses.
In the first three months of 1998, the Company incurred non-recurring costs
related to the Recapitalization of approximately $8.8 million, including $2.8
million in severance expense to certain non-continuing members of management,
$3.2 million ($1.9 million net of tax) for prepayment penalties on existing
loans and write-off of corresponding loan origination fees, $1.2 million in
investment banker fees, and approximately $1.6 million in additional
recapitalization expenses (of which $0.6 million was recorded directly in
equity).
In the second and third quarters of 1998, the Company expects to incur
additional costs related to the Offering of approximately $200,000.
PRO FORMA
On a pro forma basis, after giving effect to the Recapitalization the most
significant impact on the Company's historical results of operations is the
additional interest expense incurred for the Recapitalization. Interest expense
on a pro forma basis would have increased $2.3 million and $1.5 million for the
three months ended March 31, 1997 and 1998 respectively due to the additional
debt incurred by the Company for the Recapitalization.
THE YEAR 2000 ISSUE
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 also in the
process of evaluating the impact of Year 2000 compliance issues as they relate
to its significant customers and suppliers. The Company's pool of rental
equipment includes certain pieces of older equipment that may not be Year 2000
compliant. The Company has started the process of examining which units need to
be upgraded and does not anticipate that the cost associated with the necessary
upgrades will be material to its business, financial position or results of
operations.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and display of
comprehensive income and its components (revenue, expenses, gains and losses) in
a full set of general-purpose financial statements. Management does not expect
any differences between net income and comprehensive income. The Company will
adopt SFAS No. 130 effective with its year-end 1998 reporting.
The FASB issued SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information." SFAS No. 131 establishes standards for reporting
operating segment information in both annual
46
<PAGE> 48
reports and interim financial reports issued to shareholders. The Company is
reviewing the requirements of SFAS No. 131, and has not determined if it will be
required to present segment information beyond the one segment currently
presented. SFAS No. 131 is required to be adopted effective with its year-end
1998 reporting.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
About Pensions and Other Postretirement Benefits," which standardizes the
disclosure requirements for pensions and other postretirement benefits to the
extent practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that are no longer as useful.
Management has not yet evaluated the effects of this change on its current
pension disclosures. The Company will adopt SFAS No. 132 effective with its
year-end 1998 reporting.
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." This SOP provides guidance on
accounting for the costs of computer software developed or obtained for internal
use. The Company is reviewing the requirements of the SOP and has not determined
if it is applicable to the Company. SOP 98-1 is required to be adopted by the
Company no later than the year ending December 31, 1999.
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<PAGE> 49
BUSINESS
GENERAL
The Company is a leading nationwide provider of movable medical equipment
to more than 2,800 hospitals and alternate care providers through its equipment
rental and outsourcing programs. The Company's principal rental program is its
innovative Pay-Per-Use program whereby health care providers are charged a per
use rental fee based on daily use of equipment per patient. The Company also
offers other rental programs whereby customers are charged on a daily, weekly or
monthly basis. All of the Company's rental programs include a comprehensive
range of support services which include equipment delivery, training, technical
and educational support, inspection, maintenance, and comprehensive
documentation. The Company also offers total equipment outsourcing through its
Asset Management Partnership ("AMP") program whereby the Company provides,
maintains, manages and tracks substantially all, or a significant portion of, a
customer's movable medical equipment. In addition, the Company sells disposable
supplies related to the equipment it rents. The Company is able to maintain high
utilization of its rental equipment through pooling and redeploying its
equipment among a diverse customer base and adjusting pricing on a customer by
customer basis to compensate for varying utilization levels.
The Company believes that its equipment rental and outsourcing programs are
more cost effective for health care providers than the purchase or lease of
movable medical equipment for the following reasons:
- Increase Equipment Utilization Rates. Health care providers' movable
medical equipment needs fluctuate on a daily basis due to varying patient
census levels and severity of illness and condition. Therefore, a health
care provider's equipment utilization will vary for a given fixed level
of equipment. By utilizing the Company's rental programs, health care
providers can increase the utilization rates of their medical equipment
which allows them to reduce capital expenditures and related costs.
Furthermore, the Company's rental programs, especially its Pay-Per-Use
program, allow customers to more effectively match the costs of variable
equipment use with actual patient charges.
- Outsource Support Services. The Company's full range of support services
are included in its rental fee and the Company believes it can often
provide these support services at a lower cost than customers can
themselves. Accordingly, health care providers can reduce the substantial
operating costs associated with equipment ownership or lease.
- Minimize Equipment Obsolescence Risk. Health care providers can
effectively eliminate the risk of equipment obsolescence through the
Company's short-term rental and Pay-Per-Use programs. The risk of
obsolescence to the Company is reduced because the Company can maintain
high utilization of its equipment.
The Company owns a rental pool of over 56,000 pieces of movable medical
equipment in four primary categories: critical care, monitoring, respiratory
therapy and newborn care. The Company, which is one of only two national
providers of movable medical equipment rental and outsourcing programs,
currently operates through 45 district offices and eight regional service
centers, serving customers in 46 states and the District of Columbia.
MARKET OVERVIEW
The United States health care system includes approximately 5,200 hospitals
and a variety of other alternate care providers such as home care providers,
nursing homes, surgicenters, subacute care facilities and outpatient centers.
These health care providers spend a substantial sum on obtaining capital
equipment, including movable medical equipment. Although health care providers
have a number of options in obtaining this equipment, including purchase, lease
and rental they have historically favored the purchase option in meeting a
substantial portion of their movable medical equipment needs.
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<PAGE> 50
The Company believes that a variety of trends favor rental as an
alternative to purchase or lease:
- Substantial Cost Containment Pressures. The cost containment pressures
under which hospitals and alternate care providers operate have increased
greatly during the past decade as a result of federal regulations that
have significantly affected the extent of reimbursement under Medicare's
prospective payment system, and the Company believes that these pressures
will continue to intensify. In addition, the Company believes that other
third party payors of medical expenses have followed or will follow the
federal government in limiting reimbursement for medical equipment costs.
These would include, but are not limited to, preferred provider
arrangements, discounted fee arrangements and capitated (fixed patient
care reimbursement) managed care arrangements.
- Reduction in the Average Length of Hospital Stays. Over the last 5 years
the average length of hospital stays has continuously shortened. This
reduction has resulted from implementation of the prospective payment
system, an increase in capitated managed care and preferred provider
arrangements and an increase in the amount of care provided outside of
the hospital setting. These factors, together with routine fluctuations
in hospital occupancy, have placed increasing pressures on hospitals to
reduce equipment costs and maximize utilization of medical equipment.
Management estimates that utilization rates of movable medical equipment
purchased by hospitals averages between 45% and 68% based on over 300
studies conducted by the Company and/or these hospitals.
- Continued Growth in the Alternate Care Market. Patient care being
provided by alternate care providers such as home care providers, nursing
homes, surgicenters, subacute care facilities and outpatient centers has
grown dramatically in response to health care cost containment pressures,
changes in reimbursement programs and the reduction in the average length
of hospital stays. Given the Company's nationwide network, it is able to
provide rental and outsourcing programs wherever movable medical
equipment is being used whether in a hospital or alternate care setting.
In addition, alternate care providers are facing the same cost
containment pressures and changing reimbursement programs as hospitals
and have the same incentive to manage their medical equipment costs more
efficiently.
As a result of these trends, health care providers are becoming more
sophisticated in their medical equipment procurement decisions. Health care
providers increasingly are seeking ways to reduce costs and to manage equipment
inventories at optimum utilization levels in order to maximize operating
margins. The Company believes that such analyses often show that its rental
programs and AMP outsourcing arrangements increase equipment utilization rates,
reduce operating costs by allowing for the outsourcing of support services and
minimize equipment obsolescence risk.
COMPANY STRENGTHS
The Company attributes its historical success and its significant
opportunities for continued growth and increased profitability to the following
strengths:
SUPERIOR SERVICE AND STRONG CUSTOMER RELATIONSHIPS. The Company distinguishes
itself by being a leading service company rather than solely an equipment rental
provider and competes on the basis of the value-added, full-service features of
its rental programs in addition to price. The Company's support services include
24-hour-a-day, 365-day-a-year delivery of "patient ready" equipment, technical
support, training in equipment use, quality assurance services, regular
inspections and maintenance of all equipment rented from the Company. As a
result of its focus on service, the Company enjoys strong customer
relationships, as evidenced by the fact that 85 of the Company's 100 largest
customers as of January 1, 1992 are still customers.
NATIONAL NETWORK. The Company is one of only two national providers of a broad
range of movable medical equipment rental and outsourcing programs. The
Company's national network of 45 district offices and eight regional service
centers serves hospital and alternate care customers in 45 states and the
District of Columbia. This broad network allows the Company to meet the
equipment rental and service needs of independent health care facilities,
national and regional health care chains and group purchasing organizations. The
Company's
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<PAGE> 51
national network also enables it to efficiently redeploy equipment throughout
its system in order to maintain high levels of equipment utilization and
customer service.
SOPHISTICATED USE OF INFORMATION TECHNOLOGY. Through its commitment to
information technology, the Company has developed proprietary systems designed
to enhance the Company's and its customers' operating efficiencies. The Company
maintains a complete service history of all rental equipment, including data on
length of placement, transfers, modifications, repairs, maintenance and
inspections which is used to monitor and schedule preventive maintenance and
safety testing programs as well as to maximize equipment utilization. In
addition, the Company's systems provide information that helps customers meet
their equipment documentation needs under applicable industry standards and
regulations. The Company also offers its customers software that allows a health
care provider to track location, utilization and availability of all equipment
rented, owned or leased by that health care provider. These proprietary systems
were designed by the Company's MIS staff which continues to upgrade these
systems and develop new applications.
DEPTH AND BREADTH OF EQUIPMENT RENTAL POOL; PURCHASING POWER. The Company owns
a rental pool of over 57,000 pieces of movable medical equipment in four primary
categories: critical care, monitoring, respiratory therapy and newborn care. The
Company's diversified equipment rental pool includes equipment purchased from
over 50 suppliers in 1997 and enables the Company to offer its customers
numerous models from different manufacturers within each primary equipment
category. The breadth of its product offerings provides the Company with a
competitive strength compared to manufacturers and regional equipment rental
firms that may offer a limited range of models within an equipment category. In
addition, the amount of the Company's annual equipment purchases enables it to
obtain favorable pricing terms from many equipment vendors. As of March 31,
1998, approximately 58% of the Company's rental pool (valued at original cost)
was purchased within the last four years. The Company generally purchases only
new equipment for its rental pool.
EXPERIENCED AND COMMITTED MANAGEMENT TEAM. As part of the Recapitalization, the
Company installed a new senior management team comprised of existing senior
operating managers who have an average of 20 years of experience with the
Company. This team, led by David E. Dovenberg, the Company's previous CFO who
became President and CEO, intends to refocus and expand the Company's growth
strategy. The Management Investors retained 100% of their shares and options in
the Company which, after the Recapitalization and together with the Management
Investors' new investments, represent approximately 20% of the capital stock of
the Company on a fully diluted basis.
ATTRACTIVE RETURN ON RENTAL POOL. The Company's pricing strategy is designed to
generate a pay-back period which is substantially shorter than the useful life
of a particular piece of equipment. The Company calculates its rental rates to
recoup the equipment's purchase price generally within 16 to 18 months.
Excluding related service and support costs, the Company achieves a two year
pay-back period on the original purchase price of the entire rental pool. In
contrast, the average useful life of the equipment in the rental pool has
historically been 8.3 years.
LARGE AND DIVERSIFIED CUSTOMER BASE. The Company provides movable medical
equipment to over 1,670 hospitals and over 1,190 alternate care providers
including home care providers, nursing homes, surgicenters, subacute care
facilities and outpatient centers throughout the United States. In 1997, the
Company's top ten customers accounted for less than 14% of total revenues.
GROWTH STRATEGY
The Company believes that continuing trends toward an aging population,
increased life expectancy and managed care will provide significant growth
opportunities in both hospital and alternate care settings. The Company's
strategy is to achieve continued growth by: (i) increasing business with
existing customers; (ii) providing comprehensive equipment management programs;
(iii) developing business with new customers; (iv) establishing new district
offices; (v) pursuing strategic alliances; and (vi) pursuing strategic
acquisitions.
INCREASE BUSINESS WITH EXISTING CUSTOMERS. The Company seeks to increase the
amount of business it conducts with existing customers by providing additional
equipment to these customers and reaching
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<PAGE> 52
additional departments within its existing hospital customer base. Because these
customers are familiar with the Company's programs and their benefits, the
Company believes that its existing customer base represents a significant
expansion opportunity. The Company generates an average monthly rental revenue
per customer census bed (i.e., occupied bed) of approximately $19. However, the
Company's two largest district offices generate an average monthly rental
revenue per customer census bed of approximately $76.
PROVIDE COMPREHENSIVE EQUIPMENT MANAGEMENT PROGRAMS. The Company offers a total
equipment management outsourcing program called Asset Management Partnership, or
AMP. Through this program, the Company provides, maintains, manages and tracks
substantially all, or a significant portion of, a customer's movable medical
equipment. The AMP program allows health care providers to control capital
spending and certain operating costs through outsourcing and improved
utilization. The Company plans to increase conversions of existing customers
into the AMP program as well as promote the AMP program to a target list of
potential customers. As of March 31, 1998, the Company had 15 AMP accounts, ten
of which the Company has added since January 1, 1996. The average monthly rental
revenue at these ten accounts has increased 126% after conversion to AMP
accounts.
DEVELOP BUSINESS WITH NEW CUSTOMERS. The Company plans to further penetrate the
hospital and alternate care markets by establishing new customer relationships
either individually or through group purchasing organizations. To date, the
Company has signed agreements with several independent group purchasing
organizations, including Premier, the nation's largest health care alliance
enterprise, which give the Company preferred supplier status to over 2,100
hospitals in its existing markets. The Company also plans to expand business
with alternate care providers which increased to 16% of rental revenue for 1997
from 4% in 1992.
ESTABLISH NEW DISTRICT OFFICES. In order to expand its geographic coverage, the
Company plans to establish two new district offices in 1998 and three to four
new district offices in each of the subsequent several years. In choosing
locations for its district offices, the Company considers the nature and size of
the potential customer market, customer concentration within the market,
demographics and vendor relationships. While the major metropolitan areas will
remain a primary focus for expansion, regional clusters of hospitals are also
expected to provide attractive expansion opportunities.
PURSUE STRATEGIC ALLIANCES. The Company intends to pursue strategic alliances
with major manufacturers of movable medical equipment. The nature of these
alliances could include joint marketing arrangements and/or revenue sharing
agreements whereby the Company's rental programs and services would be marketed
by the manufacturer's sales distribution network. Under these agreements, such
manufacturers would not offer the rental programs and services of any other
company.
PURSUE STRATEGIC ACQUISITIONS. The Company plans to pursue strategic
acquisitions that will increase its market share in existing markets, enable the
Company to more quickly penetrate new markets and/or improve the Company's
overall operating efficiencies. In August 1996, the Company acquired BERS which
had revenues of approximately $5.7 million in 1996. The acquisition of BERS
greatly expanded the Company's market share and service capabilities in several
Southeastern markets.
EQUIPMENT MANAGEMENT PROGRAMS
DESCRIPTION
Rental Programs. The Company's primary equipment rental program is its
Pay-Per-Use program whereby customers are able to obtain equipment when they
need it and pay for equipment only when it is used. Customers may also obtain
equipment through daily, weekly or monthly rental programs. When the Company's
customers request a piece of equipment, the Company provides the equipment in
"patient-ready" condition. Upon delivery, each piece of rented equipment is
logged into the Company's tracking system as being placed with the particular
customer. The Company provides the customer with information as to per-use or
other rental rates at or prior to delivery of the equipment, and these rates are
generally effective for a three month period. The Company generally does not use
written agreements with its customers but emphasizes continuous contact and
shared information with each customer. Under the Company's Pay-Per-Use program,
the customer is responsible for keeping a record of each equipment use and
reporting the use to the Company
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<PAGE> 53
on a monthly basis. Many customers report equipment utilization in conjunction
with their patient billing procedures. The Company bills each customer monthly
based on this reported usage. The customer is under no obligation to use the
equipment and may request that the Company remove the equipment at any time.
Correspondingly, the Company may remove equipment or raise the per-use rental
fee if it is under-utilized.
Outsourcing Programs. The scope of the Company's relationship with some of
its largest customers has evolved into the AMP program. Through this program,
the Company provides, maintains, manages and tracks substantially all, or a
significant portion of, a customer's movable medical equipment within the
customer's facility or organization. One or more of the Company's employees are
located on site at the customer's facility to coordinate the equipment
management program and record equipment use. Contracts are typically three to
five years in length and equipment rental rates are generally guaranteed for
three years based on target equipment utilization levels. These rental rates
reflect all of the costs related to the additional services provided as part of
the AMP program and are adjusted to reflect actual equipment utilization levels.
The Company's AMP program enables health care providers to have access to all
appropriate medical equipment available when it is needed, while controlling
their costs through improved utilization and efficiency.
ATTRIBUTES
Full Service. The Company emphasizes the full-service features of its
equipment rental and outsourcing programs. The Company's equipment rental fee
includes 24-hour-a-day, 365-day-a-year delivery of "patient ready" equipment,
technical support, training in equipment use, quality assurance services,
regular inspections and maintenance of all equipment rented from the Company.
The Company maintains a total service history of any rented equipment, which
includes inspection, repair and modification activities for the entire life of
the unit. The Company also offers an optional software package that allows a
particular customer to track location, utilization and availability of all
equipment rented, owned or leased by that customer. Together, these services
allow health care providers to eliminate many of the major overhead costs
associated with the ownership or lease of medical equipment.
Customer Responsiveness. The Company's operational structure is designed
to enable it to respond quickly to a customer's needs. Through its district
offices, the Company maintains both a local and system-wide inventory network
which is designed to assure access to a broad range of medical equipment. The
Company's district offices are typically located close enough to the customers
they serve to allow equipment to be delivered and ready for use generally within
two hours of a request.
Management of Equipment Utilization. The Company seeks to allocate its
pool of rental equipment efficiently among its customers by continually
monitoring customers' equipment utilization levels. The Company reviews customer
utilization routinely and, depending on utilization level, may adjust the rental
fee or redeploy the equipment. This system benefits customers by permitting them
to obtain a lower per-use rental fee in the event of higher utilization
efficiency and benefits the Company as it attempts to maximize the utilization
of the equipment in its inventory. See "-- Operations -- Pricing."
Diverse Equipment Selection. The Company generally purchases new equipment
which it believes to be state-of-the-art from manufacturers with a reputation
for quality, product support and innovation. The Company purchases from a number
of different manufacturers to address its customers' diverse needs with a
special emphasis on equipment which lowers patient care costs while improving
quality of care and treatment outcomes. See "-- Operations -- Equipment
Inventory."
OPERATIONS
Pricing. The Company's rental and AMP program pricing strategy is designed
to generate a pay-back period that is substantially shorter than the useful life
of a particular piece of equipment. The Company seeks to set its rental rates to
recoup the equipment's purchase price generally within 16 to 18 months. On a
customer-specific basis, the Company then develops a rental rate for a given
piece of equipment which takes into consideration the customer's needs with
respect to equipment type, assumed equipment utilization, length of placement,
frequency and extent of support service and volume of business. As a customer's
utilization rate increases, the Company may adjust the rental fee, which
benefits the customer by permitting them to obtain a
52
<PAGE> 54
lower rental fee and benefits the Company as it attempts to maximize the
utilization of the equipment inventory. The rental rate is designed not only to
recoup costs but also to provide the Company a targeted financial return on its
investment for the particular category of equipment. Service requirements and
rental rates are generally reviewed on a quarterly basis and rates may be
adjusted as the customer's service needs or utilization levels vary from
expected levels. This evaluation process enables the Company to continuously
monitor actual revenues as compared to targeted return objectives.
Equipment Inventory. The Company purchases movable medical equipment in
the areas of critical care, monitoring, respiratory therapy and newborn care.
Equipment acquisitions may be made to expand the Company's pool of existing
equipment or to add new equipment technologies to the Company's existing rental
pool. The Company considers historical utilization levels, customer demand, life
cycle phase of the equipment and vendor relationships before acquiring such
equipment in order to avoid speculative purchases. In the case of new
technologies, the Company has established a product evaluation committee to
consider new technologies as they become available. This evaluation process for
new products involves many of the review criteria set forth above as well as an
overall evaluation of the potential market demand for the new product.
In making equipment purchases, the Company considers the following factors:
equipment mobility, anticipated utilization level, service intensiveness and
anticipated obsolescence. Of additional consideration is the relative safety of
and the risks associated with such equipment.
The Company seeks to maximize the useful life of its equipment by renting
its older equipment inventory at lower rental rates or bundling such older
equipment with newer equipment in rental programs with price incentives to the
customer. Equipment which is no longer required or desired is either sold,
primarily to non-hospital purchasers, utilized for spare parts or sold for scrap
value.
As of March 31, 1998, the Company owned over 57,000 pieces of equipment
available for use by its customers. The cost of each category of equipment in
the Company's rental pool relative to the entire pool as of March 31, 1998 was:
critical care, 68%; monitoring, 21%; respiratory therapy, 9%; and newborn care,
2%. The following is a list of the principal types of medical equipment
available to the Company's customers by category:
<TABLE>
<S> <C> <C>
CRITICAL CARE MONITORING RESPIRATORY THERAPY
Alternating Pressure/Flotation Adult Monitors Aerosol Tents
Devices Anesthetic Agent Monitors Nebulizers
Ambulatory Infusion Pumps Apnea Monitors Oximeters
Anesthesia Machines Blood Pressure Monitors Oxygen Concentrators
Bazooka(R) Portable Specialty Beds Cardiac Care Systems Adult Ventilators
Blood/Fluid Warmers Electrocardiographs Pediatric Ventilators
Cold Therapy Units End Tidal CO(2) Monitors Portable Ventilators
Continuous Passive Motion (CPM) Fetal Monitors NEWBORN CARE
Devices Intensive Care Systems Incubators
Controllers, Infusion Neonatal Monitors Infant Warmers
Defibrillators Oximeters Phototherapy Devices
Electrosurgical Generators PO(2)/CO(2) Monitors
Heat Therapy Units Recorders and Printers
Hyper-Hypothermia Units Step-Down Telemetry Systems
Infusion Pumps Surgical Monitors
Minimal Invasive Surgical Equipment Telemetry Monitors
Patient Controlled Analgesia (PCA) Urine Output/Temperature Monitors
Sequential Compression Devices (SCD) Vital Signs Monitors
Suction Devices
Syringe Pumps
Ultrasonic Aspirators
Volumetric Infusion Pumps
Wheel Chairs
</TABLE>
53
<PAGE> 55
The Company currently acquires substantially all of its medical equipment
from approximately 50 suppliers. The Company's five largest suppliers of movable
medical equipment, which supplied approximately 70% of the Company's direct
movable medical equipment purchases for 1997, are: Nellcor Puritan Bennett Inc.,
Alaris Medical Systems Inc., The Kendall Company, Abbott Laboratories, Inc. and
Baxter Healthcare Corporation. Although the identity of the top ten suppliers
remains relatively constant from year to year, the relative ranking of suppliers
within this group may vary over time. The Company believes that alternative
sources of medical equipment are available to the Company should they be needed.
The Company seeks to ensure availability of equipment at favorable prices.
Although the Company does not generally enter into long-term fixed price
contracts with suppliers of its equipment, the Company may receive price
discounts related to the volume of its purchases. In order to receive strong
vendor support throughout the geographic areas in which it does business, the
Company seeks to structure its equipment purchases to ensure credit to local
representatives of those vendors. The purchase price for equipment generally
ranges from $1,000 to $25,000, with some complete monitoring systems costing
more than $1.0 million.
Information Technology. The Company tracks the history of each piece of
equipment in its inventory on an IBM AS/400 centralized computer system located
at its corporate headquarters. This system provides immediate access to
historical equipment information by the use of remote terminals located in the
corporate headquarters and in each of the Company's district offices and
regional service centers. Data on length of placement, transfers, modifications,
repairs, maintenance and inspections are kept for the life of the equipment and
is used extensively for the establishment of preventive maintenance and safety
testing programs and the improvement of equipment performance. The Company also
tracks utilization for each piece of equipment which helps it to maximize
utilization of all the equipment in its rental pool.
Information as to a customer's rental equipment is also provided to the
customer through the Company's Rental Equipment Documentation System ("REDS")
and the Operator Error Identification System ("OEIS"). REDS and OEIS help the
customer to meet its equipment documentation needs under applicable standards
and regulations. In addition, REDS helps the customer track the utilization
levels of each piece of equipment. Keeping utilization records helps the Company
maximize the utilization of all equipment in its inventory. The Company also
offers an optional software package that allows a particular customer to track
location, utilization and availability of all equipment rented, owned or leased
by that customer.
SALE OF DISPOSABLE PRODUCTS
In order to serve its customers fully, the Company sells disposable medical
supplies used in conjunction with the medical equipment it rents. Examples of
such disposable items include tubing and cassettes for infusion devices. The
Company believes that customers purchase disposables from the Company due to the
convenience of obtaining equipment and related supplies from one source and the
anticipated cost-savings resulting from acquiring disposables only on an
as-needed basis. The Company currently acquires substantially all of its
rental-related medical disposables from approximately 55 suppliers. The five
largest current suppliers of disposables to the Company in 1997, accounting for
over 73% of the Company's disposable purchases for 1997 are: The Kendall
Company; Graseby, Inc.; Gaymar Industries, Inc.; Alaris Medical Systems, Inc.;
and Senecare Enterprises, Inc. The Company believes that alternative purchasing
sources of most disposable medical supplies are available to the Company, if
necessary.
MAINTENANCE
The Company provides all necessary repairs and maintenance of its equipment
and maintains control over the functional testing and safety of all equipment
through its technical staff. Prior to placing equipment with a customer, the
Company applies testing standards designed to ensure the safety of all such
equipment. The Company conducts regular inspections of the equipment either at
one of the Company's district offices or regional service centers, or on-site at
the customer. In order to assist customers in meeting their equipment
documentation needs for purposes of applicable standards or regulations, the
Company maintains a complete record of all inspections, maintenance and repairs
on its REDS computer program. See "-- Operations -- Information Technology" and
"-- Regulation of Medical Equipment."
The Company's equipment is generally initially covered by manufacturers'
warranties, which typically warrant repairs for a period of three to twelve
months from the date of purchase. Because the Company
54
<PAGE> 56
employs manufacturer-trained personnel for the technical support of its
equipment, a significant portion of repair and maintenance of the Company's
equipment is conducted by the Company's employees.
MARKETING
The Company markets its rental and equipment management programs primarily
through its direct sales force, which consisted of 67 promotional sales
representatives as of March 31, 1998. In its marketing efforts, the Company
primarily targets key decision makers, such as materials managers, department
heads and directors of purchasing, nursing and central supply, as well as
administrators, chief executive officers and chief financial officers. The
Company also promotes its programs and services to hospital and alternate care
provider groups and associations. The Company develops and provides its direct
sales force with a variety of materials designed to support its promotional
efforts. The Company also uses direct mail advertising, as well as targeted
trade journal advertising to supplement this activity.
From time to time, the Company has developed specific marketing programs
intended to address current market demands. The most significant of such
programs include: the "New Realities" program, which demonstrates the economic
justification for Pay-Per-Use rentals; the AMP program, which presents hospitals
with a total management approach to equipment needs; REDS, which responds to the
equipment documentation and tracking needs of health care providers as a result
of standards set by the Joint Commission on Accreditation of Healthcare
Organizations ("JCAHO") and the Safe Medical Devices Act of 1990 ("SMDA"); and
OEIS, which responds to JCAHO requirements regarding equipment operator
training. See "-- Regulation of Medical Equipment."
DISTRICT OFFICES NETWORK
The Company currently operates through 45 district offices, serving
customers in 46 states and the District of Columbia. District offices are
typically staffed by a district manager, one or more promotional sales
representatives, an administrative assistant and delivery and service personnel
to support customers' needs and district operations. District offices are
responsible for marketing, billing and collection efforts, equipment delivery,
customer training, equipment inspection, maintenance and repair work.
Complementing the district offices are eight regional service centers, which
provide more sophisticated maintenance and repair on equipment. The following
table shows each district office location and the year it opened:
<TABLE>
<CAPTION>
OFFICE YEAR OPENED
------ -----------
<S> <C>
Minneapolis, MN.................. 1941
Omaha, NE........................ 1972
Fargo, ND........................ 1974
Marquette, MI.................... 1975
Madison, WI...................... 1975
Duluth, MN....................... 1978
Kansas City, MO.................. 1978
Sioux Falls, SD.................. 1978
Milwaukee, WI.................... 1980
Dallas, TX....................... 1981
San Antonio, TX.................. 1982
Atlanta, GA...................... 1983
St. Louis, MO.................... 1983
Tampa, FL........................ 1984
Cleveland, OH.................... 1985
Iowa City, IA.................... 1985
Chicago, IL...................... 1986
Boston, MA....................... 1986
Philadelphia, PA................. 1986
Ft. Lauderdale, FL............... 1987
Baltimore, MD.................... 1988
San Francisco, CA................ 1989
Seattle, WA...................... 1989
</TABLE>
<TABLE>
<CAPTION>
OFFICE YEAR OPENED
------ -----------
<S> <C>
New Orleans, LA.................. 1990
Charlotte, NC.................... 1990
Detroit, MI...................... 1990
Anaheim, CA...................... 1990
Phoenix, AZ...................... 1990
Pittsburgh, PA................... 1990
Cincinnati, OH................... 1992
Pasadena, CA..................... 1992
Memphis, TN...................... 1992
Houston, TX...................... 1993
Wichita, KS...................... 1993
Rochester, NY.................... 1993
New York, NY..................... 1994
San Diego, CA.................... 1994
Richmond, VA..................... 1994
Denver, CO....................... 1995
Indianapolis, IN................. 1995
Jacksonville, FL................. 1995
Sacramento, CA................... 1995
Portland, OR..................... 1996
Knoxville, TN.................... 1996
Raleigh, NC...................... 1996
</TABLE>
55
<PAGE> 57
REGULATION OF MEDICAL EQUIPMENT
The Company's customers are subject to documentation and safety reporting
standards with respect to the medical equipment they use, as established by the
following organizations and laws: JCAHO; the Association for Advancement of
Medical Instrumentation; and the SMDA. Some states and municipalities also have
similar regulations. The Company's REDS and OEIS programs are specifically
designed to help customers meet their documentation and reporting needs under
such standards and laws. The Company also monitors changes in law and
accommodates the needs of customers by providing specific product information
and manufacturers' addresses and contacts to these customers upon their request.
Manufacturers of the Company's medical equipment are subject to regulation by
agencies and organizations such as the Food and Drug Administration ("FDA"),
Underwriters Laboratories, the National Fire Protection Association and the
Canadian Standards Association. The Company believes that all medical equipment
it rents conforms to these regulations.
The SMDA expanded the FDA's authority to regulate medical devices. The SMDA
requires manufacturers, distributors and end-users to report information which
"reasonably suggests" the probability that a medical device caused or
contributed to the death, serious injury or serious illness of a patient. The
Company works with its customers to assist them in meeting their reporting
obligations under the SMDA. Although the Company does not believe that it is
subject to the SMDA or its reporting requirements, it is possible that the
Company may be deemed to be a "distributor" of medical equipment under the SMDA
and would then be subject to the reporting obligations and related liabilities
thereunder.
An additional equipment tracking regulation was added to the SMDA on August
29, 1993 which requires the Company to provide information to the manufacturer
regarding the permanent disposal of medical rental equipment and notification of
any change in ownership of certain categories of devices. The Company's medical
tracking systems have been reviewed by the FDA and found to be in substantial
compliance with these regulations.
THIRD PARTY REIMBURSEMENT
The Company's business may be significantly affected by, and the success of
its growth strategies depends on, the availability and nature of reimbursements
to hospitals and other health care providers for their medical equipment costs
under federal programs such as Medicare, and by other third party payors. Under
its prospective payment system adopted in 1983 and later modified in 1991, the
HCFA, which determines Medicare reimbursement levels, reimburses hospitals for
medical treatment at fixed rates according to diagnostic related groups without
regard to actual cost. Under this system of reimbursement, Medicare-related
equipment costs are reimbursed in a single, fixed-rate, per-discharge
reimbursement. This system, and subsequent modifications, is being phased in
over a 10 year period. As a result of the prospective payment system, the manner
in which hospitals incur equipment costs (whether through purchase, lease or
rental) does not impact the extent of hospitals' reimbursement. Since the
Medicare system, to an increasing extent, reimburses health care providers at
fixed rates unrelated to actual equipment costs, hospitals have an incentive to
manage their capital related costs more efficiently and effectively. The Company
believes that hospitals will continue to benefit from cost-containment and
cost-efficiency measures, such as converting existing fixed equipment costs to
variable costs through rental and equipment management programs.
Hospitals and alternate care providers are also facing increased cost
containment pressures from public and private insurers and other managed care
providers, such as health maintenance organizations, preferred provider
organizations and managed fee-for-service plans, as these organizations attempt
to reduce the cost and utilization of health care services. The Company believes
that these payors have followed or will follow the federal government in
limiting reimbursement for medical equipment costs through preferred provider
contracts, discounted fee arrangements and capitated (fixed patient care
reimbursement) managed care arrangements. In addition to promoting managed care
plans, employers are increasingly self funding their benefit programs and
shifting costs to employees through increased deductibles, copayments and
employee contributions. The Company believes that these cost reduction efforts
will place additional pressures on health care providers' operating margins and
will encourage efficient equipment management practices, such as use of the
Company's Pay-Per-Use rental and AMP programs.
56
<PAGE> 58
There are widespread efforts to control health care costs in the United
States and abroad. As an example, the Balanced Budget Act of 1997 significantly
reduces the growth in federal spending on Medicare and Medicaid over the next
five years by reducing annual payment updates to hospitals, changing payment
systems for both skilled nursing facilities and home health care services from
cost-based to prospective payment systems, eliminating annual payment updates
for durable medical equipment, and allowing states greater flexibility in
controlling Medicaid costs at the state level. Until the HCFA issues regulations
implementing this legislation in 1998, the Company cannot reliably predict the
timing of or the exact effect which these initiatives could have on the pricing
and profitability of, or demand for, the Company's products. The Company also
believes it is likely that the efforts by governmental and private payors to
contain costs through managed care and other efforts and to reform health
systems will continue in the future. There can be no assurance that current or
future initiatives will not have a material adverse effect on the Company's
business, financial condition or results of operations.
LIABILITY AND INSURANCE
Although the Company does not manufacture any medical equipment, the
Company's business entails the risk of claims related to the rental and sale of
medical equipment. In addition, the Company's servicing and repair activity with
respect to its rental equipment and its instruction of hospital employees with
respect to the equipment's use are additional sources of potential claims. The
Company has not suffered a material loss due to a claim; however, any such
claim, if made, could have a material adverse effect on the Company's business,
financial condition or results of operations. The Company maintains general
liability coverage, including product liability insurance and excess liability
coverage. Both policies are subject to annual renewal. The Company believes that
its current insurance coverage is adequate. There is no assurance, however, that
claims exceeding such coverage will not be made or that the Company will be able
to continue to obtain liability insurance at acceptable levels of cost and
coverage.
COMPETITION
The Company believes that the strongest competition to its rental and
outsourcing programs is the purchase alternative for obtaining movable medical
equipment. Currently, many hospitals and alternate care providers view rental
primarily as a means of meeting short-term or peak supplemental needs, rather
than as a long-term alternative to purchase. Although the Company believes that
it can demonstrate the cost-effectiveness of renting medical equipment on a
long-term per-use basis, the Company believes that many health care providers
will continue to purchase a substantial portion of their movable medical
equipment.
The Company has one principal competitor in the medical equipment rental
business: Mediq/PRN, a subsidiary of MEDIQ, based in Pennsauken, New Jersey.
Other competition consists of smaller regional companies and some medical
equipment manufacturers and dealers who rent equipment to augment their medical
equipment sales. The Company believes that it can effectively compete with any
of these entities in the geographic regions in which both the Company and these
entities operate.
SERVICE MARKS AND TRADE NAMES
The Company uses the "UHS" and "Universal Hospital Services" names as trade
names and as service marks in connection with the Company's rental of medical
equipment. The Company has registered these and other marks as service marks
with the United States Patent and Trademark Office.
EMPLOYEES
The Company had 384 employees as of December 31, 1996. Following
announcement of the Company's agreement to merge with MEDIQ on February 10,
1997, the Company experienced a gradual loss of employees, primarily among
promotional and corporate personnel. In early August 1997 the Company had 337
employees. As of March 31, 1998, the Company had 361 employees, including 329
full-time and 36 part-time employees. Of such employees, 69 are promotional
sales representatives, 40 are technical support personnel, 58 are employed in
the areas of corporate and marketing and 198 are Company district office support
personnel.
None of the Company's employees is covered by a collective bargaining
agreement, and the Company has experienced no work stoppages to date. The
Company believes that its relations with its employees are good.
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<PAGE> 59
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below are the names, ages and positions of the persons who serve
as directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David E. Dovenberg........................ 54 Director, President and Chief Executive
Officer
Jerry D. Horn............................. 60 Director
Steven G. Segal........................... 37 Director
Edward D. Yun............................. 31 Director
Robert H. Braun........................... 47 Vice President, Customer Service and
Sales -- West
Gary L. Preston........................... 56 Vice President, Customer Service and
Sales -- East
Randy C. Engen............................ 42 Vice President, Business Development
Gerald L. Brandt.......................... 49 Vice President, Finance and Chief
Financial Officer
Michael R. Johnson........................ 39 Vice President, Administrative Services
</TABLE>
David E. Dovenberg joined the Company in 1988 as Vice President, Finance
and Chief Financial Officer. Prior to joining the Company, he had been with The
Prudential Insurance Company of America since 1969. From 1979 to 1988, he was a
regional Vice President in the area of corporate investments in private
placements for Prudential Capital Corporation. Mr. Dovenberg is a member of the
Healthcare Financial Management Association and the Financial Executives
Institute. He is also a member of several Boards of Directors: Lund
International Holdings, Inc., a publicly traded manufacturer of appearance
accessories for light trucks, sport utility vehicles and vans; the Minnesota
Chapter of the United Ostomy Association and the Hennepin County Unit of the
American Cancer Society.
Jerry D. Horn is Chairman of the Board of General Nutrition Companies,
Inc., a 3,000-store vitamin and nutritional supplement retail chain operating
under the GNC name. He has served in this capacity since October 1991, and prior
to that, was President and Chief Executive Officer since 1985. Mr. Horn is also
Chairman of the Board of Cinnabon, Inc. and Central Tractor Farm & Country,
Inc., a director of Chevys, Inc. and a Managing Director of Childs Associates.
Steven G. Segal is Senior Managing Director of Childs Associates and has
been at Childs Associates since July 1995. Prior to that time, he was an
executive at Thomas H. Lee Company from August 1987, most recently holding the
position of Managing Director. He is a director of Central Tractor Farm &
Country, Inc., Empire Kosher Poultry, Inc., Jillian's Entertainment Holdings,
Inc., International DiverseFoods, Inc., Big V Supermarkets, Inc., Cinnabon, Inc.
and Fitz and Floyd, Inc.
Edward D. Yun is a Vice President of Childs Associates and has been at
Childs Associates since September 1996. From August 1994 until September 1996 he
was an Associate at DLJ Merchant Banking, Inc. He is a director of International
DiverseFoods, Inc.
Robert H. Braun joined the Company in 1975. He has held many positions
within the Company, culminating in a promotion to Director of Rental and Sales,
West, in 1996.
Gary L. Preston joined the Company in 1964. He has served as Divisional
Manager, Central, since 1990, and has been responsible for seven midwestern
district offices. Mr. Preston held many prior positions with the Company,
including serving for thirteen years as District Manager for the company's
largest district office.
Randy C. Engen joined the Company in 1979. Since then he has held multiple
sales management roles including Account, District and Divisional Manager
positions. Throughout his tenure with the Company, Mr. Engen has managed the
Company's Madison, Wisconsin district office, the Company's second largest.
Gerald L. Brandt, C.P.A. joined the Company in 1978 as Manager of
Accounting, and was promoted to Director of Finance and Accounting in 1994.
Prior to joining the Company, Mr. Brandt was Vehicle Accounting Manager for
National Car Rental from 1976 to 1978. From 1974 to 1976, he was an Auditor with
Deloitte, Haskins and Sells. He is a member of the Minnesota State Society of
Certified Public Accountants and the American Institute of Certified Public
Accountants.
Michael R. Johnson joined the Company in 1978. He has served as Director,
Human Resources/Administration since 1990. Prior to that, Mr. Johnson had been
an Instructor in the Training and
58
<PAGE> 60
Development Department, followed by a promotion to Training Manager in 1984 and
to Human Resources Manager in 1989.
EXECUTIVE COMPENSATION
Other than David E. Dovenberg, the Company's current CEO, none of the
Company's other current executive officers served as executive officers during
the last three fiscal years. The following table sets forth information for the
years indicated concerning the compensation awarded to, earned by or paid to the
persons who served as chief executive officer of the Company during the
Company's last three fiscal years, and Mr. Dovenberg (collectively, the "Named
Executive Officers"), for services rendered in all capacities to the Company
during such periods.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(A) AWARDS
------------------------------------------ ------------
AWARDS PAYOUTS ALL OTHER
------------- ------------ COMPEN-
NAME AND SALARY BONUS STOCK OPTIONS LTIP SATION
PRINCIPAL POSITION YEAR ($) ($) (SHARES) PAYOUTS ($)(B)
------------------ ---- -------- -------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
David E. Dovenberg................. 1997 159,444 21,839 0 22,304 4,500
President and Chief Executive
Officer 1996 170,631 5,904 10,740 23,306 4,500
1995 169,574 28,881 11,200 0 4,500
Thomas A. Minner................... 1997 241,028 49,530 0 71,413 4,500
Former Chief Executive Officer 1996 268,248 14,177 21,480 72,548 4,500
1995 271,476 69,353 22,400 0 4,500
</TABLE>
- ---------------
(a) The amounts shown in Annual Compensation for 1997, 1996 and 1995 reflect
salary, bonus and other annual compensation awarded to, earned by or paid to
the persons listed for services rendered to the Company and its
subsidiaries. The Company had a bonus plan (the "Executive Bonus Plan") in
which executives participated. Such bonuses were paid shortly after the end
of such fiscal year.
(b) The amounts shown in this column represent contributions by the company for
the named executive officer to the Universal Hospital Services, Inc.
Long-Term Savings Plan for the fiscal year indicated.
The Executive Bonus Plan provided for payment of cash compensation upon the
achievement of predetermined corporate and/or business unit and individual
performance goals during the calendar year.
The following table reflects awards made under the Company's Long-Term
Incentive Plan (the "LTIP") described above during the fiscal year ended
December 31, 1997 to the executive officers named in the Summary Compensation
Table above. Any payments earned and made under the LTIP are reported in the
Summary Compensation Table in the year paid. The LTIP was terminated on February
25, 1998, with pro-rated payments to be made in April 1998. The total amount to
be paid out is $75,600, including $10,630 to Mr. Dovenberg and $32,144 to Mr.
Minner.
LONG-TERM INCENTIVE PLANS -- AWARDS DURING YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
NAME UNITS(1)
---- ---------
<S> <C>
David E. Dovenberg.......................................... 47,822
Thomas A. Minner............................................ 144,611
</TABLE>
- ---------------
(1) Each unit represents one dollar of a targeted cash payment to be made upon
achievement of certain cumulative performance goals over a three-year
period. Performance goals are based on target levels of pre-tax income and
rental revenues, and the payouts are adjusted pursuant to a formula which
adjusts for performance against the target goals.
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<PAGE> 61
EMPLOYEE PENSION PLAN
The following table sets forth various estimated maximum annual pension
benefits under a combination of the Company's qualified non-contributory defined
benefit pension plan and non-qualified supplemental pension plan, maintained for
certain highly compensated employees (together the "Pension Plans"), on a
straight life annuity basis, based upon Social Security benefits now available,
assuming retirement at age 65 at various levels of compensation and specified
remuneration and years of credited service. Amounts shown are subject to Social
Security offset.
The non-qualified supplemental pension plan was terminated on February 25,
1998 with amounts paid out on March 4, 1998. Total amounts paid out under this
plan were $475,659, including payouts to Mr. Dovenberg of $31,240 and Mr. Minner
of $290,933.
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
-------------------------------------
COMPENSATION 5 10 20 30
------------ ------ ------ ------ -------
<S> <C> <C> <C> <C>
100,000........................................ 6,407 12,814 25,628 32,034
125,000........................................ 8,407 16,814 33,628 42,034
150,000........................................ 10,407 20,814 41,628 52,034
200,000........................................ 14,407 28,814 57,628 72,034
300,000........................................ 22,407 44,814 89,628 112,034
</TABLE>
A participant's remuneration covered by the Pension Plans is his or her
average salary (as reported in the Summary Compensation Table) for the five
consecutive plan years in which the employee received his or her highest average
compensation. The table does not reflect certain limitations on annual benefits
payable imposed by the Internal Revenue Code, because the Company's
non-qualified supplemental pension plan provides for the payment of additional
benefits so that retiring employees may receive, in the aggregate, the benefits
they would have been entitled to receive had such limitations not been imposed.
As of December 31, 1997, Mr. Minner and Mr. Dovenberg had 28.0 and 9.7 years of
credited service, respectively, under the Pension Plan.
EMPLOYMENT AGREEMENTS
Pursuant to a letter agreement dated November 25, 1997, (the "Dovenberg
Employment Agreement"), David E. Dovenberg, Chief Financial Officer of the
Company, agreed to serve as President and Chief Executive Officer of the Company
for a term of three years from the consummation of the Recapitalization, subject
to earlier termination pursuant to the terms thereof. The Dovenberg 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 Dovenberg Employment Agreement provides that during its
initial three year term, Mr. Dovenberg will be a member of the Board of
Directors of the Company, will receive an annual base salary of $200,000,
subject to annual adjustment based on changes in the consumer price index and
Board of Directors review, and will receive a bonus of up to 100% of such annual
base salary, based on achievement of certain EBITDA targets. It also provides
for Mr. Dovenberg's participation in one or more stock option plans to be
adopted by the Company. See "-- Stock Option Plans." Under the Dovenberg
Employment Agreement, if Mr. Dovenberg's employment is terminated by the Company
without cause or because of death or disability, or by Mr. Dovenberg because the
Company has materially breached the Dovenberg 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, or if it
is not renewed on expiration of its initial three year term or the first
one-year renewal term, or because certain other specified events have occurred,
the Company will continue to pay Mr. Dovenberg his base salary and provide his
benefits for a period of 18 months from the date of termination. Payment or
benefits under the Dovenberg Employment Agreement to Mr. Dovenberg within this
18-month period would be offset by the value of compensation from Mr.
Dovenberg's subsequent employment during this 18-month period. In addition, the
Dovenberg Employment Agreement contains certain confidentiality and
noncompetition provisions.
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<PAGE> 62
The Company has entered into employment agreements (each, an "Executive
Employment Agreement," and collectively, the "Executive Employment Agreements")
with each of Messrs. Brandt, Braun, Johnson, Preston and Engen (each, an
"Executive," and collectively, the "Executives"). The Executive Employment
Agreements each have a three year term at the end of which the agreements will
automatically renew for successive one-year terms unless terminated by either
party thereto no less than 30 days prior to the renewal date. Pursuant to the
Executive Employment Agreements, from and after the consummation of the
Recapitalization, the Executives each receive an annual base salary of $125,000,
subject to annual adjustment based on changes in the consumer price index and
Board of Directors review, and are eligible to receive a bonus of up to 100% of
their respective annual base salaries based on achievement of certain EBITDA
targets.
The Executive Employment Agreements also provide that the Executives are
entitled to receive stock options pursuant to one or more stock option plans
adopted or to be adopted by the Company. See "Stock Option Plans." Under each
Executive Employment Agreement, if an Executive's employment is terminated by
the Company by reason of death or disability, the Company would continue to pay
the Executive, or the Executive's legal representatives, as the case may be,
salary and benefits for a six-month period from the date of termination. If the
Executive's employment is terminated by the Company for other than cause or by
the Executive for good reason (i.e., a breach by the Company of the Executive's
Employment Agreement, certain reductions in salary or duties, required
relocation or other specified events), then the Company would pay the Executive
a prorated bonus for the fiscal year in which the termination occurred, and
would continue to pay the Executive's base salary for a 12-month period from the
date of termination. Payments or benefits under the Executive Employment
Agreement to the Executive within this 12-month period would be offset by the
value of compensation from the Executive's subsequent employment during this
12-month period. If the Executive's employment is terminated for cause or the
Executive resigns without good reason, then all rights to payments (other than
payments for services previously rendered), and all other benefits otherwise due
to the Executive under the Executive Employment Agreement, would cease.
In addition, the Executive Employment Agreements contain certain
confidentiality and noncompetition provisions. Finally, the Executive Employment
Agreements provide that the Executives will enter into stockholders' agreements
with the other equity investors in the Company governing certain aspects of the
relationship among such equity investors and the Company.
STOCK OPTION PLANS
The Company has adopted a stock option plan pursuant to which selected
employees of the Company may generally be granted nonqualified and incentive
stock options. In addition, under the plan, Mr. Dovenberg, the executive
officers and other key employees of the Company will be granted nonqualified
stock options to purchase up to 7.5% of the outstanding Common Stock and Common
Stock equivalents of the Company, on a fully diluted basis. Such options granted
under the plan can vest in whole or in part within five years from the date they
are granted based on the achievement of certain EBITDA targets. If within five
years after the closing of the Recapitalization, the original common stock
investors to the Recapitalization achieve a certain prescribed realized value on
their original investment, then additional options to purchase up to 3.5% of the
outstanding Common Stock and Common Stock equivalents of the Company, on a fully
diluted basis, would be granted to eligible members of management. The Company
currently intends that these additional options would also be granted under its
newly adopted stock option plan. Notwithstanding the foregoing, substantially
all such unvested options will vest eight years following the date of grant,
provided that the optionee has been continuously employed by the Company through
such date. In the event of a change in control, the unvested portion of such
outstanding options would become vested in a proportion equal to the ratio of
such options that have vested as of such date, and the total number of options
that would have vested had the Company achieved the maximum targets for all
periods prior to the change in control. Options outstanding under the Company's
former stock option plan were rolled over and are also covered under the plan.
The maximum number of shares of Common Stock reserved for options under the plan
is five million, subject to adjustment in the event of certain corporate
transactions; provided, however, that the maximum number of shares subject to
options that may be granted to any optionee in any one calendar year is one
million, subject to adjustment in the event of certain corporate transactions.
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<PAGE> 63
PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Common Stock by each beneficial owner of more than five percent
of the Common Stock, each person serving as a director of the Company and each
named executive officer and all persons serving as directors and executive
officers of the Company as a group. Except as otherwise indicated, the
beneficial owners of the voting stock listed below, based on information
furnished by such owners, have sole investment and voting power with respect to
such shares. The business address for each executive officer of the Company is
in care of the Company.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENTAGE
OWNED(1) OWNED
------------ ----------
<S> <C> <C>
David E. Dovenberg(2)....................................... 2,202,270 13.7%
Gerald L. Brandt............................................ 242,400 1.5%
Robert H. Braun............................................. 44,680 0.3%
Randy C. Engen.............................................. 79,590 0.5%
Michael R. Johnson.......................................... 101,260 0.6%
Gary L. Preston............................................. 102,740 0.7%
J.W. Childs Equity Partners, L.P............................ 12,466,931 79.8%
Steven G. Segal(3).......................................... 12,622,131 80.8%
J.W. Childs Equity Partners, L.P.
One Federal Street
Boston, Massachusetts
Jerry D. Horn(3)............................................ 12,500,905 80.0%
J.W. Childs Equity Partners, L.P.
One Federal Street
Boston, Massachusetts
Edward D. Yun(3)............................................ 12,481,149 79.9%
J.W. Childs Equity Partners, L.P.
One Federal Street
Boston, Massachusetts
All Officers & Directors as a group (nine persons).......... 15,443,263 93.7%
</TABLE>
- ---------------
(1) Includes options to purchase 850,980 shares of Common Stock held by officers
listed which are exercisable within 60 days.
(2) Includes 626,530 shares of Common Stock owned by Mr. Dovenberg's wife.
(3) Includes 12,466,931 shares held by Childs which the shareholder may be
deemed to beneficially own by virtue of his position with Childs Associates.
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<PAGE> 64
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCKHOLDERS' AGREEMENT
At the closing of the Recapitalization, Management Holders (as defined in
the Stockholders Agreement) and Childs and its affiliates (together, the
"Stockholders") entered into a stockholders' agreement (the "Stockholders'
Agreement") with the Company governing certain aspects of the relationship among
the Stockholders and the Company. The Stockholders' Agreement, among other
things: (i) restricts the ability of the Stockholders to transfer their shares
of Common Stock, subject to certain exceptions; (ii) gives the Company, Childs
and certain Designated Employees (as defined in the Stockholders' Agreement)
certain rights of first refusal with respect to shares of Common Stock held by
certain Management Holders in the event of the termination of the employment of
any such Management Holder with the Company for any reason; (iii) gives each
Management Holder certain rights, subject to certain limitations imposed by the
Credit Agreement (as defined), to require the Company to purchase shares of such
Common Stock held by him, in the event of the termination of his employment with
the Company, other than any such termination by the Company other than for Cause
or resignation by him without Good Reason (as such terms are defined in the
Stockholders' Agreement); and (iv) provides the parties thereto with certain
"tag-along," "drag-along," and "piggyback" registration rights.
MANAGEMENT AGREEMENT
At the closing of the Recapitalization, the Company entered into a
management agreement with Childs Associates providing for payment by the Company
to Childs Associates of (i) a $1.2 million advisory and financing fee in
consideration of Childs Associates' services regarding the planning, structuring
and negotiation of the Recapitalization and (ii) an annual management fee of
$240,000 in consideration of Childs Associates' ongoing provision of certain
consulting and management advisory services. Payments under this management
agreement may be made only to the extent permitted by the Revolving Credit
Facility and the Indenture. The management agreement is for a five-year term,
automatically renewable for successive extension terms of one year, unless
Childs Associates gives notice of termination.
LOANS TO EXECUTIVE OFFICERS
In connection with the Recapitalization, the Company made loans (the
"Loans"), in an aggregate principal amount of approximately $185,000, to certain
executive officers of the Company (the "Borrowers") in connection with their
purchase or retention of ownership of shares of Common Stock. The Loans each
have a term of 10 years and will be secured by a pledge of the shares of Common
Stock owned by such executive officers and will bear interest which is payable
semiannually at a rate equal to the Company's weighted average cost of capital
on the Revolving Credit Facility. The Loans are payable prior to maturity upon a
sale by a Borrower of any or all of the Borrower's equity securities of the
Company or earlier under certain circumstances. The following executive officers
received the following aggregate amount of Loans: David E. Dovenberg,
approximately $100,000, Gary L. Preston, approximately $65,000 and Gerald L.
Brandt, approximately $20,000.
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<PAGE> 65
DESCRIPTION OF THE REVOLVING CREDIT FACILITY
The Company, as the surviving corporation in the Merger, entered into a
Credit Agreement, dated as of February 25, 1998 (the "Credit Agreement"), with
the lenders party thereto (the "Lenders") and Bankers Trust Company ("Bankers
Trust"), as agent (in such capacity, the "Agent"), pursuant to which the Lenders
have provided a $30 million senior secured revolving credit facility (the
"Revolving Credit Facility") to the Company, of which up to $5 million is
available as a letter of credit sub-facility. Amounts available to the Company
under the Revolving Credit Facility are subject to satisfaction of certain
requirements (including a borrowing base test which limits the amount of loans
outstanding to a certain percentage of eligible receivables and eligible
equipment of the Company and its subsidiaries).
The Revolving Credit Facility will terminate on February 23, 2003 and
outstanding revolving credit loans will be payable on such date or such earlier
date as may be accelerated following the occurrence of any Revolving Credit
Facility event of default. As of March 31, 1998, after giving effect to the
Recapitalization, the outstanding indebtedness under the Revolving Credit
Facility was $14.9 million and unused and available commitments thereunder would
have been $15.2 million.
Borrowings under the Revolving Credit Facility were used to consummate the
Recapitalization, to make certain severance and pension related payments, and to
pay certain fees and expenses owing in connection with the Recapitalization, and
may be used to provide working capital for the Company and its subsidiaries, to
finance certain equipment purchases and for other general corporate purposes.
The obligations under the Revolving Credit Facility are guaranteed by the
Company's subsidiaries, whether now or hereafter existing (the "Guarantors"),
and the obligations of the Company and the Guarantors under their guarantees are
secured by (i) an exclusive first priority perfected security interest in
substantially all of their respective assets (including accounts receivable,
inventory, rental equipment and intangibles) (the "Security Collateral")
pursuant to a security agreement by and among the Company and Bankers Trust
dated February 25, 1998 (the "Security Agreement") and (ii) by an exclusive
first priority perfected pledge of all capital stock and notes owned by the
Company and its subsidiaries (the "Pledge Collateral") pursuant to a pledge
agreement by and among the Company and Bankers Trust dated February 25, 1998
(the "Pledge Agreement"). The Company does not have any subsidiaries at this
time. The Notes are effectively subordinated to the obligations under the
Revolving Credit Facility to the extent of the value of the assets securing the
Revolving Credit Facility.
Interest on loans outstanding under the Credit Agreement is payable at a
rate per annum, selected at the option of the Company, equal to the Base Rate
Margin, or the adjusted Eurodollar Rate Margin. Commencing September 30, 1998,
the Eurodollar Rate Margin and the Base Rate Margin used to calculate such
interest rates may be adjusted if the Company satisfies certain leverage ratios.
The Credit Agreement also provides that a commitment fee of 0.50% per annum is
payable on the unutilized amount of the Revolving Credit Facility. A letter of
credit fee equal to the applicable Eurodollar Rate Margin is payable on the
stated amount of outstanding letters of credit and a fronting fee of 0.25% based
on the stated amount of each letter of credit is payable to the issuer of each
letter of credit. Certain other fees shall be payable as have been separately
agreed to by the Company.
"Eurodollar Rate" is defined in the Credit Agreement as the offered
quotation to first-class banks by Bankers Trust in the New York interbank
Eurodollar market for dollar deposits in an amount and maturity corresponding to
the interest period for the specific advance for which such interest rate is
being determined, adjusted for reserves.
"Base Rate" is defined in the Credit Agreement as the higher of (i) the
rate Bankers Trust announces from time to time as its base rate or (ii) the
federal funds rate plus 1/2 of 1% per annum.
All overdue installments of principal and interest of the amounts bear
interest at the higher of 2% in excess of the Base Rate or 2% in excess of the
rate then borne by such borrowings.
Interest on borrowings at the adjusted Eurodollar Rate shall be determined
based on the number of days elapsed over a 360 day year, and shall be payable at
the end of the applicable interest period but in any event
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<PAGE> 66
not less often than every three months. Interest on borrowings at the Base Rate
shall be determined based on the number of days elapsed over a 365 day year and
shall be payable quarterly.
The Credit Agreement contains certain representations and warranties,
certain negative and affirmative covenants, certain conditions and events of
default which are customarily required for similar financings. The material
restrictive covenants include restrictions and limitations on dividends, capital
expenditures, liens, leases, incurrence of debt, transactions with affiliates,
investments and certain payments, and on mergers, acquisitions, consolidations
and asset sales. Furthermore, the Company is required to maintain compliance
with certain financial covenants such as a maximum leverage ratio, a maximum
fixed charge test and an interest coverage test. The Credit Agreement also
prohibits the Company from prepaying the Notes.
Events of default under the Credit Agreement include, among other things,
(i) failure to pay principal, interest, fees or other amounts when due; (ii)
violation of covenants; (iii) failure of any representation or warranty to be
true in all material respects when made; (iv) cross payment default or
non-payment default permitting acceleration with respect to or acceleration of
certain indebtedness; (v) change of ownership or control; (vi) certain events of
bankruptcy; (vii) certain judgment defaults; and (viii) certain ERISA events.
Under the terms of the Security Agreement, in the Event of Default, Bankers
Trust can (i) take immediate possession of the Security Collateral, (ii) sell,
assign or otherwise liquidate part or all of the Security Collateral (iii)
withdraw all moneys, securities and other instruments in certain accounts
related to the Security Collateral and (iv) license or sublicense any service
marks, patents or copyrights included in the Security Collateral. In addition,
under the terms of the Pledge Agreement, in the Event of Default, Bankers Trust
can (i) receive all dividends and distributions otherwise payable to the Company
with respect to the Pledged Collateral, (ii) transfer all or any part of the
Pledged Collateral into its name or the name of its nominee, (iii) to accelerate
any note included in the Pledged Collateral which may be accelerated in
accordance with its terms, (iv) vote all or any part of the securities in the
Pledged Collateral, and give all consents waivers or ratifications with respect
to such securities, and (v) to sell, assign and deliver, or grant options to
purchase all or any part of the Pledged Collateral.
The foregoing summary of the Credit Agreement is qualified in its entirety
by reference to such agreement, a copy of which is filed as an exhibit to the
Registration Statement.
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<PAGE> 67
DESCRIPTION OF THE NOTES
The New Notes will be issued under an indenture (the "Indenture"), dated as
of February 25, 1998 by and between the Company and First Trust National
Association, as Trustee (the "Trustee"). The following summary of the material
provisions of the Indenture does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, the Trust Indenture Act of
1939, as amended (the "TIA"), and to all of the provisions of the Indenture,
including the definitions of certain terms therein and those terms made a part
of the Indenture by reference to the TIA as in effect on the date of the
Indenture. A copy of the Indenture may be obtained from the Company or the
Initial Purchaser. The definitions of certain capitalized terms used in the
following summary are set forth below under "-- Certain Definitions." For
purposes of this section, references to the "Company" include only the Company
and not its Subsidiaries. The New Senior Notes are identical in all material
respects to the terms of the Old Senior Notes, except for certain transfer
restrictions and registration rights relating to the Old Senior Notes and except
that, if the Exchange Offer is not consummated by September 23, 1998, the
interest rate on the Old Senior Notes from and including such date until but
excluding the date of consummation of the Exchange Offer will increase by 0.5%.
See "-- Registration Rights."
The Old Notes are, and the New Notes will be unsecured obligations of the
Company, ranking pari passu in right of payment with all other senior unsecured
obligations of the Company.
The Notes will be issued in fully registered form only, without coupons, in
denominations of $1,000 and integral multiples thereof. Initially, the Trustee
will act as Paying Agent and Registrar for the Notes. The Notes may be presented
for registration or transfer and exchange at the offices of the Registrar, which
initially will be the Trustee's corporate trust office. The Company may change
any Paying Agent and Registrar without notice to holders of the Notes (the
"Holders"). The Company will pay principal (and premium, if any) on the Notes at
the Trustee's corporate office in New York, New York. At the Company's option,
interest may be paid at the Trustee's corporate trust office or by check mailed
to the registered address of Holders. Any Notes that remain outstanding after
the completion of the Exchange Offer, together with the Exchange Notes issued in
connection with the Exchange Offer, will be treated as a single class of
securities under the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Old Notes were limited to $180,000,000 aggregate principal amount of
which $100,000,000 aggregate principal amount were issued, and will mature on
March 1, 2008. The New Notes will be treated as a continuation of the Old Notes
which bear interest on the Notes will accrue at the rate of 10 1/4% per annum
and will be payable semiannually in cash on each March 1 and September 1
commencing on September 1, 1998, to the persons who are registered Holders at
the close of business on the February 15 and August 15 immediately preceding the
applicable interest payment date. Interest on the Notes will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from and including the date of issuance.
The Notes will not be entitled to the benefit of any mandatory sinking
fund.
REDEMPTION
Optional Redemption. The Notes will be redeemable, at the Company's
option, in whole at any time or in part from time to time, on and after March 1,
2003, upon not less than 30 nor more than 60 days' notice, at the following
redemption prices (expressed as percentages of the principal amount thereof) if
redeemed during the twelve-month period commencing on March 1 of the year set
forth below, plus, in each case, accrued and unpaid interest thereon, if any, to
the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003...................................................... 105.125%
2004...................................................... 103.844%
2005...................................................... 102.563%
2006...................................................... 101.281%
2007 and thereafter....................................... 100.000%
</TABLE>
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<PAGE> 68
Optional Redemption upon Equity Offerings. At any time, or from time to
time, on or prior to March 1, 2001, the Company may, at its option, use the net
cash proceeds of one or more Equity Offerings (as defined below) to redeem up to
35% of the aggregate principal amount of Notes originally issued at a redemption
price equal to 110 1/4% the principal amount thereof plus accrued and unpaid
interest thereon, if any, to the date of redemption; provided that at least 65%
of the principal amount of Notes originally issued remains outstanding
immediately after any such redemption. In order to effect the foregoing
redemption with the proceeds of any Equity Offering, the Company shall make such
redemption not more than 120 days after the consummation of any such Equity
Offering.
As used in the preceding paragraph, "Equity Offering" means a public or
private offering of Qualified Capital Stock of the Company.
Optional Redemption upon a Change of Control. In addition to the rights
set forth above and the obligations set forth below, the Notes will be subject
to redemption, at the option of the Company, in whole or in part, at any time
prior to March 1, 2003 and within 180 days after a Change of Control on not less
than 30 nor more than 60 days' prior notice to each Holder of Notes to be
redeemed, in principal amounts of $1,000 or integral multiples thereof, at a
redemption price equal to the sum of (i) the principal amount thereof plus (ii)
accrued and unpaid interest, if any, to the redemption date plus (iii) the
Applicable Premium. However, there can be no assurance that in the event of a
Change of Control, the Company will have or be able to acquire sufficient funds
to repurchase the Notes.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any
time, selection of Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which such Notes are listed or, if such Notes are not then listed on
a national securities exchange, on a pro rata basis, by lot or by such method as
the Trustee shall deem fair and appropriate; provided, however, that no Notes of
a principal amount of $1,000 or less shall be redeemed in part; provided,
further, that if a partial redemption is made with the proceeds of an Equity
Offering, selection of the Notes or portions thereof for redemption shall be
made by the Trustee only on a pro rata basis or on as nearly a pro rata basis as
is practicable (subject to DTC procedures), unless such method is otherwise
prohibited. Notice of redemption shall be mailed by first-class mail at least 30
but not more than 60 days before the redemption date to each Holder of Notes to
be redeemed at its registered address. If any Note is to be redeemed in part
only, the notice of redemption that relates to such Note shall state the portion
of the principal amount thereof to be redeemed. A new Note in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note. On and after the redemption
date, interest will cease to accrue on Notes or portions thereof called for
redemption as long as the Company has deposited with the Paying Agent funds in
satisfaction of the applicable redemption price pursuant to the Indenture.
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control,
each Holder has the right to require that the Company purchase all or a portion
of such Holder's Notes pursuant to the offer described below (the "Change of
Control Offer"), at a purchase price equal to 101% of the principal amount
thereof plus accrued interest to the date of purchase. Under the Indenture, a
Change of Control may include transactions that have been approved by the
Company's Board of Directors.
Not later than the 30th day following the date upon which the Change of
Control occurred, the Company must send, by first class mail, a notice to each
Holder, with a copy to the Trustee, which notice shall govern the terms of the
Change of Control Offer. Such notice shall state, among other things, the
purchase date, which must be no earlier than 30 days nor later than 45 days from
the date such notice is mailed, other than as may be required by law (the
"Change of Control Payment Date"). Holders electing to have a Note purchased
pursuant to a Change of Control Offer will be required to surrender the Note,
with the form entitled "Option of Holder to Elect Purchase" on the reverse of
the Note completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the third business day prior to the Change of
Control Payment Date.
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<PAGE> 69
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer. In the event the Company is required to
purchase outstanding Notes pursuant to a Change of Control Offer, the Company
expects that it would seek third party financing to the extent it does not have
available funds to meet its purchase obligations. However, there can be no
assurance that the Company would be able to obtain such financing.
Neither the Board of Directors of the Company nor the Trustee may waive the
covenant relating to a Holder's right to redemption upon a Change of Control.
Restrictions in the Indenture described herein on the ability of the Company and
its Restricted Subsidiaries to incur additional Indebtedness, to grant liens on
its property, to make Restricted Payments and to make Asset Sales may also make
more difficult or discourage a takeover of the Company, whether favored or
opposed by the management of the Company. Consummation of any such transaction
in certain circumstances may require redemption or repurchase of the Notes, and
there can be no assurance that the Company or the acquiring party will have
sufficient financial resources to effect such redemption or repurchase. Such
restrictions and the restrictions on transactions with Affiliates may, in
certain circumstances, make more difficult or discourage any leveraged buyout of
the Company or any of its Subsidiaries by the management of the Company. While
such restrictions cover a wide variety of arrangements which have traditionally
been used to effect highly leveraged transactions, the Indenture may not afford
the Holders of Notes protection in all circumstances from the adverse aspects of
a highly leveraged transaction, reorganization, restructuring, merger or similar
transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. The Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness); provided, however, that if no Default or Event of Default shall
have occurred and be continuing at the time of or as a consequence of the
incurrence of any such Indebtedness, the Company may incur Indebtedness
(including, without limitation, Acquired Indebtedness) and Subsidiaries of the
Company may incur Acquired Indebtedness, in each case if on the date of the
incurrence of such Indebtedness, after giving effect to the incurrence thereof,
the Consolidated Fixed Charge Coverage Ratio of the Company is greater than (w)
2.0 to 1.0, if the date of such incurrence is prior to March 1, 1999, or (x)
2.25 to 1.0, if the date of such incurrence is on or after March 1, 1999 and
prior to March 1, 2001, or (y) 2.5 to 1.0, if the date of such incurrence is on
or after March 1, 2001.
For the purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Indebtedness or is otherwise entitled to be incurred
pursuant to this covenant, the Company shall, in its sole discretion, classify
such item of Indebtedness in any manner that complies with this covenant and
such items of Indebtedness will be treated as having been incurred pursuant to
only one of such clauses or pursuant to the first paragraph hereof. Accrual of
interest and the accretion of accreted value will not be deemed to be an
incurrence of Indebtedness for purposes of this covenant.
Neither the Company nor any Guarantor will incur any Indebtedness which by
its terms (or by the terms of any agreement governing such Indebtedness) is
subordinated in right of payment to any other Indebtedness of the Company or
such Guarantor, as the case may be, unless such Indebtedness is also by its
terms (or by the terms of any agreement governing such Indebtedness) made
expressly subordinate in right of payment to the Notes or the Guarantee (as
defined) pursuant to subordination provisions that are substantively identical
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<PAGE> 70
to the subordination provisions of such Indebtedness (or such agreement) that
are most favorable to the holders of any other Indebtedness of the Company or
such Guarantor, as the case may be.
Limitation on Restricted Payments. The Company will not, and will not
cause or permit any of its Restricted Subsidiaries to, directly or indirectly,
(a) declare or pay any dividend or make any distribution (other than dividends
or distributions payable in Qualified Capital Stock of the Company) on or in
respect of shares of the Company's Capital Stock to holders of such Capital
Stock, (b) purchase, redeem or otherwise acquire or retire for value (except
from the Company or a Restricted Subsidiary) any Capital Stock of the Company or
any warrants, rights or options to purchase or acquire shares of any class of
such Capital Stock, (c) make any principal payment on, purchase, defease,
redeem, prepay, decrease or otherwise acquire or retire for value, prior to any
scheduled final maturity, scheduled repayment or scheduled sinking fund payment,
any Indebtedness of the Company not held by a Restricted Subsidiary that is
subordinate or junior in right of payment to the Notes (except the prepayment,
purchase, repurchase, or other acquisition or retirement of Indebtedness in
anticipation of satisfying a sinking fund obligation, principal installment or
final maturity in each case within one year of the date of prepayment, purchase,
repurchase or other acquisition or retirement) or (d) make any Investment (other
than Permitted Investments) (each of the foregoing actions set forth in clauses
(a), (b) (c) and (d) being referred to as a "Restricted Payment"), if at the
time of such Restricted Payment or immediately after giving effect thereto, (i)
a Default or an Event of Default shall have occurred and be continuing, (ii) the
Company is not able to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) in compliance with the "Limitation on Incurrence of
Additional Indebtedness" covenant or (iii) the aggregate amount of Restricted
Payments (including such proposed Restricted Payment) made subsequent to the
Issue Date (the amount expended for such purposes, if other than in cash, being
the fair market value of such property as determined reasonably and in good
faith by the Board of Directors of the Company) shall exceed the sum of: (w) 50%
of the cumulative Consolidated Net Income (or if cumulative Consolidated Net
Income shall be a loss, minus 100% of such loss) of the Company earned
subsequent to the Issue Date and on or prior to the date the Restricted Payment
occurs (the "Reference Date") (treating such period as a single accounting
period); plus (x) 100% of the aggregate net cash proceeds received by the
Company from any Person (other than a Subsidiary of the Company) from the
issuance and sale subsequent to the Issue Date and on or prior to the Reference
Date of Qualified Capital Stock of the Company; plus (y) without duplication of
any amounts included in clause (iii)(x) above, 100% of the aggregate net cash
proceeds of any equity contribution received by the Company from a holder of the
Company's Capital Stock (excluding, in the case of clauses (iii)(x) and (y), any
net cash proceeds from Equity Offerings to the extent used to redeem the Notes
in accordance with the provisions under the caption entitled
"Redemption -- Optional Redemption upon Equity Offerings"); plus (aa) 100% of
the aggregate net cash proceeds received after the Issue Date by the Company
from any Person (other than a Subsidiary of the Company) for debt securities
that have been converted or exchanged into or for Qualified Capital Stock of the
Company (to the extent such debt securities were originally sold for cash) plus
the aggregate amount of cash received by the Company (other than from a
Subsidiary of the Company) in connection with such conversion or exchange, plus
(bb) in the case of the disposition or repayment of any Investment constituting
a Restricted Payment after the Issue Date, an amount equal to the lesser of the
return of capital with respect to such Investment and the initial amount of such
Investment, in either case, less the cost of the disposition of such Investment,
and (cc) so long as the designation thereof was treated as a Restricted Payment
made after the Issue Date, with respect to any Unrestricted Subsidiary that has
been redesignated as a Restricted Subsidiary after the Issue Date, the fair
market value of the Company's interest in such Subsidiary calculated in
accordance with GAAP, provided that such amount shall not in any case exceed the
designation amount with respect to such Restricted Subsidiary upon its
designation.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit: (1) the payment of any dividend or the
consummation of any purchase or redemption within 60 days after the date of
declaration of such dividend or the giving of any irrevocable notice in respect
of any such purchase or redemption if the dividend or purchase or redemption
would have been permitted on the date of declaration or the giving of each
irrevocable notice; (2) if no Default or Event of Default shall have occurred
and be continuing, the acquisition of any shares of Capital Stock of the
Company, either (i) solely in exchange for shares of Qualified Capital Stock of
the Company or (ii) through the application of net proceeds of a
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substantially concurrent sale for cash (other than to a Subsidiary of the
Company) of shares of Qualified Capital Stock of the Company; (3) if no Default
or Event of Default shall have occurred and be continuing, the purchase,
defeasance, redemption, prepayment or other acquisition or retirement for value
of any Indebtedness of the Company that is subordinate or junior in right of
payment to the Notes either (i) solely in exchange for shares of Qualified
Capital Stock of the Company, or (ii) through the application of net proceeds of
a substantially concurrent sale for cash (other than to a Subsidiary of the
Company) of (A) shares of Qualified Capital Stock of the Company or (B)
Refinancing Indebtedness; (4) so long as no Default or Event of Default shall
have occurred and be continuing, repurchases by the Company of Common Stock of
the Company or stock appreciation rights or similar interests in the Company
from directors, officers or employees of the Company or any of its Subsidiaries
or their authorized representatives upon the death, disability or termination of
employment of such employees, in an aggregate amount not to exceed $750,000 in
any calendar year; (5) Investments in securities not constituting cash or Cash
Equivalents and received in connection with an Asset Sale made pursuant to the
provisions of the covenant described under "-- Certain Covenants -- Limitation
on Asset Sales" below; and (6) payments made in connection with the application
of the net proceeds of the Recapitalization. In determining the aggregate amount
of Restricted Payments made subsequent to the Issue Date in accordance with
clause (iii) of the immediately preceding paragraph, amounts expended pursuant
to clauses (1), (2) and (4) shall be included in such calculation.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an officers' certificate stating that such Restricted
Payment complies with the Indenture and setting forth in reasonable detail the
basis upon which the required calculations were computed, which calculations may
be based upon the Company's latest available internal quarterly financial
statements.
Limitation on Asset Sales. The Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company or the applicable Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold or otherwise disposed of (as determined in good faith
by the Company's Board of Directors), (ii) at least 75% of the consideration
received by the Company or the Restricted Subsidiary, as the case may be, from
such Asset Sale shall be in the form of cash or Cash Equivalents and is received
at the time of such disposition, and (iii) upon the consummation of an Asset
Sale, the Company shall apply, or cause such Restricted Subsidiary to apply, the
Net Cash Proceeds relating to such Asset Sale within 360 days of receipt thereof
either (A) to prepay any Indebtedness ranking at least pari passu with the Notes
(including amounts under the Credit Agreement) and, in the case of any such
Indebtedness under any revolving credit facility, effect a permanent reduction
in the availability under such revolving credit facility, (B) to make an
investment in properties and assets that replace the properties and assets that
were the subject of such Asset Sale or in properties and assets that will be
used in the business of the Company and its Subsidiaries as existing on the
Issue Date or in businesses reasonably related thereto ("Replacement Assets"),
or (C) a combination of prepayment and investment permitted by the foregoing
clauses (iii)(A) and (iii)(B). On the 361st day after an Asset Sale or such
earlier date, if any, as the Board of Directors of the Company or of such
Restricted Subsidiary determines not to apply the Net Cash Proceeds relating to
such Asset Sale as set forth in clauses (iii)(A), (iii)(B) and (iii)(C) of the
next preceding sentence (each, a "Net Proceeds Offer Trigger Date"), such
aggregate amount of Net Cash Proceeds which have not been applied on or before
such Net Proceeds Offer Trigger Date as permitted in clauses (iii)(A), (iii)(B)
and (iii)(C) of the next preceding sentence (each a "Net Proceeds Offer Amount")
shall be applied by the Company or such Restricted Subsidiary to make an offer
to purchase (the "Net Proceeds Offer") on a date (the "Net Proceeds Offer
Payment Date") not less than 30 nor more than 45 days following the applicable
Net Proceeds Offer Trigger Date, from all Holders on a pro rata basis, that
amount of Notes equal to the Net Proceeds Offer Amount at a price equal to 100%
of the principal amount of the Notes to be purchased, plus accrued and unpaid
interest thereon, if any, to the date of purchase; provided, however, that if at
any time any non-cash consideration received by the Company or any Restricted
Subsidiary of the Company, as the case may be, in connection with any Asset Sale
is converted into or sold or otherwise disposed of for cash (other than interest
received with respect to any such non-cash consideration), then such conversion
or disposition shall be deemed to constitute an Asset Sale hereunder and the Net
Cash Proceeds thereof shall be applied in accordance with this covenant. The
Company may defer any Net Proceeds Offer until there is an aggregate unutilized
Net
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Proceeds Offer Amount equal to or in excess of $5.0 million resulting from one
or more Asset Sales (at which time, the entire unutilized Net Proceeds Offer
Amount, and not just the amount in excess of $5.0 million, shall be applied as
required pursuant to this paragraph). Upon completion of a Net Proceeds Offer
the Net Proceeds Offer Amount shall be reset to zero.
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under "-- Merger, Consolidation
and Sale of Assets," the successor corporation shall be deemed to have sold the
properties and assets of the Company and its Restricted Subsidiaries not so
transferred for purposes of this covenant, and shall comply with the provisions
of this covenant with respect to such deemed sale as if it were an Asset Sale.
In addition, the fair market value of such properties and assets of the Company
or its Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash
Proceeds for purposes of this covenant.
Notwithstanding the two immediately preceding paragraphs, the Company and
its Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (i) at least 75% of the
consideration for such Asset Sale constitutes Replacement Assets and (ii) such
Asset Sale is for fair market value; provided, that any consideration not
constituting Replacement Assets received by the Company and its Restricted
Subsidiaries in connection with any Asset Sale permitted to be consummated under
this paragraph shall constitute Net Cash Proceeds subject to the provisions of
the two preceding paragraphs.
Each Net Proceeds Offer will be mailed to the record Holders as shown on
the register of Holders within 25 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set forth
in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may
elect to tender their Notes in whole or in part in integral multiples of $1,000
in exchange for cash. To the extent Holders properly tender Notes in an amount
exceeding the Net Proceeds Offer Amount, Notes of tendering Holders will be
purchased on a pro rata basis (based on amounts tendered). A Net Proceeds Offer
shall remain open for a period of 20 business days or such longer period as may
be required by law.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset Sale"
provisions of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the "Asset Sale" provisions of the Indenture by virtue
thereof.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any consensual encumbrance or restriction on
the ability of any Restricted Subsidiary of the Company to (a) pay dividends or
make any other distributions on or in respect of its Capital Stock; (b) make
loans or advances or to pay any Indebtedness or other obligation owed to the
Company or any other Restricted Subsidiary of the Company; or (c) transfer any
of its property or assets to the Company or any other Restricted Subsidiary of
the Company, except for such encumbrances or restrictions existing under or by
reason of: (1) applicable law; (2) the Indenture; (3) customary non-assignment
provisions of any contract or any lease governing a leasehold interest of any
Restricted Subsidiary of the Company; (4) any instrument governing Acquired
Indebtedness, which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person or the
properties or assets of the Person so acquired (including, but not limited to,
such Person's direct and indirect Subsidiaries); (5) agreements existing on the
Issue Date to the extent and in the manner such agreements are in effect on the
Issue Date; (6) an agreement entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of a Restricted Subsidiary or
an agreement entered into for the sale of specified assets (in either case, so
long as such encumbrance or restriction, by its terms, terminates on the earlier
of the termination of such agreement or the consummation of such agreement and
so long as such restriction applies only to the Capital Stock or assets to be
sold); (7) the Credit Agreement; (8) an agreement governing Indebtedness
incurred to Refinance the Indebtedness issued, assumed or incurred pursuant to
an agreement
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referred to in clause (2), (4), (5) or (7) above; provided, however, that the
provisions relating to such encumbrance or restriction contained in any such
Indebtedness are no less favorable to the Company in any material respect as
determined by the Board of Directors of the Company in their reasonable and good
faith judgment than the provisions relating to such encumbrance or restriction
contained in agreements referred to in such clause (2), (4) or (5); (9) any
security or pledge agreements, leases or options (or similar agreements)
containing customary restrictions on transfers of the assets encumbered thereby
or leased or subject to option or on the transfer or subletting of the leasehold
interest represented thereby; or (10) any encumbrances or restrictions imposed
by any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings of contracts, instruments
or obligations referred to in clauses (1) through (9), provided, that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are, in the good faith judgment of the
Company, no more restrictive with respect to such encumbrances or restrictions
than those contained in such contracts, instruments or obligations prior to such
amendment, modification, restatement, renewal, increase, supplement, refunding,
replacement or refinancing.
Limitation on Preferred Stock of Restricted Subsidiaries. The Company will
not permit any of its Restricted Subsidiaries to issue any Preferred Stock
(other than to the Company or to a Wholly Owned Restricted Subsidiary of the
Company) or permit any Person (other than the Company or a Wholly Owned
Restricted Subsidiary of the Company) to own any Preferred Stock of any
Restricted Subsidiary of the Company. Notwithstanding the foregoing, nothing in
such covenant will prohibit the ownership of Preferred Stock issued by a person
prior to the time (A) such person becomes a Restricted Subsidiary of the
Company, (B) such person merges with or into a Restricted Subsidiary of the
Company or (C) a Restricted Subsidiary of the Company merges with or into such
person; provided that such Preferred Stock was not issued by such person in
anticipation of a transaction contemplated by subclause (A), (B) or (C) above.
Limitation on Liens. The Company will not, and will not cause or permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or permit or suffer to exist any Liens of any kind against or upon any
property or assets of the Company or any of its Restricted Subsidiaries whether
owned on the Issue Date or acquired after the Issue Date, or any proceeds
therefrom, or assign or otherwise convey any right to receive income or profits
therefrom unless (i) in the case of Liens securing Indebtedness that is
expressly subordinate or junior in right of payment to the Notes, the Notes are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens and (ii) in all other cases, the Notes are equally and
ratably secured, except for (A) Liens existing as of the Issue Date to the
extent and in the manner such Liens are in effect on the Issue Date; (B) Liens
securing obligations under the Credit Agreement; (C) Liens securing the Notes;
(D) Liens of the Company or a Restricted Subsidiary of the Company on assets of
any Subsidiary of the Company; (E) Liens securing Refinancing Indebtedness which
is incurred to Refinance any Indebtedness which has been secured by a Lien
permitted under the Indenture and which has been incurred in accordance with the
provisions of the Indenture; provided, however, that such Liens (A) are no less
favorable to the Holders and are not more favorable to the lienholders with
respect to such Liens than the Liens in respect of the Indebtedness being
Refinanced and (B) do not extend to or cover any property or assets of the
Company or any of its Restricted Subsidiaries not securing the Indebtedness so
Refinanced; and (F) Permitted Liens.
Merger, Consolidation and Sale of Assets. The Company will not, in a
single transaction or series of related transactions, consolidate or merge with
or into any Person, or sell, assign, transfer, lease, convey or otherwise
dispose of (or cause or permit any Restricted Subsidiary of the Company to sell,
assign, transfer, lease, convey or otherwise dispose of) all or substantially
all of the Company's assets (determined on a consolidated basis for the Company
and the Company's Restricted Subsidiaries) whether as an entirety or
substantially as an entirety to any Person unless: (i) either (1) the Company
shall be the surviving or continuing corporation or (2) the Person (if other
than the Company) formed by such consolidation or into which the Company is
merged or the Person which acquires by sale, assignment, transfer, lease,
conveyance or other disposition the properties and assets of the Company and of
the Company's Restricted Subsidiaries substantially as an entirety (the
"Surviving Entity") (x) shall be a corporation organized and validly existing
under the laws of the United States or any State thereof or the District of
Columbia and (y) shall expressly
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assume, by supplemental indenture (in form and substance satisfactory to the
Trustee), executed and delivered to the Trustee, the due and punctual payment of
the principal of, and premium, if any, and interest on all of the Notes and the
performance of every covenant of the Notes, the Indenture and the Registration
Rights Agreement on the part of the Company to be performed or observed; (ii)
immediately after giving effect to such transaction and the assumption
contemplated by clause (i)(2)(y) above (including giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction), the Company or such
Surviving Entity, as the case may be, shall be able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
"-- Limitation on Incurrence of Additional Indebtedness" covenant; (iii)
immediately before and immediately after giving effect to such transaction and
the assumption contemplated by clause (i)(2)(y) above (including, without
limitation, giving effect to any Indebtedness and Acquired Indebtedness incurred
or anticipated to be incurred and any Lien granted in connection with or in
respect of the transaction), no Default or Event of Default shall have occurred
or be continuing; and (iv) the Company or the Surviving Entity shall have
delivered to the Trustee an officers' certificate and an opinion of counsel,
each stating that such consolidation, merger, sale, assignment, transfer, lease,
conveyance or other disposition and, if a supplemental indenture is required in
connection with such transaction, such supplemental indenture comply with the
applicable provisions of the Indenture and that all conditions precedent in the
Indenture relating to such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
Notwithstanding the foregoing clauses (ii), (iii) and (iv), (A) any
Restricted Subsidiary may consolidate with, merge into or transfer all or part
of its properties and assets to the Company or another Restricted Subsidiary of
the Company and (B) the Company may merge with an Affiliate incorporated solely
for the purpose of reincorporating the Company in another jurisdiction.
The Indenture will provide that upon any consolidation, combination or
merger or any transfer of all or substantially all of the assets of the Company
in accordance with the foregoing, in which the Company is not the continuing
corporation, the successor Person formed by such consolidation or into which the
Company is merged or to which such conveyance, lease or transfer is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture and the Notes with the same effect as if such
surviving entity had been named as such.
Limitations on Transactions with Affiliates. (a) The Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
enter into any transaction or series of related transactions (including, without
limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service) with, or for the benefit of, any of its Affiliates
(each an "Affiliate Transaction"), other than (x) Affiliate Transactions
permitted under paragraph (b) below and (y) Affiliate Transactions on terms that
are no less favorable than those that might reasonably have been obtained in a
comparable transaction at such time on an arm's-length basis from a Person that
is not an Affiliate of the Company or such Restricted Subsidiary. All Affiliate
Transactions (and each series of related Affiliate Transactions which are
similar or part of a common plan) involving aggregate payments or other property
with a fair market value in excess of $2.5 million shall be approved by the
Board of Directors of the Company or such Restricted Subsidiary, as the case may
be, such approval to be evidenced by a Board Resolution stating that such Board
of Directors has determined that such transaction complies with the foregoing
provisions. If the Company or any Restricted Subsidiary of the Company enters
into an Affiliate Transaction (or a series of related Affiliate Transactions
related to a common plan) that involves an aggregate fair market value of more
than $5.0 million, the Company or such Restricted Subsidiary, as the case may
be, shall, prior to the consummation thereof, obtain a favorable opinion as to
the fairness of such transaction or series of related transactions to the
Company or the relevant Restricted Subsidiary, as the case may be, from a
financial point of view, from an Independent Financial Advisor and file the same
with the Trustee.
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(b) The restrictions set forth in clause (a) shall not apply to (i)
reasonable fees and compensation paid to and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any Restricted
Subsidiary of the Company as determined in good faith by the Company's Board of
Directors or senior management; (ii) transactions exclusively between or among
the Company and any of its Restricted Subsidiaries or exclusively between or
among such Restricted Subsidiaries, provided such transactions are not otherwise
prohibited by the Indenture; (iii) Restricted Payments permitted by the
Indenture; (iv) payments made pursuant to the Management Agreement; (v) loans
and advances (or guarantees of third party loans) to officers or employees of
the Company or any of its Restricted Subsidiaries in the ordinary course of
business not to exceed $750,000 at any time outstanding; (vi) any employment
agreement, collective bargaining agreement, employee benefit plan, related trust
agreement, indemnification agreement, benefit plan or similar plan (including
arrangements made with respect to bonuses) for the benefit of directors,
officers or employees of the Company or any of its Restricted Subsidiaries
entered into in the ordinary course of business; and (vii) the transactions and
payments contemplated by any agreement as in effect as of the Issue Date
(including without limitation, the Merger Agreement and the Stockholders'
Agreement).
Limitation of Guarantees by Restricted Subsidiaries. The Company will not
permit any of its Restricted Subsidiaries, directly or indirectly, by way of the
pledge of any intercompany note or otherwise, to assume, guarantee or in any
other manner become liable with respect to any Indebtedness of the Company or
any other Restricted Subsidiary (other than Indebtedness incurred under the
Credit Agreement), unless such Restricted Subsidiary executes and delivers a
supplemental indenture to the Indenture, providing a guarantee of payment of the
Notes by such Restricted Subsidiary (the "Guarantee").
Notwithstanding the foregoing, any such Guarantee by a Restricted
Subsidiary of the Notes shall provide by its terms that it shall be
automatically and unconditionally released and discharged, without any further
action required on the part of the Trustee or any Holder, upon: (i) the
unconditional release of such Restricted Subsidiary from its liability in
respect of the Indebtedness in connection with which such Guarantee was executed
and delivered pursuant to the preceding paragraph; or (ii) any sale or other
disposition (by merger or otherwise) to any Person which is not a Restricted
Subsidiary of the Company of all of the Company's Capital Stock in, or all or
substantially all of the assets of, such Restricted Subsidiary; provided that
(a) such sale or disposition of such Capital Stock or assets is otherwise in
compliance with the terms of the Indenture and (b) such assumption, guarantee or
other liability of such Restricted Subsidiary has been released by the holders
of the other Indebtedness so guaranteed.
Conduct of Business. The Company and its Restricted Subsidiaries will not
engage in any businesses which are not the same, similar, reasonably related,
ancillary or complementary to the businesses in which the Company and its
Restricted Subsidiaries are engaged on the Issue Date.
Reports to Holders. The Indenture provides that the Company will deliver
to the Trustee within 15 days after the filing of the same with the Commission,
copies of the quarterly and annual reports and of the information, documents and
other reports, if any, which the Company is required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act. The Indenture further
provides that, notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will file with the Commission, to the extent permitted, and provide the Trustee
and Holders with such annual reports and such information, documents and other
reports specified in Sections 13 and 15(d) of the Exchange Act. The Company will
also comply with the other provisions of TIA sec.314(a).
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest on any Notes when the same becomes due
and payable and the default continues for a period of 30 days;
(ii) the failure to pay the principal on any Notes, when such
principal becomes due and payable, at maturity, upon redemption or
otherwise (including the failure to make a payment to purchase Notes
tendered pursuant to a Change of Control Offer or a Net Proceeds Offer);
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(iii) a default in the observance or performance of any other covenant
or agreement contained in the Indenture which default continues for a
period of 60 days after the Company receives written notice specifying the
default (and demanding that such default be remedied) from the Trustee or
the Holders of at least 25% of the outstanding principal amount of the
Notes (except in the case of a default with respect to the "Merger,
Consolidation and Sale of Assets" covenant, which will constitute an Event
of Default with such notice requirement but without such passage of time
requirement);
(iv) the failure to pay at final maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount
of any Indebtedness of the Company or any Restricted Subsidiary of the
Company and such failure continues for a period of 20 days or more, or the
acceleration of the final stated maturity of any such Indebtedness (which
acceleration is not rescinded, annulled or otherwise cured within 20 days
of receipt by the Company or such Restricted Subsidiary of notice of any
such acceleration) if the aggregate principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in
default for failure to pay principal at final maturity or which has been
accelerated, aggregates $5.0 million or more at any time;
(v) one or more judgments in an aggregate amount in excess of $5.0
million shall have been rendered against the Company or any of its
Significant Subsidiaries and such judgments remain undischarged, unpaid or
unstayed for a period of 60 days after such judgment or judgments become
final and non-appealable; or
(vi) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries.
If an Event of Default (other than an Event of Default specified in clause
(vi) above with respect to the Company) shall occur and be continuing, the
Trustee or the Holders of at least 25% in principal amount of outstanding Notes
may declare the principal of and accrued interest on all the Notes to be due and
payable by notice in writing to the Company and the Trustee specifying the
respective Event of Default and that it is a "notice of acceleration" (the
"Acceleration Notice"), and the same shall become immediately due and payable.
If an Event of Default specified in clause (vi) above with respect to the
Company occurs and is continuing, then all unpaid principal of, and premium, if
any, and accrued and unpaid interest on all of the outstanding Notes shall ipso
facto become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any Holder.
The Indenture provides that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding paragraph,
the Holders of a majority in principal amount of the Notes may rescind and
cancel such declaration and its consequences (i) if the rescission would not
conflict with any judgment or decree, (ii) if all existing Events of Default
have been cured or waived except nonpayment of principal or interest that has
become due solely because of the acceleration, (iii) to the extent the payment
of such interest is lawful, interest on overdue installments of interest and
overdue principal, which has become due otherwise than by such declaration of
acceleration, has been paid, (iv) if the Company has paid the Trustee its
reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (v) in the event of the cure or waiver of an
Event of Default of the type described in clause (vi) of the description above
of Events of Default, the Trustee shall have received an officers' certificate
and an opinion of counsel that such Event of Default has been cured or waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
The Holders of a majority in principal amount of the Notes may waive any
existing Default or Event of Default under the Indenture, and its consequences,
except a default in the payment of the principal of or interest on any Notes.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the
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then outstanding Notes have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee.
Under the Indenture, the Company is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge of
any Default or Event of Default (provided that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance"). Such Legal Defeasance means that the Company shall be deemed to
have paid and discharged the entire Indebtedness represented by the outstanding
Notes, except for (i) the rights of Holders to receive payments in respect of
the principal of, premium, if any, and interest on the Notes when such payments
are due, (ii) the Company's obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or
stolen Notes and the maintenance of an office or agency for payments, (iii) the
rights, powers, trust, duties and immunities of the Trustee and the Company's
obligations in connection therewith and (iv) the Legal Defeasance provisions of
the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, reorganization and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders cash in U.S. dollars, non-callable U.S. government obligations,
or a combination thereof, in such amounts as will be sufficient, in the opinion
of a nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the Notes on the stated date for
payment thereof or on the applicable redemption date, as the case may be; (ii)
in the case of Legal Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred; (iii) in
the case of Covenant Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit (other than a Default or Event of Default resulting from
the borrowing of funds to be applied to such deposit and the grant of any lien
securing such borrowing); (v) such Legal Defeasance or Covenant Defeasance shall
not result in a breach or violation of, or constitute a default under the
Indenture or any other material agreement or instrument to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee an
officers' certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others; (vii) the Company shall have delivered to
the Trustee an officers' certificate and an opinion of counsel, each stating
that all conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with; (viii) the Company shall
have delivered to the Trustee an opinion of counsel to the effect that after the
91st day following the deposit, the trust funds will not be
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subject to the effect of any applicable bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally; and (ix) certain other
customary conditions precedent are satisfied. Notwithstanding the foregoing, the
opinion of counsel required by clauses (ii) and (iii) above need not be
delivered if all the Notes not therefore delivered to the Trustee for
cancellation (i) have become due and payable, (ii) will become due and payable
on the maturity date within one year, or (iii) are to be called for redemption
within one year under arrangement satisfactory to the Trustee for giving of
notice of redemption by such Trustee in the name, and at the expense of the
Company.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be; (ii)
the Company has paid all other sums payable under the Indenture by the Company;
and (iii) the Company has delivered to the Trustee an officers' certificate and
an opinion of counsel stating that all conditions precedent under the Indenture
relating to the satisfaction and discharge of the Indenture have been complied
with.
MODIFICATION OF THE INDENTURE
From time to time, the Company and the Trustee, without the consent of the
Holders, may amend the Indenture for certain specified purposes, including
evidencing the succession of another Person to the Company or any Guarantor and
the assumption by any such successor of the covenants of the Company or any
Guarantor in the Indenture and in the Notes, qualifying or maintaining the
qualification of the Indenture under the TIA, curing ambiguities, defects or
inconsistencies, or making any other change that does not, in the opinion of the
Trustee, adversely affect the rights of any of the Holders in any material
respect. In formulating its opinion on such matters, the Trustee will be
entitled to rely on such evidence as it deems appropriate, including, without
limitation, solely on an opinion of counsel. Other modifications and amendments
of the Indenture may be made with the consent of the Holders of a majority in
principal amount of the then outstanding Notes issued under the Indenture
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, Notes), except that, without the
consent of each Holder affected thereby, no amendment may: (i) reduce the amount
of Notes whose Holders must consent to an amendment; (ii) reduce the rate of or
change or have the effect of changing the time for payment of interest,
including defaulted interest, on any Notes; (iii) reduce the principal of or
change or have the effect of changing the fixed maturity of any Notes, or change
the date on which any Notes may be subject to redemption or repurchase, or
reduce the redemption or repurchase price therefor; (iv) make any Notes payable
in money other than that stated in the Notes; (v) make any change in provisions
of the Indenture protecting the right of each Holder to receive payment of
principal of and interest on such Note on or after the due date thereof or to
bring suit to enforce such payment, or permitting Holders of a majority in
principal amount of Notes to waive Defaults or Events of Default; (vi) amend,
change or modify in any material respect the obligation of the Company to make
and consummate a Change of Control Offer in the event of a Change of Control or
make and consummate a Net Proceeds Offer with respect to any Asset Sale that has
been consummated or modify any of the provisions or definitions with respect
thereto after a Change of Control has occurred or the subject Asset Sale has
been consummated; or (vii) modify or change any provision of the Indenture or
the related definitions affecting the ranking of the Notes or any Guarantee in a
manner which adversely affects the Holders.
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GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York but without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it by the Indenture, and use the same
degree of care and skill in its exercise as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. Subject to the TIA, the
Trustee will be permitted to engage in other transactions; provided that if the
Trustee acquires any conflicting interest as described in the TIA, it must
eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of
the Company or at the time it merges or consolidates with the Company or any of
its Restricted Subsidiaries or assumed in connection with the acquisition of
assets from such Person and in each case not incurred by such Person in
connection with, or in anticipation or contemplation of, such Person becoming a
Restricted Subsidiary of the Company or such acquisition, merger or
consolidation.
"Affiliate" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the foregoing.
"Applicable Premium" means, with respect to a Note, the greater of (i) 1.0%
of the then outstanding principal amount of such Note and (ii) the excess of (A)
the present value at such time of (1) the redemption price of such Note at March
1, 2003 plus (2) all remaining required interest payments due on such Note
through March 1, 2003, computed using a discount rate equal to the Treasury Rate
plus 50 basis points, over (B) the then outstanding principal amount of such
Note.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary of the Company in any other Person pursuant to which such
Person shall become a Restricted Subsidiary of the Company or any Restricted
Subsidiary of the Company, or shall be merged with or into the Company or any
Restricted Subsidiary of the Company, or (b) the acquisition by the Company or
any Restricted Subsidiary of the Company of the assets of any Person (other than
a Restricted Subsidiary of the Company) which constitute all or substantially
all of the assets of such Person or comprises any division or line of business
of such Person or any other properties or assets of such Person other than in
the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to
any Person other than
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the Company or a Restricted Subsidiary of the Company of (a) any Capital Stock
of any Restricted Subsidiary of the Company; or (b) any other property or assets
of the Company or any Restricted Subsidiary of the Company other than in the
ordinary course of business; provided, however, that Asset Sales shall not
include (i) a transaction or series of related transactions for which the
Company or its Restricted Subsidiaries receive aggregate consideration of less
than $1.0 million; (ii) disposals or replacements of obsolete or worn-out
equipment in the ordinary course of business; (iii) the sale or discount, in
each case without recourse (other than recourse for a breach of a representation
or warranty) of accounts receivable arising in the ordinary course of business,
but only in connection with the compromise or collection thereof; (iv) any
Restricted Payment and (v) the sale, lease, conveyance, disposition or other
transfer of all or substantially all of the assets of the Company as permitted
under "Merger, Consolidation and Sale of Assets."
"Board of Directors" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person and (ii) with respect to any
Person that is not a corporation, any and all partnership or other equity
interests of such Person.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state thereof or the District of Columbia or
any U.S. branch of a foreign bank having at the date of acquisition thereof
combined capital and surplus of not less than $250,000,000; (v) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; and (vi) investments in money
market funds which invest substantially all their assets in securities of the
types described in clauses (i) through (v) above.
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Company to any Person or group of related Persons for purposes of Section 13(d)
of the Exchange Act (a "Group"), together with any Affiliates thereof (whether
or not otherwise in compliance with the provisions of the Indenture) other than
to the Permitted Holders; (ii) the approval by the holders of Capital Stock of
the Company of any plan or proposal for the liquidation or dissolution of the
Company (whether or not otherwise in compliance with the provisions of the
Indenture); (iii) any Person or Group (other than the Permitted Holders) shall
become the owner, directly or indirectly, beneficially or of record, of shares
representing more than 50% of the aggregate ordinary voting power represented by
the issued and outstanding Capital Stock of the Company; or (iv) the replacement
of a majority of the Board of Directors of the Company over a two-year period
from the directors who constituted the Board of Directors of the
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Company at the beginning of such period, and such replacement shall not have
been approved by a vote of at least a majority of the Board of Directors of the
Company then still in office who either were members of such Board of Directors
at the beginning of such period or whose election as a member of such Board of
Directors was previously so approved.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Company" means Universal Hospital Services, Inc., a Minnesota corporation.
"Consolidated EBITDA" means, with respect to any Person, for any period,
the sum (without duplication) of (i) Consolidated Net Income and (ii) to the
extent Consolidated Net Income has been reduced thereby, (A) all income taxes of
such Person and its Restricted Subsidiaries paid or accrued in accordance with
GAAP for such period (other than income taxes attributable to extraordinary,
unusual or nonrecurring gains or losses or taxes attributable to sales or
dispositions outside the ordinary course of business), (B) Consolidated Interest
Expense and (C) Consolidated Non-cash Charges less any non-cash items increasing
Consolidated Net Income for such period, all as determined on a consolidated
basis for such Person and its Restricted Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio for which financial statements are available (the
"Transaction Date") to Consolidated Fixed Charges of such Person for the Four
Quarter Period. In addition to and without limitation of the foregoing, for
purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed
Charges" shall be calculated after giving effect on a pro forma basis for the
period of such calculation to (i) the incurrence or repayment of any
Indebtedness of such Person or any of its Restricted Subsidiaries (and the
application of the proceeds thereof) giving rise to the need to make such
calculation and any incurrence or repayment of other Indebtedness (and the
application of the proceeds thereof), other than the incurrence or repayment of
Indebtedness in the ordinary course of business for working capital purposes
pursuant to working capital facilities, occurring during the Four Quarter Period
or at any time subsequent to the last day of the Four Quarter Period and on or
prior to the Transaction Date, as if such incurrence or repayment, as the case
may be (and the application of the proceeds thereof), occurred on the first day
of the Four Quarter Period and (ii) any Asset Sales or Asset Acquisitions
(including, without limitation, any Asset Acquisition giving rise to the need to
make such calculation as a result of such Person or one of its Restricted
Subsidiaries (including any Person who becomes a Restricted Subsidiary as a
result of the Asset Acquisition) incurring, assuming or otherwise being liable
for Acquired Indebtedness and also including any Consolidated EBITDA (including
any pro forma expense and cost reductions calculated on a basis consistent with
Regulation S-X under the Exchange Act) attributable to the assets which are the
subject of the Asset Acquisition or Asset Sale during the Four Quarter Period)
occurring during the Four Quarter Period or at any time subsequent to the last
day of the Four Quarter Period and on or prior to the Transaction Date, as if
such Asset Sale or Asset Acquisition (including the incurrence, assumption or
liability for any such Acquired Indebtedness) occurred on the first day of the
Four Quarter Period. If such Person or any of its Restricted Subsidiaries
directly or indirectly guarantees Indebtedness of a third Person, the preceding
sentence shall give effect to the incurrence of such guaranteed Indebtedness as
if such Person or any Restricted Subsidiary of such Person had directly incurred
or otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating
"Consolidated Fixed Charges" for purposes of determining the denominator (but
not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1)
interest on outstanding Indebtedness determined on a fluctuating basis as of the
Transaction Date and which will continue to be so determined thereafter shall be
deemed to have accrued at a fixed rate per annum equal to the rate of interest
on such Indebtedness in effect on the Transaction Date; (2) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
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Four Quarter Period; and (3) notwithstanding clause (1) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense, plus
(ii) the product of (x) the amount of all dividend payments on any series of
Preferred Stock of such Person (other than dividends paid in Qualified Capital
Stock) paid, accrued or scheduled to be paid or accrued during such period times
(y) a fraction, the numerator of which is one and the denominator of which is
one minus the then current effective consolidated federal, state and local tax
rate of such Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication: (i) the aggregate of the interest
expense of such Person and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including without
limitation, (a) any amortization of debt discount and amortization or write-off
of deferred financing costs, (b) the net costs under Interest Swap Obligations,
(c) all capitalized interest and (d) the interest portion of any deferred
payment obligation; and (ii) the interest component of Capitalized Lease
Obligations paid, accrued and/or scheduled to be paid or accrued by such Person
and its Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom (a) after-tax gains
or losses from Asset Sales or abandonments or reserves relating thereto, (b)
after-tax items classified as extraordinary or nonrecurring gains or losses, (c)
the net income or loss of any Person acquired in a "pooling of interests"
transaction accrued prior to the date it becomes a Restricted Subsidiary of the
referent Person or is merged or consolidated with the referent Person or any
Restricted Subsidiary of the referent Person, (d) the net income (but not loss)
of any Restricted Subsidiary of the referent Person to the extent that the
declaration of dividends or similar distributions by that Restricted Subsidiary
of that income is restricted by a contract, operation of law or otherwise, (e)
the net income of any Person, other than a Restricted Subsidiary of the referent
Person, except to the extent of cash dividends or distributions paid to the
referent Person or to a Restricted Subsidiary of the referent Person by such
Person, (f) any restoration to income of any contingency reserve, except to the
extent that provision for such reserve was made out of Consolidated Net Income
accrued at any time following the Issue Date, (g) income or loss attributable to
discontinued operations (including, without limitation, operations disposed of
during such period whether or not such operations were classified as
discontinued), and (h) in the case of a successor to the referent Person by
consolidation or merger or as a transferee of the referent Person's assets, any
earnings of the successor corporation prior to such consolidation, merger or
transfer of assets.
"Consolidated Non-cash Charges" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such Person and its Restricted Subsidiaries reducing Consolidated Net Income of
such Person and its Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP (excluding any such charges
constituting an extraordinary item or loss or any such charge which requires an
accrual of or a reserve for cash charges for any future period).
"Credit Agreement" means the Credit Agreement dated as of February 25,
1998, among the Company, the lenders party thereto in their capacities as
lenders thereunder and Bankers Trust Company, as agent, together with the
related documents thereto (including, without limitation, any guarantee
agreements and security documents), in each case as such agreements may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including
increasing the amount of available borrowings thereunder or adding Restricted
Subsidiaries of the Company as additional borrowers
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or guarantors thereunder) all or any portion of the Indebtedness under such
agreement or any successor or replacement agreement and whether by the same or
any other agent, lender or group of lenders.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"Disqualified Capital Stock" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof on or prior to the final
maturity date of the Notes.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute or statutes thereto.
"Fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors of the Company acting reasonably
and in good faith and shall be evidenced by a Board Resolution of the Board of
Directors of the Company delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Guarantor" means each of the Company's Restricted Subsidiaries that in the
future executes a supplemental indenture in which such Restricted Subsidiary
agrees to be bound by the terms of the Indenture as a Guarantor; provided that
any Person constituting a Guarantor as described above shall cease to constitute
a Guarantor when its respective Guarantee is released in accordance with the
terms of the Indenture.
"Indebtedness" means with respect to any Person, without duplication, (i)
all Obligations of such Person for borrowed money, (ii) all Obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all Capitalized Lease Obligations of such Person, (iv) all Obligations of such
Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations under any title retention
agreement (but excluding trade accounts payable and other accrued liabilities
arising in the ordinary course of business that are not overdue 180 days or more
or are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted), (v) all Obligations for the reimbursement
of any obligor on any letter of credit, banker's acceptance or similar credit
transaction, (vi) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (i) through (v) above and clause (viii)
below, (vii) all Obligations of any other Person of the type referred to in
clauses (i) through (vi) which are secured by any lien on any property or asset
of such Person, the amount of such Obligation being deemed to be the lesser of
the fair market value of such property or asset or the amount of the Obligation
so secured, (viii) all Obligations under currency agreements and interest swap
agreements of such Person and (ix) all Disqualified Capital Stock issued by such
Person with the amount of Indebtedness represented by such Disqualified Capital
Stock being equal to the greater of its voluntary or involuntary liquidation
preference and its maximum fixed repurchase price, but excluding accrued
dividends, if any. For purposes hereof, the "maximum fixed repurchase price" of
any Disqualified Capital Stock which does not have a fixed repurchase price
shall be calculated in accordance with the terms of such Disqualified Capital
Stock as if such Disqualified Capital Stock were purchased on any date on which
Indebtedness shall be required to be determined pursuant to the Indenture, and
if such price is based upon, or measured by, the fair market value of such
Disqualified Capital Stock, such fair market value shall be determined
reasonably and in good faith by the Board of Directors of the issuer of such
Disqualified Capital Stock.
"Independent Financial Advisor" means a firm (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in
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the judgment of the Board of Directors of the Company, is otherwise independent
and qualified to perform the task for which it is to be engaged.
"Interest Swap Obligations" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person. "Investment" shall exclude extensions of trade credit by the
Company and its Restricted Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of the Company or such Restricted
Subsidiary, as the case may be. For the purposes of the "Limitation on
Restricted Payments" covenant, (i) "Investment" shall include and be valued at
the fair market value of the net assets of any Restricted Subsidiary at the time
that such Restricted Subsidiary is designated an Unrestricted Subsidiary and
shall exclude the fair market value of the net assets of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary and (ii) the amount of any Investment shall be the
original cost of such Investment plus the cost of all additional Investments by
the Company or any of its Restricted Subsidiaries, without any adjustments for
increases or decreases in value, or write-ups, write-downs or write-offs with
respect to such Investment, reduced by the payment of dividends or distributions
in connection with such Investment or any other amounts received in respect of
such Investment; provided that no such payment of dividends or distributions or
receipt of any such other amounts shall reduce the amount of any Investment if
such payment of dividends or distributions or receipt of any such amounts would
be included in Consolidated Net Income. If the Company or any Restricted
Subsidiary of the Company sells or otherwise disposes of any Common Stock of any
direct or indirect Restricted Subsidiary of the Company such that, after giving
effect to any such sale or disposition, such Subsidiary is no longer a
Restricted Subsidiary, the Company shall be deemed to have made an Investment on
the date of any such sale or disposition equal to the fair market value of the
Common Stock of such Subsidiary not sold or disposed of.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
"Management Agreement" means the management agreement by and between the
Company and J.W. Childs Associates, L.P., as in effect on the Issue Date.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest) received by
the Company or any of its Restricted Subsidiaries from such Asset Sale net of
(a) out-of-pocket expenses and fees relating to such Asset Sale (including,
without limitation, legal, accounting and investment banking fees and sales
commissions), (b) taxes paid or payable after taking into account any reduction
in consolidated tax liability due to available tax credits or deductions and any
tax sharing arrangements, (c) repayment of Indebtedness that is required to be
repaid in connection with such Asset Sale and (d) appropriate amounts to be
provided by the Company or any Restricted Subsidiary, as the case may be, as a
reserve, in accordance with GAAP, against any liabilities associated with such
Asset Sale and retained by the Company or any Restricted Subsidiary, as the case
may be, after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale.
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"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Permitted Holders" means J.W. Childs Equity Partners, L.P. and its
Affiliates.
"Permitted Indebtedness" means, without duplication, each of the following:
(i) Indebtedness under the Notes and the Indenture up to $100 million
at any time outstanding;
(ii) Indebtedness incurred pursuant to the Credit Agreement in an
aggregate principal amount at any time outstanding not to exceed the
greater of (x) $30.0 million and (y) the sum of 85% of Eligible Accounts
Receivable and 60% of the net book value of Eligible Rental Equipment, in
each case as defined in the Credit Agreement, reduced, in either case, by
any required permanent repayments pursuant to the provisions of the
"Limitation on Asset Sales" covenant (which are accompanied by a
corresponding permanent commitment reduction in the case of a revolving
credit facility) thereunder;
(iii) other Indebtedness of the Company and its Restricted
Subsidiaries outstanding on the Issue Date reduced by the amount of any
scheduled amortization payment or mandatory prepayments when actually paid
or permanent reductions thereon;
(iv) Interest Swap Obligations of the Company covering Indebtedness of
the Company or any of its Restricted Subsidiaries; provided, however, that
such Interest Swap Obligations are entered into to protect the Company and
its Restricted Subsidiaries from fluctuations in interest rates on
Indebtedness incurred in accordance with the Indenture to the extent the
notional principal amount of such Interest Swap Obligation does not exceed
the principal amount of the Indebtedness to which such Interest Swap
Obligation relates;
(v) Indebtedness of a Restricted Subsidiary of the Company to the
Company or to a Restricted Subsidiary of the Company for so long as such
Indebtedness is held by the Company or a Restricted Subsidiary of the
Company or the lenders or collateral agent under the Credit Agreement, in
each case subject to no Lien held by a Person other than the Company or a
Restricted Subsidiary of the Company or the lenders or collateral agent
under the Credit Agreement; provided that if as of any date any Person
other than the Company or a Restricted Subsidiary of the Company or the
lenders or collateral agent under the Credit Agreement owns or holds any
such Indebtedness or holds a Lien in respect of such Indebtedness, such
date shall be deemed the incurrence of Indebtedness not constituting
Permitted Indebtedness by the issuer of such Indebtedness;
(vi) Indebtedness of the Company to a Restricted Subsidiary of the
Company for so long as such Indebtedness is held by a Restricted Subsidiary
of the Company or the lenders or collateral agent under the Credit
Agreement, in each case subject to no Lien held by a Person other than the
lenders or the collateral agent under the Credit Agreement; provided that
(a) any Indebtedness of the Company to any Restricted Subsidiary of the
Company is unsecured and subordinated, pursuant to a written agreement, to
the Company's obligations under the Indenture and the Notes and (b) if as
of any date any Person other than a Restricted Subsidiary of the Company
owns or holds any such Indebtedness or any Person holds a Lien in respect
of such Indebtedness, such date shall be deemed the incurrence of
Indebtedness not constituting Permitted Indebtedness by the Company;
(vii) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within three business days of incurrence;
(viii) Indebtedness of the Company or any of its Restricted
Subsidiaries represented by letters of credit for the account of the
Company or such Restricted Subsidiary, as the case may be, in order to
provide security for workers' compensation claims, payment obligations in
connection with self-insurance or similar requirements in the ordinary
course of business;
(ix) Refinancing Indebtedness;
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(x) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount not to exceed $10.0 million
at any one time outstanding;
(xi) Purchase Money Indebtedness and Capitalized Lease Obligations in
an aggregate amount for all Indebtedness incurred by the Company or any
Restricted Subsidiary pursuant to this subclause (xi) not to exceed $5.0
million at any one time outstanding;
(xii) guarantees of Indebtedness otherwise permitted under the
Indenture; and
(xiii) Indebtedness of the Company or any Restricted Subsidiary
consisting of guarantees, indemnities or obligations in respect of purchase
price adjustments in connection with the acquisition or disposition of
assets, including, without limitation shares of Capital Stock.
"Permitted Investments" means:
(i) Investments by the Company or any Restricted Subsidiary of the
Company in any Person that is or will become immediately after such
Investment a Restricted Subsidiary of the Company or that will merge or
consolidate into the Company or a Restricted Subsidiary of the Company;
(ii) Investments in the Company by any Restricted Subsidiary of the
Company; provided that any Indebtedness evidencing such Investment is
unsecured and subordinated, pursuant to a written agreement, to the
Company's obligations under the Notes and the Indenture;
(iii) investments in cash and Cash Equivalents;
(iv) loans and advances to employees and officers of the Company and
its Restricted Subsidiaries in the ordinary course of business for bona
fide business purposes (including to permit the purchase of or to carry
Capital Stock of the Company) not in excess of $500,000 at any one time
outstanding;
(v) Interest Swap Obligations entered into in the ordinary course of
the Company's or its Restricted Subsidiaries' businesses and otherwise in
compliance with the Indenture;
(vi) other Investments not to exceed $7.5 million at any one time
outstanding; provided that on the date such Investment is made, after
giving effect to such Investment, the Consolidated Fixed Charge Coverage
Ratio of the Company is greater than (x) 2.25 to 1.0 if the Investment is
made prior to March 1, 2001 and (y) 2.50 to 1.0 if the Investment is made
on or after March 1, 2001;
(vii) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon
the bankruptcy or insolvency of such trade creditors or customers;
(viii) Investments made by the Company or its Restricted Subsidiaries
as a result of consideration received in connection with an Asset Sale made
in compliance with the "Limitation on Asset Sales" covenant;
(ix) Investments the payment of which consists exclusively of
Qualified Capital Stock of the Company;
(x) Investments in existence on the Issue Date;
(xi) guarantees of Indebtedness otherwise permitted under the
Indenture;
(xii) receivables owing to the Company or any Restricted Subsidiary,
if created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; and
(xiii) Investments consisting of Permitted Indebtedness.
"Permitted Liens" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries
shall have set aside on its books such reserves as may be required pursuant
to GAAP;
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(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, including any Lien securing letters of
credit issued in the ordinary course of business consistent with past
practice in connection therewith, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(iv) judgment Liens not giving rise to an Event of Default;
(v) easements, rights-of-way, zoning restrictions, eminent domain
proceedings and other similar charges or encumbrances in respect of real
property not interfering in any material respect with the ordinary conduct
of the business of the Company or any of its Restricted Subsidiaries;
(vi) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation;
(vii) purchase money Liens to finance the acquisition, construction or
improvement in the ordinary course of business of property or assets of the
Company or any Restricted Subsidiary of the Company; provided, however,
that (A) the related purchase money Indebtedness shall not exceed the cost
of such acquisition, construction or improvement of such property or assets
and shall not be secured by any property or assets of the Company or any
Restricted Subsidiary of the Company other than the property and assets so
acquired (whether through the direct acquisition of such property or assets
or indirectly through the acquisition of the Capital Stock of any Person
owning such property or assets or completion of construction or
improvement), constructed or improved and (B) the Lien securing such
Indebtedness shall be created within 90 days of such acquisition;
(viii) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
(ix) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and
set-off;
(xi) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(xii) Liens securing Acquired Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant;
provided that (A) such Liens secured such Acquired Indebtedness at the time
of and prior to the incurrence of such Acquired Indebtedness by the Company
or a Restricted Subsidiary of the Company and were not granted in
connection with, or in anticipation of, the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary of the Company and
(B) such Liens do not extend to or cover any property or assets of the
Company or of any of its Restricted Subsidiaries other than the property or
assets that secured the Acquired Indebtedness prior to the time such
Indebtedness became Acquired Indebtedness of the Company or a Restricted
Subsidiary of the Company and are no more favorable to the lienholders than
those securing the Acquired Indebtedness prior to the incurrence of such
Acquired Indebtedness by the Company or a Restricted Subsidiary of the
Company;
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(xiii) Liens existing as of the Issue Date;
(xiv) Liens securing Indebtedness under the Credit Agreement incurred
under clauses (ii) and (x) of the definition of Permitted Indebtedness;
(xv) Liens in favor of the Company or a Restricted Subsidiary;
(xvi) Liens on property or assets of the Company or any Restricted
Subsidiary securing Indebtedness incurred under clause (x) of the
definition of "Permitted Indebtedness";
(xvii) licenses, leases or subleases to third parties;
(xviii) Liens arising from precautionary Uniform Commercial Code
financing statements relating to operating leases of the Company and its
Restricted Subsidiaries;
(xix) Liens incurred in the ordinary course of business of the Company
or any Restricted Subsidiary of the Company with respect to obligations
that do not exceed $7.5 million at any one time outstanding and that (a)
are not incurred in connection with the borrowing of money or the obtaining
of advances or credit (other than trade credit in the ordinary course of
business) and (b) do not materially detract from the value of the property
or materially impair the use thereof in the ordinary course of business of
the Company and its Restricted Subsidiaries; and
(xx) any extension, renewal or replacement, in whole or in part, of
any Lien described in the foregoing clauses (i) through (xix); provided
that the lien so extended, renewed or replaced does not extent to any
additional property or assets.
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Purchase Money Indebtedness" means Indebtedness of the Company or its
Restricted Subsidiaries incurred for the purpose of financing all or any part of
the purchase price or the cost of installation, construction or improvement of
any property and any Refinancing thereof.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
Restricted Subsidiary of the Company of Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant (other than
pursuant to clause (ii), (iv), (v), (vi), (vii), (viii), (x) or (xi) of the
definition of Permitted Indebtedness), in each case that does not (1) result in
an increase in the aggregate principal amount of Indebtedness of such Person as
of the date of such proposed Refinancing (plus the amount of any premium
required to be paid under the terms of the instrument governing such
Indebtedness and plus the amount of reasonable expenses incurred by the Company
in connection with such Refinancing) or (2) create Indebtedness with (A) a
Weighted Average Life to Maturity that is less than the Weighted Average Life to
Maturity of the Indebtedness being Refinanced or (B) a final maturity earlier
than the final maturity of the Indebtedness being Refinanced; provided that (x)
if such Indebtedness being Refinanced is Indebtedness of the Company, then such
Refinancing Indebtedness shall be Indebtedness solely of the Company and (y) if
such Indebtedness being Refinanced is subordinate or junior to the Notes, then
such Refinancing Indebtedness shall be subordinate to the Notes at least to the
same extent and in the same manner as the Indebtedness being Refinanced.
"Restricted Subsidiary" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any property, whether owned
by the Company or any Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person or
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to any other Person from whom funds have been or are to be advanced by such
Person on the security of such Property.
"Significant Subsidiary" shall have the meaning set forth in Rule 1.02(w)
of Regulation S-X under the Securities Act.
"Subsidiary", with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled by, and
published in, the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two business days prior to the date
fixed for redemption of the Notes following a Change of Control (or, if such
Statistical Release is no longer published, any publicly available source of
similar market data)) most nearly equal to the then remaining Weighted Average
Life to Maturity of the Notes; provided, however, that if the Weighted Average
Life to Maturity of the Notes is not equal to the constant maturity of a United
States Treasury security for which a weekly average yield is given, the Treasury
Rate shall be obtained by linear interpolation (calculated to the nearest
one-twelfth of a year) from the weekly average yields of United States Treasury
securities for which such yields are given, except that if the Weighted Average
Life to Maturity of the Notes is less than one year, the weekly average yield on
actually traded United States Treasury securities adjusted to a constant
maturity of one year shall be used.
"Unrestricted Subsidiary" of any Person means (i) any Subsidiary of such
Person that at the time of determination shall be or continue to be designated
an Unrestricted Subsidiary by the Board of Directors of such Person in the
manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The
Board of Directors may designate any Subsidiary (including any newly acquired or
newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary
owns any Capital Stock of, or owns or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided that (x) the Company certifies to the
Trustee that such designation complies with the "Limitation on Restricted
Payments" covenant and (y) each Subsidiary to be so designated and each of its
Subsidiaries has not at the time of designation, and does not thereafter,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable with respect to any Indebtedness pursuant to which the lender
has recourse to any of the assets of the Company or any of its Restricted
Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary only if (x) immediately after giving effect to
such designation, the Company is able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
"Limitation on Incurrence of Additional Indebtedness" covenant and (y)
immediately before and immediately after giving effect to such designation, no
Default or Event of Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect to
such designation and an officers' certificate certifying that such designation
complied with the foregoing provisions.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total of
the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding voting securities (other
than in the case of a foreign Restricted Subsidiary, directors' qualifying
shares or an immaterial amount of shares required to be owned by other Persons
pursuant to applicable law) are owned by such Person or any Wholly Owned
Restricted Subsidiary of such Person.
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REGISTRATION RIGHTS
Holders of the New Notes are not entitled to any registration rights with
respect to the New Notes. The Company entered into the Registration Rights
Agreement with the Initial Purchaser for the benefit of the holders of the Old
Notes, pursuant to which the Company agreed that it would, at its cost, by
August 24, 1998, use its best efforts to cause a registration statement (the
"Registration Statement") to be declared effective under the Securities Act
relating to the exchange of Old Notes for registered notes. The Registration
Statement of which this Prospectus is a part constitutes the registration
statement for purposes of the Registration Rights Agreement. Upon the
Registration Statement being declared effective, the Company will offer the New
Notes in exchange for surrender of the Old Notes. The Company will keep the
Exchange Offer open for not less than 30 days (or longer if required by
applicable law) after the date the notice of the Exchange Offer is mailed to the
holders of the Old Notes. For each Old Note surrendered to the Company pursuant
to the Exchange Offer, the holder of such Old Note will receive a New Note
having a principal amount equal to that of the surrendered Old Note. Under
existing Commission interpretations, the New Notes would in general be freely
transferable after the Exchange Offer without further registration under the
Securities Act; provided, however, that in the case of broker-dealers, a
prospectus meeting the requirements of the Securities Act be delivered as
required. The Company has agreed for a period of 180 days after consummation of
the Exchange Offer to make available a prospectus meeting the requirements of
the Securities Act to any broker-dealer for use in connection with any resale of
any such New Notes acquired as described below. A broker-dealer which delivers
such a prospectus to purchasers in connection with such resales will be subject
to certain of the civil liability provisions under the Securities Act and will
be bound by the provisions of the Registration Rights Agreement (including
certain indemnification rights and obligations).
In the event that applicable interpretations of the staff of the Commission
do not permit the Company to effect such an Exchange Offer, or if for any other
reason the Exchange Offer is not consummated by September 23, 1998, the Company
will, at its cost, (a) as promptly as practicable, file a shelf registration
statement with respect to the resale of the Old Notes (the "Shelf Registration
Statement") covering resales of the Old Notes, (b) use its best efforts to cause
the Shelf Registration Statement to be declared effective under the Securities
Act and (c) use its best efforts to keep effective the Shelf Registration
Statement until two years after its effective date. The Company will, in the
event of the Shelf Registration Statement, provide to each holder of the Old
Notes copies of the prospectus, which is a part of the Shelf Registration
Statement, notify each such holder when the Shelf Registration Statement for the
Old Notes has become effective and take certain other actions as are required to
permit unrestricted resales of the Old Notes. A holder of Old Notes who sells
such Old Notes pursuant to the Shelf Registration Statement generally would be
required to be named as a selling security holder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the Registration Rights Agreement which are
applicable to such a holder (including certain indemnification obligations).
If by September 23, 1998 neither (i) the Exchange Offer is consummated nor
(ii) the Shelf Registration Statement is declared effective, the rate per annum
at which the Old Notes bear interest will increase by 0.5% from and including
such date, until but excluding the earlier of (i) the consummation of the
Exchange Offer and (ii) the effective date of a Shelf Registration Statement.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is filed as an exhibit to the Registration Statement
of which this Prospectus constitutes a part.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain federal income tax considerations
applicable to the exchange of Old Notes for New Notes and the ownership and
disposition of the New Notes by holders who acquire the New Notes pursuant to
the Exchange Offer. This discussion is based on laws, regulations, rulings and
decisions now in effect, all of which are subject to change. The discussion does
not cover all aspects of federal taxation that may be relevant to, or the actual
tax effect that any of the matters described herein will have on, particular
holders, and does not address state, local, foreign or other tax laws. Certain
holders (including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, taxpayers subject to the alternative minimum tax
and foreign partners) may be subject to special rules not discussed below. The
description assumes that holders of the New Notes will hold the New Notes as
"capital assets" (generally, property held for investment purposes) within the
meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the
"Code").
EACH HOLDER SHOULD CONSULT ITS OWN TAX ADVISOR IN DETERMINING THE FEDERAL,
STATE, LOCAL AND ANY OTHER TAX CONSEQUENCES TO THE PARTICULAR HOLDER OF THE
EXCHANGE OF OLD NOTES FOR NEW NOTES AND THE OWNERSHIP AND DISPOSITION OF THE NEW
NOTES.
EXCHANGE OF NOTES
The exchange of the Old Notes for the New Notes pursuant to the Exchange
Offer will not be treated as an "exchange" for federal income tax purposes
because the New Notes do not differ materially in kind or extent from the Old
Notes, and because the exchange will occur by operation of the terms of the Old
Notes. Rather the New Notes received by a holder will be treated as a
continuation of the Old Notes in the hands of such holder. As a result, no gain
or loss will be recognized on the exchange of Old Notes for New Notes pursuant
to the Exchange Offer.
DISPOSITION OF NEW NOTES
If a New Note is redeemed, sold or otherwise disposed of, the holder
thereof will generally recognize gain or loss equal to the difference between
the amount realized on the redemption, sale or other disposition of such New
Note and the holder's adjusted basis in the New Note. Such gain or loss will be
capital gain or loss, provided that the holder held the New Note as a capital
asset, and will be long-term capital gain or loss if the U.S. Holder has held
the New Note for more than one year at the time of disposition. In certain
circumstances, U.S. Holders that are individuals may be entitled to preferential
treatment for net long-term capital gains, particularly in the case of capital
assets held for 18 months or more at the time of disposition. Subject to the
market discount rules discussed below, such gain or loss will be capital gain or
loss and will be long-term capital gain or loss if, on the date of the sale, a
holder has a holding period for the New Notes (which would include the holding
period of the Old Notes) of more than one year.
Under the market discount rules of the Code, an exchanging holder (other
than a holder who made the election described below) who purchased an Old Note
with "market discount" (generally defined as the amount by which the adjusted
issue price of the Old Note on the holder's date of purchase exceeds the
holder's purchase price) will be required to treat any gain recognized on the
redemption, sale or other disposition of the New Note received in the exchange
as ordinary income to the extent of the market discount that accrued during the
holding period of such New Note (which would include the holding period of the
Old Note). A holder who has elected under applicable Code provisions to include
market discount in income annually as such discount accrues will not, however,
be required to treat any gain recognized as ordinary income under these rules.
Holders should consult their tax advisors as to the portion of any gain that
would be taxable as ordinary income under these provisions.
90
<PAGE> 92
BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the Notes will initially be issued in the form
of one or more registered Notes in global form without coupons (each a "Global
Note"). Each Global Note will be deposited with, or on behalf of, DTC and
registered in the name of Cede & Co., as nominee of DTC, or will remain in the
custody of the Trustee pursuant to the FAST Balance Certificate Agreement
between DTC and the Trustee.
DTC has advised the Company that it is (i) a limited purpose trust company
organized under the laws of the State of New York, (ii) a member of the Federal
Reserve System, (iii) a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended, and (iv) a "Clearing Agency" registered pursuant to
Section 17A of the Exchange Act. DTC was created to hold securities for its
participation (collectively, the "Participants") and facilitates the clearance
and settlement of securities transactions between Participants through
electronic book-entry changes to the accounts of its Participants, thereby
eliminating the need for physical transfer and delivery of certificates. DTC's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other entities such
as banks, brokers, dealers and trust companies (collectively, the "Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Holders who are not Participants may
beneficially own securities held by or on behalf of the Depository only through
Participants or Indirect Participants.
The Company expects that pursuant to procedures established by DTC (i) upon
deposit of the Global Notes, DTC will credit the accounts of Participants
designated by the Initial Purchasers with an interest in the Global Note and
(ii) ownership of the Notes will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by DTC (with respect
to the interest of Participants), the Participants and the Indirect
Participants. The laws of some states require that certain persons take physical
delivery in definitive form of securities that they own and that security
interest in negotiable instruments can only be perfected by delivery of
certificates representing the instruments. Consequently, the ability to transfer
Notes or to pledge the Notes as collateral will be limited to such extent.
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or such nominee, as the case may be, will be considered the sole owner or holder
of the Notes represented by the Global Note for all purposes under the
Indentures. Except as provided below, owners of beneficial interests in a Global
Note will not be entitled to have Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of certificated securities (the "Certificated Securities"), and will
not be considered the owners or Holders thereof under the Indentures for any
purpose, including with respect to giving of any directions, instruction or
approval to the Trustee thereunder. As a result, the ability of a person having
a beneficial interest in Notes represented by a Global Note to pledge or
transfer such interest to persons or entities that do not participate in DTC's
system or to otherwise take action with respect to such interest, may be
affected by the lack of a physical certificate evidencing such interest.
Accordingly, each holder owning a beneficial interest in a Global Note must
rely on the procedures of DTC and, if such holder is not a Participant or an
Indirect Participant, on the procedures of the Participant through which such
holder owns its interest, to exercise any rights of a holder of Notes under the
Indenture or such Global Note. The Company understands that under existing
industry practice, in the event the Company requests any action of holders of
Notes or a holder that is an owner of a beneficial interest in a Global Note
desires to take any action that DTC, as the holder of such Global Note, is
entitled to take, DTC would authorize the Participants to take such action and
the Participant would authorize holders owning through such Participants to take
such action or would otherwise act upon the instruction of such holders. Neither
the Company nor the Trustee will have any responsibility or liability for any
aspect of the records relating to or payments made on account of Notes by DTC,
or for maintaining, supervising or reviewing any records of DTC relating to such
notes.
Payments with respect to the principal of, premium, if any, and interest
on, any Notes represented by a Global Note registered in the name of DTC or its
nominee on the applicable record date will be payable by the Trustee to or at
the direction of DTC or its nominee in its capacity as the registered holder of
the Global Note
91
<PAGE> 93
representing such Notes under the Indentures. Under the terms of the Indentures,
the Company and the Trustee may treat the persons in whose names the Notes,
including the Global Notes, are registered as the owners thereof for the purpose
of receiving such payment and for any and all other purposes whatsoever.
Consequently, neither the Company nor the Trustee has or will have any
responsibility or liability for the payment of such amounts to beneficial owners
of interest in the Global Note (including principal, premium, if any, and
interest), or to immediately credit the accounts of the relevant Participants
with such payment, in amount proportionate to their respective holdings in
principal amount of beneficial interest in the Global Note as shown on the
records of DTC. Payments by the Participants and the Indirect Participants to
the beneficial owners of interests in the Global Note will be governed by
standing instructions and customary practice and will be the responsibility of
the Participants or the Indirect Participants and DTC.
CERTIFICATED SECURITIES
If (i) DTC notifies the Company in writing that it is no longer willing or
able to act as a depository or DTC ceases to be registered as a clearing agency
under the Exchange Act and the Issuer is unable to locate a qualified successor
within 90 days, (ii) the Company, at its option, notifies the Trustee in writing
that it elects to cause the issuance of Notes in definitive form under the
Indenture or (iii) upon the occurrence of certain other events, then, upon
surrender by DTC of its Global Notes, Certificated Securities will be issued to
each person that DTC identifies as the beneficial owner of the Notes represented
by the Global Notes. Upon any such issuance, the Trustee is required to register
such Certificated Securities in the name of such person or persons (or the
nominee of any thereof), and cause the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by DTC or
any Participant or Indirect Participant in identifying the beneficial owners of
the related Notes and each such person may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the Notes to be issued).
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that for a period of 180 days after
the Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
92
<PAGE> 94
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of the Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such document
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer other than commissions or concessions of any
brokers or dealers and will indemnify the holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
Following consummation of the Exchange Offer, the Company may, in its sole
discretion, commence one or more additional exchange offers to holders of Old
Notes who did not exchange their Old Notes for New Notes in the Exchange Offer
on terms which may differ from those contained in the Registration Agreement.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by the Company in connection with any such additional exchange offers. Such
additional exchange offers will take place from time to time until all
outstanding Old Notes have been exchanged for New Notes pursuant to the terms
and conditions contained herein.
LEGAL MATTERS
Certain legal matters as to the validity of the issuance of the New Notes
will be passed upon for the Company by Dorsey & Whitney LLP, Minneapolis,
Minnesota. Skadden, Arps, Slate, Meagher & Flom LLP has acted as counsel to the
Company in connection with the Exchange Offer.
EXPERTS
The balance sheets as of December 31, 1997 and 1996 and the statements of
income, changes in shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1997, included in the this Prospectus and
Registration Statement, have been included herein in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants given on the authority of
that firm as experts in accounting and auditing.
93
<PAGE> 95
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Report of Independent Accountants........................... F-2
Financial Statements:
Balance Sheets as of March 31, 1998 (unaudited) and
December 31, 1997 and 1996............................. F-3
Statements of Income for the three months ended March 31,
1998 and 1997 (unaudited) and the years ended December
31, 1997, 1996 and 1995................................ F-4
Statements of Shareholders' (Deficiency) Equity for the
three months ended March 31, 1998 (unaudited) and the
years ended December 31, 1997, 1996 and 1995........... F-5
Statements of Cash Flows for the three months ended March
31, 1998 and 1997 (unaudited) and the years ended
December 31, 1997, 1996 and 1995....................... F-6
Notes to Financial Statements............................. F-7 - F-17
</TABLE>
F-1
<PAGE> 96
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Universal Hospital Services, Inc.:
We have audited the accompanying balance sheets of Universal Hospital
Services, Inc. as of December 31, 1997 and 1996, and the related statements of
income, shareholders' equity (deficiency) and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Universal Hospital Services,
Inc. as of December 31, 1997 and 1996 and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
March 4, 1998
F-2
<PAGE> 97
UNIVERSAL HOSPITAL SERVICES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31 ---------------------------
1998 1997 1996
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 1,085,033 $ 197,422
Accounts receivable, less allowance for doubtful accounts
of $800,000, $775,000 and $418,000 at March 31, 1998
and December 31, 1997 and 1996, respectively.......... 12,903,326 $ 11,500,891 12,123,972
Inventories.............................................. 1,591,287 1,356,828 1,256,388
Deferred income taxes.................................... 388,000 455,000 708,000
Other current assets..................................... 2,519,428 1,233,778 1,562,303
------------ ------------ -----------
Total current assets............................. 18,487,074 14,546,497 15,848,085
Property and equipment:
Rental equipment, at cost less accumulated
depreciation.......................................... 50,558,639 48,946,130 44,546,290
Property and office equipment, at cost less accumulated
depreciation.......................................... 2,906,369 2,965,509 3,497,589
------------ ------------ -----------
Total property and equipment, net................ 53,465,008 51,911,639 48,043,879
Intangible assets:
Goodwill, less accumulated amortization.................. 13,869,489 14,308,704 15,057,516
Other primarily deferred financing costs, less
accumulated amortization.............................. 6,111,835 419,259 757,396
------------ ------------ -----------
Total assets..................................... $ 91,933,406 $ 81,186,099 $79,706,876
============ ============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Current portion of long-term debt........................ $ 111,825 $ 211,229 $ 1,957,743
Accounts payable......................................... 2,248,190 3,186,964 3,044,392
Accrued compensation and pension......................... 1,751,086 2,213,841 1,990,640
Other accrued expenses................................... 1,816,653 810,874 1,184,573
Book overdrafts.......................................... 717,675 858,364
------------ ------------ -----------
Total current liabilities........................ 5,927,754 7,140,583 9,035,712
Long-term debt............................................. 115,261,411 33,733,773 35,192,589
Deferred compensation and pension.......................... 1,838,159 2,201,318 1,772,692
Deferred income taxes...................................... 3,857,000 5,110,000 4,578,000
Commitments and contingencies (Note 9)
Shareholders' equity (deficiency):
Preferred Stock, $0.01 par value; 5,000,000 shares
authorized, no shares issued and outstanding..........
Common Stock, $0.01 par value; 25,000,000 shares
authorized at March 31, 1998, 100,000,000 shares
authorized at December 31, 1997 and 1996, 15,624,464,
54,808,290 and 53,719,210 shares issued and
outstanding at March 31, 1998 and December 31, 1997
and 1996, respectively................................ 156,245 548,083 537,192
Additional paid-in capital............................... 15,549,440 14,386,680
(Accumulated deficit) retained earnings.................. (34,970,284) 16,902,902 14,204,011
Stock subscription receivable............................ (136,879)
------------ ------------ -----------
Total shareholders' equity (deficiency).......... (34,950,918) 33,000,425 29,127,883
------------ ------------ -----------
Total liabilities and shareholders' equity
(deficiency)................................... $ 91,933,406 $ 81,186,099 $79,706,876
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 98
UNIVERSAL HOSPITAL SERVICES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31 FOR THE YEARS ENDED DECEMBER 31
------------------------- ---------------------------------------
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals............. $15,137,182 $14,522,649 $54,488,572 $50,742,774 $45,869,789
Sales of supplies and
equipment, and other....... 1,296,611 1,439,134 5,585,997 6,197,826 7,166,005
----------- ----------- ----------- ----------- -----------
Total revenues............. 16,433,793 15,961,783 60,074,569 56,940,600 53,035,794
----------- ----------- ----------- ----------- -----------
Costs of rentals and sales:
Cost of equipment rentals..... 3,619,170 3,253,696 13,577,382 13,331,864 11,841,142
Rental equipment
depreciation............... 3,825,000 3,400,000 14,434,891 12,602,442 10,799,372
Cost of supplies and equipment
sales...................... 823,975 1,004,905 3,837,508 4,422,441 5,352,163
Write-down of DPAP
inventories................ 2,213,045
----------- ----------- ----------- ----------- -----------
Total costs of rentals and
sales.................... 8,268,145 7,658,601 31,849,781 32,569,792 27,992,677
----------- ----------- ----------- ----------- -----------
Gross profit............... 8,165,648 8,303,182 28,224,788 24,370,808 25,043,117
Selling, general and
administrative................ 4,983,869 5,242,970 18,448,092 19,695,301 18,559,504
Recapitalization and transaction
costs......................... 5,027,905 642,481 1,719,195 305,804
----------- ----------- ----------- ----------- -----------
Operating (loss) income.... (1,846,126) 2,417,731 8,057,501 4,369,703 6,483,613
Interest expense................ 1,516,207 772,095 3,011,610 2,518,330 1,784,141
----------- ----------- ----------- ----------- -----------
(Loss) income before provision
for income taxes and
extraordinary charge.......... (3,362,333) 1,645,636 5,045,891 1,851,373 4,699,472
----------- ----------- ----------- ----------- -----------
(Benefit) provision for income
taxes:
Current....................... (454,000) 555,000 1,562,000 329,000 1,454,000
Deferred...................... 114,000 202,000 785,000 590,000 495,000
----------- ----------- ----------- ----------- -----------
(340,000) 757,000 2,347,000 919,000 1,949,000
----------- ----------- ----------- ----------- -----------
(Loss) income before
extraordinary charge.......... (3,022,333) 888,636 2,698,891 932,373 2,750,472
Extraordinary charge, net of tax
benefit of $1,300,000......... 1,863,020
----------- ----------- ----------- ----------- -----------
Net (loss) income..... $(4,885,353) $ 888,636 $ 2,698,891 $ 932,373 $ 2,750,472
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 99
UNIVERSAL HOSPITAL SERVICES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
(ACCUMULATED
COMMON STOCK ADDITIONAL DEFICIT) STOCK TOTAL
------------------ PAID-IN RETAINED SUBSCRIPTION SHAREHOLDERS'
COMMON CLASS B CAPITAL EARNINGS RECEIVABLE EQUITY (DEFICIENCY)
-------- ------- ------------ ------------ ------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994............ $ 37,833 $16,684 $ 15,459,805 $ 10,521,166 $ 26,035,488
Sale of 33,311 shares of common
stock to employees under stock
purchase plan..................... 333 197,848 198,181
Repurchase of 40,000 shares of
common stock under stock
repurchase plan................... (400) (274,600) (275,000)
Conversion of 1,668,353 shares of
Class B common stock to 1,668,353
shares of common stock............ 16,684 (16,684)
Issuance of 300 shares of common
stock pursuant to exercise of
stock options..................... 3 2,397 2,400
Net income.......................... 2,750,472 2,750,472
-------- ------- ------------ ------------ ------------
Balance, December 31, 1995............ 54,453 -- 15,385,450 13,271,638 28,711,541
Sale of 24,668 shares of common
stock to employees under stock
purchase plan..................... 247 178,103 178,350
Repurchase of 103,000 shares of
common stock under stock
repurchase plan................... (1,030) (726,345) (727,375)
Issuance of 4,983 shares of common
stock pursuant to exercise of
stock options..................... 49 32,945 32,994
Net income.......................... 932,373 932,373
-------- ------- ------------ ------------ ------------
Balance, December 31, 1996............ 53,719 -- 14,870,153 14,204,011 29,127,883
Sale of 11,738 shares of common
stock to employees under stock
purchase plan..................... 117 124,970 125,087
Issuance of 97,170 shares of common
stock (net of 4,530 shares of
common stock tendered for exercise
of stock options) pursuant to
exercise of stock options,
including $309,150 of tax
benefit........................... 972 1,047,592 1,048,564
Net income.......................... 2,698,891 2,698,891
-------- ------- ------------ ------------ ------------
Balance, December 31, 1997............ 54,808 -- 16,042,715 16,902,902 33,000,425
Sale of 1,585 shares of common stock
to employees under stock purchase
plan (unaudited).................... 16 20,367 20,383
Issuance of 334,001 shares of common
stock pursuant to exercise of stock
options, including $1,042,000 of tax
benefit (unaudited)................. 3,342 3,566,249 3,569,591
Issuance of 13,756 shares of common
stock pursuant to the Merger (see
Note 2), net of transaction costs of
$581,857 (unaudited)................ 13,757 20,729,663 20,743,420
Repurchase and cancellation of
5,629,839 shares of common stock
pursuant to the Merger (unaudited)
(see Note 2)........................ (56,298) (40,358,994) (46,847,213) (87,262,505)
Stock subscription receivable
(unaudited)......................... (136,879) (136,879)
Net loss (unaudited).................. (4,885,353) (4,885,353)
Stock split (unaudited)............... 140,620 (140,620)
-------- ------- ------------ ------------ --------- ------------
Balance, March 31, 1998 (unaudited)... $156,245 $ -- $ -- $(34,970,284) $(136,879) $(34,950,918)
======== ======= ============ ============ ========= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 100
UNIVERSAL HOSPITAL SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31 FOR THE YEARS ENDED DECEMBER 31
-------------------------- ------------------------------------------
1998 1997 1997 1996 1995
------------ ----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income......................... $ (4,885,353) $ 888,636 $ 2,698,891 $ 932,373 $ 2,750,472
Adjustments to reconcile net (loss) income
to net cash provided by operating
activities:
Depreciation............................ 3,998,319 3,589,497 15,170,804 13,337,178 11,467,163
Amortization............................ 311,794 221,642 899,875 559,408 296,227
Provision for doubtful accounts......... 40,686 111,575 641,035 317,805 297,123
Loss (gain) on sales of equipment....... 43,295 (180,182) (243,990) (229,548) (291,644)
Write-down of DPAP inventories.......... 2,213,045
Write-off of deferred financing costs... 303,314
Deferred income taxes (benefit)......... (1,186,000) 202,000 785,000 590,000 495,000
Changes in operating assets and
liabilities, net of impact of
acquisition:
Accounts receivable................... (1,462,060) (1,281,464) (208,719) (663,645) (2,136,984)
Inventories and other operating
assets............................. (1,520,109) 566,688 228,085 (1,438,516) (1,569,796)
Accounts payable and accrued
expenses........................... 624,287 448,012 29,956 (961,120) 1,763,219
------------ ----------- ------------ ------------ ------------
Net cash (used in) provided by
operating activities............. (3,731,827) 4,566,404 20,000,937 14,656,980 13,070,780
------------ ----------- ------------ ------------ ------------
Cash flows from investing activities:
Rental equipment purchases................ (6,992,242) (4,513,505) (18,933,142) (14,466,057) (19,244,437)
Property and office equipment purchases... (119,351) (86,656) (210,968) (744,110) (666,526)
Proceeds from sale of equipment........... 133,415 249,183 740,280 716,110 529,973
Acquisition of BERS, net of cash
acquired................................ (12,074,854)
Other..................................... (114,992) 59,859 377,839 (290,216) (343,654)
------------ ----------- ------------ ------------ ------------
Net cash used in investing
activities....................... (7,093,170) (4,291,119) (18,025,991) (26,859,127) (19,724,644)
------------ ----------- ------------ ------------ ------------
Cash flows from financing activities:
Proceeds under loan agreements............ 121,628,000 6,285,000 25,124,000 52,158,000 35,055,000
Payments under loan agreements............ (40,199,766) (5,846,132) (28,329,330) (38,976,187) (28,602,333)
Proceeds from issuance of common stock,
net of transaction costs of $581,857.... 20,763,803 191,188 864,501 211,344 200,581
Repurchase of common stock................ (84,734,914) (727,375) (275,000)
Payment of deferred financing costs....... (5,871,418)
Tax benefit of nonqualified stock
options................................. 1,042,000 309,150
Change in book overdraft.................. (717,675) (1,102,763) (140,689) (266,213) 275,616
------------ ----------- ------------ ------------ ------------
Net cash provided by (used in)
financing activities............. 11,910,030 (472,707) (2,172,368) 12,399,569 6,653,864
------------ ----------- ------------ ------------ ------------
Net change in cash and cash equivalents..... 1,085,033 (197,422) (197,422) 197,422 --
Cash and cash equivalents at beginning of
period.................................... -- 197,422 197,422 -- --
------------ ----------- ------------ ------------ ------------
Cash and cash equivalents at end of
period.................................... $ 1,085,033 $ -- $ -- $ 197,422 $ --
============ =========== ============ ============ ============
Supplemental cash flow information:
Interest paid............................. $ 726,000 $ 792,000 $ 2,987,000 $ 2,329,000 $ 1,766,000
============ =========== ============ ============ ============
Income taxes paid......................... $ 48,000 $ 18,000 $ 1,778,000 $ 1,388,000 $ 1,347,000
============ =========== ============ ============ ============
Rental equipment purchases included in
accounts payable........................ $ 446,385 $ 1,912,000 $ 1,829,581 $ 1,438,837 $ 3,217,757
============ =========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 101
UNIVERSAL HOSPITAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS:
Universal Hospital Services, Inc. (the Company or UHS) is a leading
provider of movable medical equipment, service programs and products to
healthcare providers in both the acute and alternate care markets. Through a
national network of UHS district offices, providers have access to the Company's
pool of medical devices through the unique Pay-Per-Use(TM) equipment management
program. This program charges customers only when equipment is in use on a
patient, and is supported by a full range of services including delivery,
training, technical and educational support, inspection and maintenance. The
Company also sells medical products not used in its rental pool and disposable
medical products used in conjunction with the medical equipment it rents.
2. RECAPITALIZATION, FINANCINGS AND RELATED TRANSACTIONS (UNAUDITED):
On February 25, 1998, the Company completed a merger pursuant to the
Agreement and Plan of Merger (the Merger), dated as of November 25, 1997 between
UHS Acquisition Corp., a newly-formed Minnesota corporation controlled by J.W.
Childs Equity Partners, L.P. (Childs), with and into the Company. In connection
with the Merger, the following occurred:
- The Company's existing shareholders (other than the new senior management
team and certain other continuing members of management) received, in
consideration for the cancellation of approximately 53 million shares of
the Company's common stock and options to purchase approximately 3.3
million shares of common stock, cash in the aggregate amount of
approximately $84.7 million (net of aggregate option exercise price) or
$15.50 per share.
- The Company repaid the outstanding principal balance of approximately
$35.5 million under existing loan agreements and incurred early
termination fees and write-off of the related deferred financing cost
(see Note 8).
- The Company paid fees and expenses of approximately $11.5 million related
to the Merger of which approximately $5.9 million were capitalized as
deferred financing costs.
- The Company paid approximately $3.3 million in severance payments to
certain noncontinuing members of the Company's management of which
$476,000 had already been accrued.
- The Company received an equity contribution of approximately $21.3
million from Childs and affiliates and the management investors.
- The Company issued $100 million in aggregate principal amount of 10.25%
Senior Notes due 2008 (the Senior Notes).
- The Company borrowed approximately $14.3 million under a new Revolving
Credit Facility.
- The Company recognized a tax benefit from the exercise of stock options
of $1 million.
The transaction was structured as a leveraged recapitalization for
accounting purposes, with all assets and liabilities being carried over at
historical cost.
During the three months ended March 31, 1998 and 1997 and the years ended
December 31, 1997 and 1996, the Company incurred $5,027,905, $642,481,
$1,719,195 and $305,804, respectively, of nonrecurring expenses consisting
primarily of legal, investment banking and special committee fees associated
with the Merger and the Company's efforts to evaluate ways to enhance
shareholder value, prior to the Merger.
F-7
<PAGE> 102
UNIVERSAL HOSPITAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents:
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Inventories:
Inventories consist of supplies and equipment held for resale and are
valued at the lower of cost (first-in, first-out method) or market.
Rental Equipment:
Depreciation of rental equipment is provided on the straight-line method
over the equipment's estimated useful lives of five to seven years. The cost and
accumulated depreciation of rental equipment retired or sold is eliminated from
their respective accounts and the resulting gain or loss is recorded as other
revenue.
Property and Office Equipment:
Property and office equipment includes land, buildings, leasehold
improvements and shop and office equipment.
Depreciation of property and office equipment is provided on the
straight-line method over estimated useful lives of thirty years for buildings,
remaining lease term for leasehold improvements, and three to ten years for shop
and office equipment. The cost and accumulated depreciation of property and
equipment retired or sold is eliminated from their respective accounts and the
resulting gain or loss is recorded in income.
Goodwill:
Goodwill represents the excess purchase cost of acquired businesses over
the estimated fair market values of tangible and identifiable intangible assets
acquired and is being amortized on a straight-line basis over lives ranging from
15 to 40 years. Accumulated amortization was $3,489,972, $3,395,127 and
$2,564,697 as of March 31, 1998 and December 31, 1997 and 1996, respectively.
Deferred Financing Costs:
Deferred Financing costs associated with issuing the Senior Notes and the
new Revolving Credit Agreement are deferred and amortized to interest expense
over the related debt using the straight-line method, which approximates the
effective interest rate method. Accumulated amortization was $143,890 as of
March 31, 1998.
Revenues:
Equipment is generally rented on a short-term basis and rentals are
recorded in income as earned. Supply and equipment sales are recorded at the
time of shipment.
Income Taxes:
Deferred income taxes are computed using the asset and liability method,
such that deferred tax assets and liabilities are recognized for the expected
future tax consequences of temporary differences between financial reporting
amounts and the tax bases of existing assets and liabilities based on currently
enacted tax laws and tax rates in effect for the periods in which the
differences are expected to reverse. Income tax expense is the tax payable for
the period plus the change during the period in deferred income taxes.
F-8
<PAGE> 103
UNIVERSAL HOSPITAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The most
significant management estimates relate to the determination of the allowance
for uncollectible accounts receivable and obsolete inventories, estimation of
the useful lives of rental equipment for computing depreciation, assessment of
the recoverability of long-lived assets and certain accrued expenses.
Interim Periods:
The balance sheet as of March 31, 1998, and the statements of income and
cash flows for the three months ended March 31, 1998 and 1997, and the statement
of shareholders' (deficiency) equity for the three months ended March 31, 1998,
together with the related notes, are unaudited, but, in the opinion of
management of the Company, include all adjustments necessary to present fairly,
in all material respects, the financial position as of March 31, 1998 and the
results of operations and cash flows of the Company for the three months ended
March 31, 1998 and 1997.
New Accounting Standards:
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and display of
comprehensive income and its components (revenue, expenses, gains and losses) in
a full set of general-purpose financial statements. Management does not expect
any differences between net income and comprehensive income. The Company will
adopt SFAS No. 130 effective with its year-end 1998 reporting.
The FASB issued SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information." SFAS No. 131 establishes standards for reporting
operating segment information in both annual reports and interim financial
reports issued to shareholders. The Company is reviewing the requirements of
SFAS No. 131, and has not determined if it will be required to present segment
information beyond the one segment currently presented. SFAS No. 131 is required
to be adopted effective with the Company's year-end 1998 reporting.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
About Pensions and Other Postretirement Benefits," which standardizes the
disclosure requirements for pensions and other postretirement benefits to the
extent practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that are no longer as useful.
Management has not yet evaluated the effects of this change on its current
pension disclosures. The Company will adopt SFAS No. 132 effective with its
year-end 1998 reporting.
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." This SOP provides guidance on
accounting for the costs of computer software developed or obtained for internal
F-9
<PAGE> 104
UNIVERSAL HOSPITAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
use. The Company is reviewing the requirements of the SOP and has not determined
if it is applicable to the Company. SOP 98-1 is required to be adopted by the
Company no later than the year ending December 31, 1999.
4. ACQUISITION OF BIOMEDICAL EQUIPMENT RENTAL AND SALES, INC. (BERS):
On August 13, 1996, the Company acquired BERS pursuant to a Stock Purchase
Agreement among the Company and the shareholders of BERS. Pursuant to the
agreement, the Company acquired all of the outstanding capital stock of BERS for
approximately $10.7 million and repayment of approximately $1.6 million of
outstanding indebtedness of BERS. The acquisition was accounted for using the
purchase method. Accordingly, the purchase price was allocated to assets and
liabilities acquired based on their estimated fair values. This treatment
resulted in approximately $7.3 million of cost in excess of net tangible assets
acquired, which is being amortized on a straight-line basis over 15 years. The
estimated fair values of assets and liabilities acquired are as follows:
<TABLE>
<S> <C>
Cash........................................................ $ 217,000
Accounts receivable......................................... 949,000
Rental equipment............................................ 4,221,000
Goodwill.................................................... 7,349,000
Other assets................................................ 852,000
Accounts payable and other liabilities...................... (1,296,000)
-----------
$12,292,000
===========
</TABLE>
BERS' operations have been included in the Company's results of operations
since the date of acquisition.
The following summarized, unaudited pro forma results of operations for the
years ended December 31, 1996 and 1995, assume the acquisition of BERS occurred
as of the beginning of the earliest year presented.
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Total revenues.................................... $60,497,000 $58,977,000
Net income........................................ 616,000 2,457,000
</TABLE>
5. WRITE-DOWN OF DPAP INVENTORIES:
The Company experienced declining sales of Demand Positive Airway Pressure
(DPAP) devices during 1996. Because market acceptance of the DPAP devices did
not meet expectations, the Company's quarterly assessment resulted in a
write-down of $1,030,500 in the second quarter and a charge of $1,182,545 in the
fourth quarter of 1996 to write-off the remaining carrying value of DPAP
inventory and associated supplies and demo units. The DPAP devices were disposed
of in early 1997.
6. BOOK OVERDRAFTS:
The Company typically does not maintain cash balances at its principal bank
under a policy whereby the net of collected balances and cleared checks is, at
the Company's option, applied to or drawn from a revolving credit facility on a
daily basis.
F-10
<PAGE> 105
UNIVERSAL HOSPITAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31, ----------------------------
1998 1997 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Rental equipment................................. $126,820,969 $122,779,009 $107,441,784
Less accumulated depreciation.................... 76,262,330 73,832,879 62,895,494
------------ ------------ ------------
Rental equipment, net.......................... $ 50,558,639 $ 48,946,130 $ 44,546,290
============ ============ ============
Land............................................. 120,000 120,000 120,000
Buildings and leasehold improvements............. 1,432,409 1,418,658 1,356,042
Office equipment................................. 5,634,862 5,566,451 5,473,317
------------ ------------ ------------
7,187,271 7,105,109 6,949,359
Less accumulated depreciation.................... 4,280,902 4,139,600 3,451,770
------------ ------------ ------------
Property and office equipment, net............. $ 2,906,369 $ 2,965,509 $ 3,497,589
============ ============ ============
Total property and equipment, net.............. $ 53,465,008 $ 51,911,639 $ 48,043,879
============ ============ ============
</TABLE>
8. LONG-TERM DEBT:
Long-term debt at December 31, consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31, --------------------------
1998 1997 1996
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
10.25% senior notes................................ $100,000,000
Revolving credit facility.......................... 14,850,000
8.10% Series A notes, payable in varying quarterly
installments beginning September 1, 1997, with
the remaining balance due in 2007,
uncollateralized................................. $ 9,650,000 $10,000,000
7.47% senior note payable, due in quarterly
installments of $350,000, with the remaining
balance due in 2002, uncollateralized............ 7,100,000 8,500,000
8.29% Series B notes, payable in varying quarterly
installments beginning June 1, 2007, with the
remaining balance due in 2009,
uncollateralized................................. 4,000,000 4,000,000
9.60% senior note payable, due in quarterly
installments of $375,000 beginning March 1, 2003,
uncollateralized................................. 3,000,000 3,000,000
Revolving credit agreement, uncollateralized....... 9,554,000 11,337,000
Capital lease obligations.......................... 523,236 641,002 313,332
------------ ----------- -----------
115,373,236 33,945,002 37,150,332
Less current portion of long-term debt............. (111,825) (211,229) (1,957,743)
------------ ----------- -----------
Total long-term debt..................... $115,261,411 $33,733,773 $35,192,589
============ =========== ===========
</TABLE>
The fair value of long-term debt, based on discounted cash flow analysis
using current market interest rates for the same or similar issues of debt as of
December 31, 1997, would be approximately $35,200,000.
In connection with the Merger on February 25, 1998 (see Note 2), the
Company paid all long-term debt balances outstanding at December 31, 1997, with
the exception of the capital lease obligations. Accordingly,
F-11
<PAGE> 106
UNIVERSAL HOSPITAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the Balance Sheet as of December 31, 1997 reflects the repayment terms of the
new financings. In connection with the repayment of the long-term debt, the
Company incurred an extraordinary charge of $1,863,020 net of tax benefit of
$1,300,000, for early termination fees and write-off of the related deferred
financing costs.
The Senior Notes mature on March 1, 2008. Interest on the Notes accrues at
the rate of 10.25% per annum and is payable semiannually on each March 1 and
September 1 commencing on September 1, 1998. The Senior Notes are redeemable, at
the Company's option, in whole or in part, on or after March 1, 2003 at
specified redemption prices plus accrued interest to the date of redemption. In
addition, the Senior Notes have a change of control provision which gives each
holder the right to require the Company to purchase all or a portion of such
holders' Senior Notes upon a change in control, as defined in the agreement, at
a purchase price equal to 101% of the principal amount plus accrued interest to
the date of purchase. The Senior Notes have covenants that restrict the payment
of dividends and require that the Company maintain certain financial ratios. The
Senior Notes are uncollateralized.
Under the new Revolving Credit Facility, the Company may borrow up to $30
million with a maturity date of February 2003. Borrowings bear interest at a
rate of 2.25% over the adjusted Eurodollar Rate as defined in the agreement or
the Bank's Base Rate plus 1%. Outstanding borrowing as of March 31, 1998 bore
interest of 7.94%. Commencing September 30, 1998, the Eurodollar Rate and the
Bank's Base Rate used to calculate such interest rates may be adjusted if the
Company satisfies certain leverage ratios. Borrowings under the Revolving Credit
Facility are collateralized by substantially all assets of the Company.
9. COMMITMENTS AND CONTINGENCIES:
Rental expenses were approximately $790,000 and $812,000 for the three
months ended March 31, 1998 and 1997, respectively, and $3,100,000, $3,500,000
and $3,300,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. The Company is committed under various noncancellable operating
leases for regional sales and service offices and vehicles with minimum annual
rental commitments of the following at December 31, 1997:
<TABLE>
<S> <C>
1998........................................................ $2,526,382
1999........................................................ 2,095,075
2000........................................................ 708,015
2001........................................................ 429,899
2002........................................................ 273,762
Thereafter.................................................. 215,789
----------
Total............................................. $6,248,922
==========
</TABLE>
The Company in the ordinary course of business could be subject to
liability claims related to employees and the equipment that it rents and
services. Asserted claims are subject to many uncertainties and the outcome of
individual matters is not predictable with assurance. While the ultimate
resolution of this action may have an impact on the Company's financial results
for a particular reporting period, management believes that any such resolution
will not have a material adverse effect on the financial position or results of
operations of the Company.
10. EMPLOYEE BENEFIT PLANS:
The Company sponsors a noncontributory defined benefit pension plan that
covers substantially all of its employees. Plan benefits are to be paid to
eligible employees at retirement based primarily on years of credited service
and on participants' compensation. Plan assets consist primarily of U.S.
Government securities and common stocks.
F-12
<PAGE> 107
UNIVERSAL HOSPITAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Pension expense, in thousands, for the years ended December 31, included
the following components:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -------
<S> <C> <C> <C>
Service cost of the current year................. $ 320 $ 348 $ 273
Interest cost on projected benefit obligation.... 634 598 538
Actual return on assets held in the plan......... (811) (864) (1,441)
Net amortization and deferral 201 348 951
----- ----- -------
Pension expense.................................. $ 344 $ 430 $ 321
===== ===== =======
</TABLE>
The funded status of the plan and the amounts shown in the accompanying
Balance Sheets, in thousands, at December 31, consist of the following:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation................................ $6,746 $5,677
Nonvested benefit obligation............................. 315 263
------ ------
Accumulated benefit obligation............................. $7,061 $5,940
====== ======
Projected benefit obligation............................... $9,459 $7,902
Fair value of assets held in plan.......................... 8,177 7,661
------ ------
Unfunded excess of projected benefit obligations
over plan assets......................................... 1,282 241
Net unrecognized loss from past assumption
experience differences................................... 206 903
------ ------
Pension liability included in the balance sheet............ $1,488 $1,144
====== ======
</TABLE>
The following assumptions were used to determine the projected benefit
obligation at December 31:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate.......................................... 7.25% 7.75% 7.25%
Projected compensation increases....................... 4.50% 4.50% 5.00%
Expected return on assets.............................. 8.50% 8.50% 8.50%
</TABLE>
Effective January 1, 1994, the Company adopted a supplemental executive
retirement plan (SERP) designed to make up the shortfall in retirement benefits
caused by limitations specified by the Omnibus Budget Reconciliation Act of
1993. This plan provides supplemental pension benefits to the executive officers
of the Company in addition to the amounts received under the Company's defined
benefit plan described above. This combination of benefits is equivalent to
those benefits which would have been paid under the Company's qualified defined
benefit pension plan without regard to the Internal Revenue Service (IRS)
statutory limitation on qualifying wages. Such benefits will be paid from the
Company's assets. The unfunded accumulated benefit obligation under the plan at
December 31, 1997 and 1996 was $388,000 and $315,000, respectively. The
projected benefit obligation under the plan at December 31, 1997 and 1996 was
$1,064,000 and $1,057,000, respectively. Assumptions used to calculate the
benefit obligations were consistent with the Company's defined benefit pension
plan, except that projected compensation increases were assumed to be 5.5% in
1997 and 1996. The pension expense for the three months ended March 31, 1998 and
1997, and the years ended December 31, 1997, 1996 and 1995 related to this plan
was $12,500, $52,000, $208,000, $154,000 and $138,000, respectively. Pursuant to
the Merger on February 25, 1998 (see Note 2), the SERP was terminated resulting
in a curtailment of the plan. The Company paid $475,659 in settlement of the
entire benefit obligations due under the plan and recognized a gain on
curtailment of the plan of $155,962.
F-13
<PAGE> 108
UNIVERSAL HOSPITAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company also sponsors a defined contribution plan, which qualifies
under Section 401(a) of the Internal Revenue Code and covers substantially all
of the Company's employees. Employees may contribute annually up to 12% of their
base compensation either before tax (subject to IRS limitation) or after tax.
The Company matches 50% of employee thrift contributions. The Plan also has a
401(k) provision that allows employees to contribute annually up to 6% of their
base compensation before tax, subject to IRS limitations, and up to 6% as an
after-tax contribution. Under the 401(k) provision, the Company matches 50% of
the first 6% of base compensation that a participant contributes to the Plan.
For the three months ended March 31, 1998 and 1997 and the years ended December
31, 1997, 1996 and 1995, approximately $54,000, $65,000 $246,000, $279,000 and
$234,000, respectively, was expensed as contributions to the plan.
The Company is self-insured for employee health care costs. The Company is
liable for claims up to $83,250 per family per plan year and aggregate claims up
to 150% of expected claims per plan year. Self-insurance costs are accrued based
upon the aggregate of the liability for reported claims and an actuarially
determined estimated liability for claims incurred but not reported.
11. INCOME TAXES:
The (benefits) provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31 FOR THE YEARS ENDED DECEMBER 31
---------------------- ----------------------------------
1998 1997 1997 1996 1995
----------- -------- ---------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Currently payable:
Federal....................... $(385,000) $424,000 $1,194,000 $228,000 $1,153,000
State......................... (69,000) 131,000 368,000 101,000 301,000
--------- -------- ---------- -------- ----------
(454,000) 555,000 1,562,000 329,000 1,454,000
--------- -------- ---------- -------- ----------
Deferred:
Federal....................... 97,000 174,000 677,000 445,000 414,000
State......................... 17,000 28,000 108,000 145,000 81,000
--------- -------- ---------- -------- ----------
114,000 202,000 785,000 590,000 495,000
--------- -------- ---------- -------- ----------
$(340,000) $757,000 $2,347,000 $919,000 $1,949,000
========= ======== ========== ======== ==========
</TABLE>
Reconciliations between the Company's effective income tax rate and the
U.S. statutory rate for each of the three years ended December 31 follow:
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED FOR THE YEARS ENDED
MARCH 31 DECEMBER 31
------------- --------------------
1998 1997 1997 1996 1995
----- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Statutory U.S. Federal income tax rate......... (34.0)% 34.0% 34.0% 34.0% 34.0%
State income taxes, net of U.S. Federal income
tax benefit.................................. (2.6) 6.1 6.4 8.7 5.2
Recapitalization and transaction costs......... 23.9 2.7 3.4
Goodwill amortization.......................... 1.0 1.4 2.0 4.6 1.8
Other.......................................... 1.6 1.8 .7 2.3 .5
----- ---- ---- ---- ----
Effective income tax rate............ (10.1)% 46.0% 46.5% 49.6% 41.5%
===== ==== ==== ==== ====
</TABLE>
F-14
<PAGE> 109
UNIVERSAL HOSPITAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The components of the Company's overall net deferred tax liability at
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31, ------------------------
1998 1997 1996
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Accounts receivable.......................... $ 131,000
Accrued and deferred compensation and
pension................................... $ 898,000 $1,118,000 1,025,000
Inventory.................................... 75,000 95,000 72,000
Other assets................................. 62,000 48,000 47,000
Alternative Minimum Tax credit
carryforward.............................. 150,000
Net operating loss carryforward.............. 1,524,000
---------- ---------- ----------
Total deferred tax assets............ 2,559,000 1,261,000 1,425,000
---------- ---------- ----------
Deferred tax liabilities:
Accelerated depreciation..................... 6,012,000 5,899,000 5,269,000
Other........................................ 16,000 17,000 26,000
---------- ---------- ----------
Total deferred tax liabilities....... 6,028,000 5,916,000 5,295,000
---------- ---------- ----------
Net deferred tax liability........... $3,469,000 $4,655,000 $3,870,000
========== ========== ==========
</TABLE>
12. SHAREHOLDERS' EQUITY:
Concurrent with the Merger (see Note 2) the Company's Board of Directors
approved a 10-for-1 split of the Company's common stock. The split was effective
on February 25, 1998, for each share of common stock owned by shareholders of
record after the close of the Merger. All share information, except that
included in the Statement of Shareholders' Equity (deficiency), has been
retroactively restated to reflect the stock split. In addition, the Company
restated its articles of incorporation to adjust the authorized shares of common
stock to 25,000,000.
In December 1995, each share of the Class B common stock was converted to
one share of common stock through a secondary offering. No proceeds of the
offering were received by the Company.
The Company had a stock repurchase program under which up to 5,000,000
shares of the Company's common stock could have been repurchased. Such purchases
could have been made at prevailing prices on the open market, by block purchase
or in private transactions at any time until June 30, 1996. A total of 450,000
shares have been purchased in the open market pursuant to these authorizations.
In July 1996, an additional 3,000,000 shares were authorized by the Board of
Directors for repurchase. Such purchases could have been made at any time until
June 30, 1997. A total 1,030,000 have been purchased pursuant to these
authorizations. Pursuant to the Merger on February 25, 1998 (see Note 2), the
stock repurchase program was terminated.
13. STOCK OPTION AND STOCK PURCHASE PLANS:
During 1992 and as amended in 1994, the Company adopted a Long-Term
Incentive and Stock Option Plan, a Director's Stock Option Plan and an Employee
Stock Purchase Plan. Under the Long-Term Incentive and Stock Option Plan
(Incentive and Stock Option Plan), the Company could have granted incentive
stock options, stock options and performance awards to the Company's employees.
The Incentive and Stock Option Plan expires in 2002. These options became
exercisable in increments over a 3 1/2 year period, expiring 10 years after the
grant date.
F-15
<PAGE> 110
UNIVERSAL HOSPITAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Director's Stock Option Plan (Director Plan) covered nonemployee
directors. Options could have been granted annually to eligible directors.
Options under the Director Plan became exercisable six months subsequent to date
of grant, expiring five years after the grant date.
Pursuant to the Merger (see Note 2), the Long-Term Incentive and Stock
Option Plan and the Director's Stock Option Plan were terminated with no
additional shares available for grant under the plans. Concurrent with the
Merger, 3,342,010 options granted under the plans were exercised and sold. The
remaining outstanding options were rolled over to and are covered by a 1998
stock option plan (1998 Plan) established by the Company concurrent with the
Merger. All options rolled over to the 1998 Plan continue to be covered by the
original agreements with the individual option holders and retained the same
terms as the Incentive and Stock Option Plan.
All options were granted with option prices based on the estimated fair
market value of the Company's common stock at date of grant.
On March 13, 1998, the Company adopted the 1998 Plan. Under the 1998 Plan,
the Company may grant incentive stock options and stock options and performance
awards to the Company's employees. A total of 5,000,000 shares are reserved for
issuance under the 1998 Plan. Options granted under the plan will vest in whole
or in part within five years from the date granted based on the achievement of
certain financial targets. Any unvested options will vest eight years following
the date of grant.
Stock option activity with respect to the 1998 Plan, Incentive and Stock
Option Plan and Director Plan is as follows:
<TABLE>
<CAPTION>
INCENTIVE AND STOCK OPTION PLAN DIRECTOR PLAN
1998 PLAN -------------------------------------------------- -----------
---------- DECEMBER 31
MARCH 31, MARCH 31, ------------------------------------ MARCH 31,
SHARES 1998 1998 1997 1996 1995 1998
- ------ ---------- ----------- ---------- ---------- ---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Granted.............. 1,885,803 1,136,500 1,081,500
Rollover............. 1,015,220 (1,015,220)
Exercised............ (3,052,010) (937,000) (49,830) (3,000) (290,000)
Terminated........... (42,440) (3,000) (18,000)
---------- ----------- ---------- ---------- ---------- --------
December 31:
Outstanding........ 2,901,023 -- 4,067,230 5,046,670 3,963,000 --
========== =========== ========== ========== ========== ========
Exercisable........ 1,015,220 -- 2,973,960 2,786,400 1,782,730 --
WEIGHTED AVERAGE
EXERCISE PRICE
PER SHARE;
Granted.............. $1.55 $0.91 $0.69
Rollover............. $0.77 $0.77
Exercised............ $0.76 $0.76 $0.66 $0.80
Terminated........... $0.84 $0.80 $0.80
December 31:
Outstanding........ $1.30 $0.76 $0.76 $0.71
Exercisable........ $0.77 $0.73
<CAPTION>
DIRECTOR PLAN
------------------------------
DECEMBER 31
------------------------------
SHARES 1997 1996 1995
- ------ -------- -------- --------
<S> <C> <C> <C>
Granted.............. 75,000 75,000
Rollover.............
Exercised............ (80,000)
Terminated...........
-------- -------- --------
December 31:
Outstanding........ 290,000 370,000 295,000
======== ======== ========
Exercisable........ 290,000 370,000 295,000
WEIGHTED AVERAGE
EXERCISE PRICE
PER SHARE;
Granted.............. $0.88 $0.83
Rollover.............
Exercised............ $0.80
Terminated...........
December 31:
Outstanding........ $0.79 $0.79 $0.78
Exercisable........ $0.79
</TABLE>
Options outstanding and exercisable at December 31, 1997 for the Incentive
and Stock Option Plan is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------------- OPTIONS EXERCISABLE
REMAINING WEIGHTED ----------------------------
RANGE OF AVERAGE CONTRACTUAL WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE PRICES SHARES LIFE (YEARS) EXERCISE PRICE SHARES EXERCISE PRICE
- --------------- --------- ------------------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
$0.54-$0.93 1,015,222 7.5 $0.77 1,015,220 $0.77
$1.55 2,901,023 10 $1.55
</TABLE>
F-16
<PAGE> 111
UNIVERSAL HOSPITAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Under the Employee Stock Purchase Plan, eligible employees could have
purchased shares of common stock from the Company through payroll deductions of
up to 10% of the employee's base compensation at a price per share equal to 85%
of the lesser of the fair market value of the Company's common stock as of the
first or last day of each six-month offering period. During the three months
ended March 31, 1998 and the years ended December 31, 1997 and 1996,
respectively, 15,850, 117,380 and 246,680 shares were purchased by employees
under this plan. Pursuant to the Merger (see Note 2), the Employee Stock
Purchase Plan was terminated.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." The Company adopted the new standard in 1996. The Company has
continued to measure compensation cost for its Incentive and Stock Option Plan,
Director Plan and Employee Stock Purchase Plan, using the intrinsic value method
of accounting it has historically used and, therefore, the new standard has no
effect on the Company's operating results.
Had the Company used the fair value-based method of accounting for its
Incentive and Stock Option Plan, Director Plan and Employee Stock Purchase Plan
and charged compensation cost against income, over the vesting period, based on
the fair value of options at the date of grant, net income for the years ended
December 31, 1997 and 1996 would have been reduced to the following pro forma
amounts:
<TABLE>
<CAPTION>
PRO FORMA
----------------------
1997 1996
---------- --------
<S> <C> <C>
Net income........................................... $2,315,983 $709,168
</TABLE>
The pro forma information above includes stock options granted in 1995
through 1997. Compensation expense under the fair value-based method of
accounting is expected to increase beginning in 1998 due to the 1,885,803 stock
options granted during the three months ended March 31, 1998. However, this
increase in pro forma compensation expense will be substantially offset due to
the 3,052,010 stock options exercised in connection with the Merger (see Note
2).
The weighted-average grant-date fair value of options granted and stock
purchases under the Employee Stock Purchase Plan during 1997 and 1996 was $0.31
and $0.53, respectively. The weighted-average grant-date fair value of options
and stock purchases under the Employee Stock Purchase Plan was determined
separately for each grant under the Company's various plans by using the fair
value of each option grant on the date of grant, utilizing the Black-Scholes
option-pricing model and the following key assumptions:
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
<S> <C> <C>
Risk-free interest rates.................. 5.44% to 5.61% 5.1% to 6.9%
Expected life............................. 0.5 years 0.5 to 8 years
Expected volatility....................... 44.41% 53.2% to 59.4%
Expected dividends........................ None None
</TABLE>
F-17
<PAGE> 112
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
In connection with our audits of the financial statements of Universal
Hospital Services, Inc. as of December 31, 1997 and 1996, and for each of the
three years in the period ended December 31, 1997, which financial statements
are included in the Prospectus and Registration Statement, we have audited the
financial statement schedule listed in Item 21(b) herein.
In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material aspects, the information required to be included therein.
PRICEWATERHOUSE COOPERS LLP
Minneapolis, Minnesota
March 4, 1998
<PAGE> 113
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, CHILDS OR THE INITIAL PURCHASER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY
SECURITY OTHER THAN THOSE TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER
TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 4
Risk Factors.......................... 15
The Recapitalization.................. 21
The Exchange Offer.................... 22
Use of Proceeds....................... 29
Capitalization........................ 29
Unaudited Pro Forma Condensed
Financial Data...................... 30
Selected Historical Financial Data.... 35
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 37
Business.............................. 48
Management............................ 58
Principal Shareholders................ 62
Certain Relationships and Related
Transactions........................ 63
Description of the Revolving Credit
Facility............................ 64
Description of the Notes.............. 66
Certain U.S. Federal Income Tax
Considerations...................... 90
Book Entry; Delivery and Form......... 91
Plan of Distribution.................. 92
Legal Matters......................... 93
Experts............................... 93
Index to Financial Statements......... F-1
</TABLE>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
--------------------
PROSPECTUS
--------------------
$100,000,000
[UHS LOGO]
UNIVERSAL HOSPITAL
SERVICES, INC.
10 1/4% SENIOR NOTES DUE 2008
BTALEX.BROWN
July , 1998
------------------------------------------------------
------------------------------------------------------
<PAGE> 114
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is a table of the Commission registration fee and estimates
of all other expenses to be incurred in connection with the issuance and
distribution of the securities described in this Registration Statement:
<TABLE>
<S> <C>
Commission registration fee................................. $ 29,500
Printing and engraving expenses............................. $ 50,000
Legal fees and expenses..................................... $ 75,000
Accounting fees and expenses................................ $ 25,000
Miscellaneous............................................... $ 20,500
--------
Total............................................. $200,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OTHERS
Article 4 of the Company's Restated Articles of Incorporation, provides
that a director shall not be personally liable to the Company or its
shareholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Company or its shareholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Sections 302A.559 or 80A.23 of the Minnesota Statutes, (iv) for any transaction
from which the director derived an improper personal benefit or (v) for any act
or omission occurring prior to the date when such Article 4 became effective.
The Bylaws of the Company provide that officers and directors of the
Company and certain others shall be indemnified substantially to the same extent
required or permitted by Minnesota law.
Section 302A.521 of the Minnesota Business Corporation Act provides that a
corporation shall indemnify any person who was or is made or is threatened to be
made a party to any proceeding, by reason of the former or present official
capacity (as defined) of such person, against judgments, penalties, fines,
settlements and reasonable expenses, including attorneys' fees and
disbursements, incurred by such person in connection with the proceeding if
certain statutory standards are met. "Proceeding" means a threatened, pending or
completed civil, criminal, administrative, arbitration or investigative
proceeding, including one by or in the right of the corporation. Section
302A.521 contains detailed terms regarding such right of indemnification and
reference is made thereto for a complete statement of such indemnification
rights.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On February 25, 1998, the Company engaged in a recapitalization (the
"Recapitalization") that was effected through the merger (the "Merger") of UHS
Acquisition Corp. ("Merger Sub"), a newly-formed Minnesota corporation
controlled by J.W. Childs Equity Partners, L.P. ("Childs"), with and into the
Company (and, as the surviving entity after the Recapitalization, the "Surviving
Company").
In connection with the Recapitalization, certain members of the Company's
management team (the "Management Investors") agreed to (i) purchase shares of
the Surviving Company's common stock, and (ii) allow their existing shares and
options to purchase shares of Company common stock to remain outstanding and
"roll over" into shares or options to purchase shares of the Surviving Company's
common stock.
II-1
<PAGE> 115
The Management Investors retained approximately 186,776 shares of Company
common stock, having a total value of approximately $2.9 million based on the
consideration paid in the Merger (including 170,787 shares retained by Mr.
Dovenberg and his spouse that have a total value of approximately $2.6 million
based on the Merger consideration. In addition, upon terms and subject to
conditions contained in Investment Representation and Stock Subscription
Agreements by and between the Surviving Company and each of certain Management
Investors dated February 25, 1998, the Management Investors purchased
approximately 37,143 shares of the Surviving Company's common stock for an
aggregate purchase price of approximately $576,000. Finally, pursuant to certain
Investment Representation and "Roll Over" Subscription Agreements by and among
Childs, Merger Sub and each of certain Management Investors dated February 25,
1998, the Management Investors "rolled over" approximately 101,522 existing
options to purchase shares of the Company's common stock (including 49,449
options to purchase common stock held by Mr. Dovenberg) into options to purchase
shares of common stock in the Surviving Company. In addition, on February 25,
1998, the Company sold $100,000,000 aggregate principal amount of 10 1/4% Senior
Notes due 2008 to BT Alex. Brown Incorporated (the "Initial Purchaser"), less an
aggregate discount to the Initial Purchaser of $3,000,000. The foregoing
transactions were exempt from the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act") in reliance on section 4(2) of
the Securities Act, on the basis that these transactions did not involve a
public offering. In accordance with the agreement pursuant to which the Initial
Purchaser purchased the 10 1/4% Senior Notes due 2008, such Initial Purchaser
agreed to offer and sell such notes only to "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act) and outside the United States in
compliance with Regulation S under the Securities Act. Except for the
transactions described above, there have not been any recent sales for
unregistered securities.
II-2
<PAGE> 116
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
3. ARTICLES OF INCORPORATION AND BY-LAWS.
*3.1 Restated Articles of Incorporation of the Company.
*3.2 Amended and Restated By-Laws of the Company.
4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS,
INCLUDING INDENTURES.
4.1 Indenture, dated as of February 25, 1998, by and between the
Company and First Trust National Association as Trustee,
relating to the Company's 10 1/4% Senior Notes Due 2008
(Incorporated by reference to Exhibit (a)(8) to Amendment
No. 4 to Schedule 13E-3/A of the Company filed on March 19,
1998 (the "13E-3/A")).
4.2 Amendment dated as of February 23, 1998 to the commitment
letter entered into by and between Childs and Bankers Trust
Company on January 22, 1998 (Incorporated by reference to
Exhibit (a)(5) to the 13E-3/A).
4.3 Credit Agreement dated as of February 25, 1998 by and
between the Company and Bankers Trust Company (Incorporated
by reference to Exhibit (a)(6) to the 13E-3/A).
5. OPINIONS.
*5.1 Opinion of Dorsey & Whitney, LLP, special counsel to the
Company.
10. MATERIAL CONTRACTS.
10.1 Registration Rights Agreement dated February 25, 1998 by and
between the Company and the BT Alex. Brown Incorporated
(Incorporated by reference to Exhibit (a)(9) to the
13E-3/A).
10.2 Form of Stock Subscription Agreement dated as of February
25, 1998 by and between the Company and certain Management
Investors (Incorporated by reference to Exhibit (c)(14) to
the 13E-3/A).
10.3 Form of Stockholders' Agreement dated as of February 25,
1998 by and among the Company each of the Management
Investors and each of the Childs Investors (Incorporated by
reference to Exhibit (c)(15) to the 13E-3/A).
10.4 Employment Agreement between the Company and David E.
Dovenberg, dated November 25, 1997 (Incorporated by
reference to Exhibit 8 to Schedule 13D filed December 4,
1997 (File No. 5-42484)).
*10.5 Form of Executive Employment Agreement.
*10.6 Universal Hospital Services, Inc. 1998 Stock Option Plan.
12. RATIO OF EARNINGS TO FIXED CHARGES.
+12.1 Statement regarding the computation of ratio of earnings to
fixed charges for the Company.
23. CONSENTS.
*23.1 Consent of PricewaterhouseCoopers LLP
*23.2 Consent of Dorsey & Whitney, LLP, special counsel to the
Company (included in Exhibit 5.1).
24. POWERS OF ATTORNEY.
25. FORM T-1.
*25.1 Statement of Eligibility and Qualification on Form T-1 of
First Trust National Association, as Trustee under the
Indenture relating to the Company's 10 1/4% Senior Exchange
Notes due 2008.
+27 Financial Data Schedule.
99. MISCELLANEOUS.
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
*99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
*99.4 Form of Letter to Clients.
</TABLE>
- ---------------
* Filed herewith.
+ Previously filed.
(b) Financial Statement Schedule:
Schedule II -- Valuation and Qualifying Accounts.
II-3
<PAGE> 117
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table
in the effective registration state-ment.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the Securities
offered therein, and the offering of such Securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the Securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes:
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, office or controlling person in connection with the Securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE> 118
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF BLOOMINGTON, STATE OF
MINNESOTA, ON JULY 6, 1998.
UNIVERSAL HOSPITAL SERVICES, INC.
By /S/ DAVID E. DOVENBERG
---------------------------------
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1993, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ DAVID E. DOVENBERG Director, President and Chief July 6, 1998
- --------------------------------------------------- Executive Officer
DAVID E. DOVENBERG
/s/ JERRY D. HORN Director July 6, 1998
- ---------------------------------------------------
JERRY D. HORN
/s/ STEVEN G. SEGAL Director July 6, 1998
- ---------------------------------------------------
STEVEN G. SEGAL
/s/ EDWARD D. YUN Director July 6, 1998
- ---------------------------------------------------
EDWARD D. YUN
/s/ GERALD L. BRANDT Vice President, Finance, Chief July 6, 1998
- --------------------------------------------------- Financial Officer and Principal
GERALD L. BRANDT Accounting Officer
</TABLE>
II-5
<PAGE> 119
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
In connection with our audits of the financial statements of Universal
Hospital Services, Inc. as of December 31, 1997 and 1996, and for each of the
three years in the period ended December 31, 1997, which financial statements
are included in the prospectus and Registration Statement, we have audited the
financial statement schedule listed in Item 21(b) herein.
In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material aspects, the information required to be included therein.
PRICEWATERHOUSECOOPERS LLP
Minneapolis Minnesota
March 4, 1998
II-6
<PAGE> 120
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
UNIVERSAL HOSPITAL SERVICES, INC.
<TABLE>
<CAPTION>
COL. B COL. C COL. D COL. E
---------- ------------------------ ---------- ----------
COL. A ADDITIONS
- --------------------------------------- ------------------------
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING COSTS AND OTHER FROM END
DESCRIPTION OF PERIOD EXPENSE ACCOUNTS RESERVES OF PERIOD
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Reserve for Doubtful Accounts:
Year Ended December 31, 1997....... $ 418,000 $ 641,035 $ 130,931 $ 414,966 $ 775,000
Year Ended December 31, 1996....... $ 410,000 $ 317,805 $ 103,416 $ 413,221 $ 418,000
Year Ended December 31, 1995....... $ 235,000 $ 297,123 $ 4,450 $ 126,573 $ 410,000
Reserve for Inventory Obsolesence:
Year Ended December 31, 1997....... $ 204,560 $ 205,640 $ 0 $ 200,867 $ 209,333
Year Ended December 31, 1996....... $ 162,664 $2,322,121 $ 0 $2,280,225 $ 204,560
Year Ended December 31, 1995....... $ 168,000 $ 100,650 $ 0 $ 105,986 $ 162,664
</TABLE>
<PAGE> 121
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
3. ARTICLES OF INCORPORATION AND BY-LAWS.......................
*3.1 Restated Articles of Incorporation of the Company...........
*3.2 Amended and Restated By-Laws of the Company.................
4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS,
INCLUDING INDENTURES........................................
4.1 Indenture, dated as of February 25, 1998, by and between the
Company and First Trust National Association as Trustee,
relating to the Company's 10 1/4% Senior Notes Due 2008
(Incorporated by reference to Exhibit (a)(8) to Amendment
No. 4 to Schedule 13E-3/A of the Company filed on March 19,
1998 (the "13E-3/A")).......................................
4.2 Amendment dated as of February 23, 1998 to the commitment
letter entered into by and between Childs and Bankers Trust
Company on January 22, 1998 (Incorporated by reference to
Exhibit (a)(5) to the 13E-3/A)..............................
4.3 Credit Agreement dated as of February 25, 1998 by and
between the Company and Bankers Trust Company (Incorporated
by reference to Exhibit (a)(6) to the 13E-3/A)..............
5. OPINIONS....................................................
*5.1 Opinion of Dorsey & Whitney, LLP, special counsel to the
Company.....................................................
10. MATERIAL CONTRACTS..........................................
10.1 Registration Rights Agreement dated February 25, 1998 by and
between the Company and the BT Alex. Brown Incorporated
(Incorporated by reference to Exhibit (a)(9) to the 13E-
3/A)........................................................
10.2 Form of Stock Subscription Agreement dated as of February
25, 1998 by and between the Company and certain Management
Investors (Incorporated by reference to Exhibit (c)(14) to
the 13E-3/A)................................................
10.3 Form of Stockholders' Agreement dated as of February 25,
1998 by and among the Company each of the Management
Investors and each of the Childs Investors (Incorporated by
reference to Exhibit (c)(15) to the 13E-3/A)................
10.4 Employment Agreement between the Company and David E.
Dovenberg, dated November 25, 1997 (Incorporated by
reference to Exhibit 8 to Schedule 13D filed December 4,
1997 (File No. 5-42484))....................................
*10.5 Form of Executive Employment Agreement......................
*10.6 Universal Hospital Services, Inc. 1998 Stock Option Plan....
12. RATIO OF EARNINGS TO FIXED CHARGES..........................
+12.1 Statement regarding the computation of ratio of earnings to
fixed charges for the Company...............................
23. CONSENTS....................................................
*23.1 Consent of PricewaterhouseCoopers LLP.......................
*23.2 Consent of Dorsey & Whitney, LLP, special counsel to the
Company (included in Exhibit 5.1)...........................
24. POWERS OF ATTORNEY..........................................
25. FORM T-1....................................................
*25.1 Statement of Eligibility and Qualification on Form T-1 of
First Trust National Association, as Trustee under the
Indenture relating to the Company's 10 1/4% Senior Exchange
Notes due 2008..............................................
+27 Financial Data Schedule.....................................
99. MISCELLANEOUS...............................................
*99.1 Form of Letter of Transmittal...............................
*99.2 Form of Notice of Guaranteed Delivery.......................
*99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees................................
*99.4 Form of Letter to Clients...................................
</TABLE>
- ---------------
* Filed herewith.
+ Previously filed.
<PAGE> 1
Exhibit 3.1
EXHIBIT A
RESTATED ARTICLES OF INCORPORATION
OF
UNIVERSAL HOSPITAL SERVICES, INC.
Article I. Name
The name of the Corporation is Universal Hospital Services, Inc.
Article 2. Registered Office
The registered office address of the corporation is 1250 Northland Plaza,
3800 West 80th Street, Bloomington, Minnesota 55431.
Article 3. Authorized Shares
The total number of shares of all classes of stock which the Corporation
shall have authority to issue is 25,000,000 shares consisting of 25,000,000
shares of common stock, par value $.01 per share.
Article 4. Director Liability
No director of the Corporation shall be liable to the Corporation or its
shareholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of a director's duty of loyalty to the
Corporation or its shareholders; (ii) for acts of omissions not in good faith or
that involve intentional misconduct or a knowing violation of law; (iii) under
sections 302A.559 or 80A.23 of the Minnesota Statutes; (iv) for any transaction
from which the director derived an improper personal benefit; or (v) for any act
or omission occurring prior to the date when this Article 4 became effective.
If the Minnesota Business Corporation Act is hereafter amended to
authorize any further elimination or limitation on the liability of a director,
then the liability of a director of the Corporation shall be eliminated or
limited to the fullest extent permitted by the Minnesota Business Corporation
Act as amended.
Any repeal or modification of the foregoing provisions of this Article 4
by the shareholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
Article 5. No Cumulative Voting
There shall be no cumulative voting by the shareholders of the
Corporation.
Article 6. No Preemptive Rights
The shareholders of the Corporation shall not have any preemptive rights
to subscribe for or acquire securities or rights to purchase securities of any
class, kind or series of the Corporation.
<PAGE> 1
EXHIBIT 3.2
EXHIBIT B
RESTATED BYLAWS
OF
UNIVERSAL HOSPITAL SERVICES, INC.
ARTICLE I.
OFFICES, CORPORATE SEAL
Section 1.01. Registered Office. The registered office of the corporation
in Minnesota shall be that set forth in the articles of incorporation or in the
most recent amendment of the articles of incorporation or resolution of the
directors filed with the secretary of state of Minnesota changing the registered
office.
Section 1.02. Other Offices. The corporation may have such other offices,
within or without the state of Minnesota, as the directors shall, from time to
time, determine.
Section 1.03. Corporate Seal. The corporation shall have no seal.
ARTICLE II.
MEETINGS OF SHAREHOLDERS
Section 2.01. Place and Time of Meetings. Except as provided otherwise by
the Minnesota Business Corporation Act, meetings of the shareholders may be held
at any place, within or without the state of Minnesota, as may from time to time
be designated by the directors and, in the absence of such designation, shall be
held at the registered office of the corporation in the state of Minnesota. The
directors shall designate the time of day for each meeting and, in the absence
of such designation, every meeting of shareholders shall be held at ten o'clock
a.m.
Section 2.02. Regular Meetings.
(a) A regular meeting of the shareholders shall be held on such date as
the board of directors shall by resolution establish.
(b) At a regular meeting the shareholders, voting as provided in the
articles of incorporation and these bylaws, shall designate the number of
directors to constitute the board of directors (subject to the authority of the
board of directors thereafter to increase or decrease the number of directors as
permitted by law), shall elect qualified successors for directors who serve for
an indefinite term or whose terms have expired or are due to expire within six
months after the date of the meeting and shall transact such other business as
may properly come before them.
Section 2.03. Special Meetings. Special meetings of the shareholders may
be held at any time and for any purpose and may be called by the chief executive
officer, the chief financial officer, two or more directors or by a shareholder
or shareholders holding 10% or more of the voting power of all shares entitled
to vote, except that a special meeting for the purpose of considering any action
to directly or indirectly facilitate or affect a business combination, including
any action to change or otherwise affect the composition of the board of
directors for that purpose, must be called by 25% or more of the voting power of
all shares entitled to vote. A shareholder or shareholders holding the requisite
percentage of the voting power of all shares entitled to vote may demand a
special meeting of the shareholders by written notice of demand given to the
chief executive officer or chief financial
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officer of the corporation and containing the purposes of the meeting. Within 30
days after receipt of demand by one of those officers, the board of directors
shall cause a special meeting of shareholders to be called and held on notice no
later than 90 days after receipt of the demand, at the expense of the
corporation. Special meetings shall be held on the date and at the time and
place fixed by the chief executive officer or the board of directors, except
that a special meeting called by or at demand of a shareholder or shareholders
shall be held in the county where the principal executive office is located. The
business transacted at a special meeting shall be limited to the purposes as
stated in the notice of the meeting.
Section 2.04. Quorum, Adjourned Meetings. The holders of a majority of the
shares of stock issued and outstanding and entitled to vote, represented in
person or by proxy, shall constitute a quorum at all meetings of the
shareholders for the transaction of business except as otherwise provided by
statute or the articles of incorporation. In case a quorum shall not be present
at a meeting, the meeting may be adjourned from time to time without notice
other than announcement at the time of adjournment of the date, time and place
of the adjourned meeting. If a quorum is present, a meeting may be adjourned
from time to time without notice other than announcement at the time of
adjournment of the date, time and place of the adjourned meeting. At adjourned
meetings at which a quorum is present, any business may be transacted which
might have been transacted at the meeting as originally noticed. If a quorum is
present when a meeting is convened, the shareholders present may continue to
transact business until adjournment notwithstanding the withdrawal of enough
shareholders originally present to leave less than a quorum.
Section 2.05. Voting. At each meeting of the shareholders every
shareholder having the right to vote shall be entitled to vote either in person
or by proxy. Each shareholder, unless the articles of incorporation or statutes
provide otherwise, shall have one vote for each share having voting power
registered in such shareholder's name on the books of the corporation. Jointly
owned shares may be voted by any joint owner unless the corporation receives
written notice from any one of them denying the authority of that person to vote
those shares. Upon the demand of any shareholder, the vote upon any question
before the meeting shall be by ballot. All questions shall be decided by a
majority vote of the number of shares entitled to vote and represented at the
meeting at the time of the vote except if otherwise required by statute, the
articles of incorporation, or these bylaws.
Section 2.06. Record Date. The board of directors may fix a date, not
exceeding 60 days preceding the date of any meeting of shareholders, as a record
date for the determination of the shareholders entitled to notice of, and to
vote at, such meeting, notwithstanding any transfer of shares on the books of
the corporation after any record date so fixed. If the board of directors fails
to fix a record date for determination of the shareholders entitled to notice
of, and to vote at, any meeting of shareholders, the record date shall be the
20th day preceding the date of such meeting.
Section 2.07. Notice of Meetings. There shall be mailed to each
shareholder, shown by the books of the corporation to be a holder of record of
voting shares, at his address as shown by the books of the corporation, a notice
setting out the date, time and place of each regular meeting and each special
meeting, except (unless otherwise provided in section 2.04 hereof) where the
meeting is an adjourned meeting and the date, time and place of the meeting were
announced at the time of adjournment, which notice shall be mailed at least ten
days prior thereto (unless otherwise provided in section 2.04 hereof); except
that notice of a meeting at which a plan of merger or exchange is to be
considered shall be mailed to all shareholders of record, whether entitled to
vote or not, at least fourteen days prior thereto. Every notice of any special
meeting called pursuant to section 2.03 hereof shall state the purpose or
purposes for which the meeting has been called, and the business transacted at
all special meetings shall be confined to the purposes stated in the notice. The
written notice of any meeting at which a plan of merger or exchange is to be
considered shall so state such as a purpose of the meeting. A
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copy or short description of the plan of merger or exchange shall be included in
or enclosed with such notice.
Section 2.08. Waiver of Notice. Notice of any regular or special meeting
may be waived by any shareholder either before, at or after such meeting orally
or in writing signed by such shareholder or a representative entitled to vote
the shares of such shareholder. A shareholder, by his attendance at any meeting
of shareholders, shall be deemed to have waived notice of such meeting, except
where the shareholder objects at the beginning of the meeting to the transaction
of business because the meeting is not lawfully called or convened, or objects
before a vote on an item of business because the item may not lawfully be
considered at that meeting and does not participate in the consideration of the
item at that meeting.
Section 2.09. Written Action. Any action which might be taken at a meeting
of the shareholders may be taken without a meeting if done in writing and signed
by all of the shareholders entitled to vote on that action.
Section 2.10. Electronic Communications. A conference among shareholders
by any means of communication through which the shareholders may simultaneously
hear each other during the conference constitutes a regular or special meeting,
as the case may be, of the shareholders, if all of the notice and quorum
requirements for a regular or special meeting, as the case may be, are
satisfied. Participation in a conference by such means constitutes presence at
the meeting in person or by proxy if all of the requirements of the Minnesota
Business Corporation Act Section 302A.449, as now enacted or hereafter amended,
are met. A shareholder may participate in a regular or special meeting by any
means of communication through which the shareholder, other shareholders so
participating and all shareholders physically present at the meeting may
simultaneously hear each other during the meeting. Participation in a meeting by
such means constitutes presence at the meeting in person or by proxy if all of
the requirements of Minnesota Business Corporation Act 302A.449, as now enacted
or hereafter amended, are met.
ARTICLE III.
DIRECTORS
Section 3.01. General Powers. The business and affairs of the corporation
shall be managed by or under the authority of the board of directors, except as
otherwise permitted by statute.
Section 3.02. Number, Qualification and Term of Office. The number of
directors of the corporation shall be determined from time to time by resolution
of the board. Directors need not be residents of the State of Minnesota nor
shareholders of the corporation. The directors other than the first board of
directors, shall be elected at the regular meeting, and each director elected
shall serve until the next succeeding regular meeting and until the successor
shall have been elected and qualified. The first board of directors shall hold
office until the first annual meeting.
Section 3.03. Board Meetings. Meetings of the board of directors may be
held from time to time at such time and place within or without the state of
Minnesota as may be designated in the notice of such meeting.
Section 3.04. Calling Meetings; Notice. Meetings of the board of directors
may be called by the chairman of the board by giving at least twenty-four hours'
notice, or by any other director by giving at least five days' notice, of the
date, time and place thereof to each director by mail, telephone, telegram or in
person. If the day or date, time and place of a meeting of the board of
directors has been announced at a previous meeting of the board, no notice is
required. Notice of an adjourned meeting of
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the board of directors need not be given other than by announcement at the
meeting at which adjournment is taken.
Section 3.05. Waiver of Notice. Notice of any meeting of the board of
directors may be waived by any director either before, at, or after such meeting
orally or in a writing signed by such director. A director, by his attendance at
any meeting of the board of directors, shall be deemed to have waived notice of
such meeting, except where the director objects at the beginning of the meeting
to the transaction of business because the meeting is not lawfully called or
convened and does not participate thereafter in the meeting.
Section 3.06. Quorum. A majority of the directors holding office
immediately prior to a meeting of the board of directors shall constitute a
quorum for the transaction of business at such meeting.
Section 3.07. Absent Directors. A director may give advance written
consent or opposition to a proposal to be acted on at a meeting of the board of
directors. If such director is not present at the meeting, consent or opposition
to a proposal does not constitute presence for purposes of determining the
existence of a quorum, but consent or opposition shall be counted as a vote in
favor of or against the proposal and shall be entered in the minutes or other
record of action at the meeting, if the proposal acted on at the meeting is
substantially the same or has substantially the same effect as the proposal to
which the director has consented or objected.
Section 3.08. Conference Communications. Any or all directors may
participate in any meeting of the board of directors, or of any duly constituted
committee thereof, by any means of communication through which the directors may
simultaneously hear each other during such meeting. For the purposes of
establishing a quorum and taking any action at the meeting, such directors
participating pursuant to this section 3.08 shall be deemed present in person at
the meeting; and the place of the meeting shall be the place of origination of
the conference telephone conversation or other comparable communication
technique.
Section 3.09. Vacancies: Newly Created Directorships. Any vacancy
occurring in the board of directors may be filled by the affirmative vote of a
majority of the remaining directors though less than a quorum of the board. A
director elected to fill a vacancy shall be elected for the unexpired portion of
the term of his predecessor in office. Any directorship to be filled by reason
of an increase in the number of directors shall be filled by election at the
next regular meeting or at a special meeting of shareholders called for that
purpose. A director elected to fill a newly created directorship shall serve
until the next succeeding regular meeting and until his successor shall have
been elected and qualified.
Section 3.10. Removal. Any or all of the directors may be removed from
office at any time, with or without cause, by the affirmative vote of the
shareholders holding a majority of the shares entitled to vote at an election of
directors except, as otherwise provided by the Minnesota Business Corporation
Act, section 302A.223, as amended, when the shareholders have the right to
cumulate their votes. A director named by the board of directors to fill a
vacancy may be removed from office at any time, with or without cause, by the
affirmative vote of the remaining directors if the shareholders have not elected
directors in the interim between the time of the appointment to fill such
vacancy and the time of the removal. In the event that the entire board or any
one or more directors be so removed, new directors may be elected at the same
meeting.
Section 3.11. Committees. A resolution approved by the affirmative vote of
a majority of the board of directors may establish committees having the
authority of the board in the management of the business of the corporation to
the extent provided in the resolution. A committee shall consist of one
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or more persons, who need not be directors, appointed by affirmative vote of a
majority of the directors present. Committees are subject to the direction and
control of, and vacancies in the membership thereof shall be filled by, the
board of directors.
A majority of the members of the committee present at a meeting is a
quorum for the transaction of business, unless a larger or smaller proportion or
number is provided in a resolution approved by the affirmative vote of a
majority of the directors present.
Section 3.12. Written Action. Any action which might be taken at a meeting
of the board of directors, or any duly constituted committee thereof, may be
taken without a meeting if done in writing and signed by all of the directors or
committee members, unless the articles provide otherwise and the action need not
be approved by the shareholders.
Section 3.13. Compensation. Directors who are not salaried officers of
this corporation shall receive such fixed sum per meeting attended or such fixed
annual sum as shall be determined, from time to time, by resolution of the board
of directors. The board of directors may, by resolution, provide that all
directors shall receive their expenses, if any, of attendance at meetings of the
board of directors or any committee thereof. Nothing herein contained shall be
construed to preclude any director from serving this corporation in any other
capacity and receiving proper compensation therefor.
ARTICLE IV.
OFFICERS
Section 4.01. Number. The officers of the corporation shall consist of a
chairman of the board (if one is elected by the board), the president, one or
more vice presidents (if desired by the board), a treasurer, a secretary (if one
is elected by the board) and such other officers and agents as may, from time to
time, be elected by the board of directors. Any number of offices may be held by
the same person.
Section 4.02. Election, Term of Office and Qualifications. The board of
directors shall elect or appoint, by resolution approved by the affirmative vote
of a majority of the directors present, from within or without their number, the
president, treasurer and such other officers as may be deemed advisable, each of
whom shall have the powers, rights, duties, responsibilities, and terms of
office provided for in these bylaws or a resolution of the board of directors
not inconsistent therewith. The president and all other officers who may be
directors shall continue to hold office until the election and qualification of
their successors, notwithstanding an earlier termination of their directorship.
Section 4.03. Removal and Vacancies. Any officer may be removed from his
office by the board of directors at any time, with or without cause. Such
removal, however, shall be without prejudice to the contract rights of the
person so removed. If there be a vacancy in an office of the corporation by
reason of death, resignation or otherwise, such vacancy shall be filled for the
unexpired term by the board of directors.
Section 4.04. Chairman of the Board. The chairman of the board, if one is
elected, shall preside at all meetings of the shareholders and directors and
shall have such other duties as may be prescribed, from time to time, by the
board of directors.
Section 4.05. President. The president shall be the chief executive
officer and shall have general active management of the business of the
corporation. In the absence of the chairman of the board, he shall preside at
all meetings of the shareholders and directors. He shall see that all orders and
resolutions of the board of directors are carried into effect. He shall execute
and deliver, in the name of the corporation, any deeds, mortgages, bonds,
contracts or other instruments pertaining to the
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business of the corporation unless the authority to execute and deliver is
required by law to be exercised by another person or is expressly delegated by
the articles or bylaws or by the board of directors to some other officer or
agent of the corporation. He shall maintain records of and, whenever necessary,
certify all proceedings of the board of directors and the shareholders, and in
general, shall perform all duties usually incident to the office of the
president. He shall have such other duties as may, from time to time, be
prescribed by the board of directors.
Section 4.06. Vice President. Each vice president, if one or more is
elected, shall have such powers and shall perform such duties as prescribed by
the board of directors or by the president. In the event of the absence or
disability of the president, the vice president(s) shall succeed to his power
and duties in the order designated by the board of directors.
Section 4.07. Secretary. The secretary, if one is elected, shall be
secretary of and shall attend all meetings of the shareholders and board of
directors and shall record all proceedings of such meetings in the minute book
of the corporation. He shall give proper notice of meetings of shareholders and
directors. He shall perform such other duties as may, from time to time, be
prescribed by the board of directors or by the president.
Section 4.08. Treasurer. The treasurer shall be the chief financial
officer and shall keep accurate financial records for the corporation. He shall
deposit all moneys, drafts and checks in the name of, and to the credit of, the
corporation in such banks and depositories as the board of directors shall, from
time to time, designate. He shall have power to endorse, for deposit, all notes,
checks and drafts received by the corporation. He shall disburse the funds of
the corporation, as ordered by the board of directors, making proper vouchers
therefor. He shall render to the president and the directors, whenever
requested, an account of all his transactions as treasurer and of the financial
condition of the corporation, and shall perform such other duties as may, from
time to time, be prescribed by the board of directors or by the president.
Section 4.09. Compensation. The officers of the corporation shall receive
such compensation for their services as may be determined, from time to time, by
resolution of the board of directors.
ARTICLE V.
SHARES AND THEIR TRANSFER
Section 5.01. Certificates for Shares. All shares of the corporation shall
be certificated shares. Every owner of shares of the corporation shall be
entitled to a certificate, to be in such form as shall be prescribed by the
board of directors, certifying the number of shares of the corporation owned by
such shareholder. The certificates for such shares shall be numbered in the
order in which they shall be issued and shall be signed, in the name of the
corporation, by the president and by the secretary or an assistant secretary or
by such officers as the board of directors may designate. If the certificate is
signed by a transfer agent or registrar, such signatures of the corporate
officers may be by facsimile if authorized by the board of directors. Every
certificate surrendered to the corporation for exchange or transfer shall be
canceled, and no new certificate or certificates shall be issued in exchange for
any existing certificate until such existing certificate shall have been so
canceled, except in cases provided for in section 5.04.
Section 5.02. Issuance of Shares. The board of directors is authorized to
cause to be issued shares of the corporation up to the full amount authorized by
the articles of incorporation in such amounts as may be determined by the board
of directors and as may be permitted by law. Shares may be issued for any
consideration, including, without limitation, in consideration of cash or other
property, tangible or intangible, received or to be received by the corporation
under a written agreement, of
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services rendered or to be rendered to the corporation under a written
agreement, or of an amount transferred from surplus to stated capital upon a
share dividend. At the time of approval of the issuance of shares, the board of
directors shall state, by resolution, its determination of the fair value to the
corporation in monetary terms of any consideration other than cash for which
shares are to be issued.
Section 5.03. Transfer of Shares. Transfer of shares on the books of the
corporation may be authorized only by the shareholder named in the certificate,
or the shareholder's legal representative, or the shareholder's duly authorized
attorney-in-fact, and upon surrender of the certificate or the certificates for
such shares. The corporation may treat as the absolute owner of shares of the
corporation, the person or persons in whose name shares are registered on the
books of the corporation.
Section 5.04. Loss of Certificates. Except as otherwise provided by the
Minnesota Business Corporation Act, section 302A.419, any shareholder claiming a
certificate for shares to be lost, stolen, or destroyed shall make an affidavit
of that fact in such form as the board of directors shall require and shall, if
the board of directors so requires, give the corporation a bond of indemnity in
form, in an amount, and with one or more sureties satisfactory to the board of
directors, to indemnify the corporation against any claim which may be made
against it on account of the reissue of such certificate, whereupon a new
certificate may be issued in the same tenor and for the same number of shares as
the one alleged to have been lost, stolen or destroyed.
ARTICLE VI.
DISTRIBUTIONS, RECORD DATE
Section 6.01. Distributions. Subject to the provisions of the articles of
incorporation, of these bylaws, and of law, the board of directors may authorize
and cause the corporation to make distributions whenever, and in such amounts or
forms as, in its opinion, are deemed advisable.
Section 6.02. Record Date. Subject to any provisions of the articles of
incorporation, the board of directors may fix a date not exceeding 120 days
preceding the date fixed for the payment of any distribution as the record date
for the determination of the shareholders entitled to receive payment of the
distribution and, in such case, only shareholders of record on the date so fixed
shall be entitled to receive payment of such distribution notwithstanding any
transfer of shares on the books of the corporation after the record date.
ARTICLE VII.
BOOKS AND RECORDS, FISCAL YEAR
Section 7.01. Share Register. The board of directors of the corporation
shall cause to be kept at its principal executive office, or at another place or
places within the United States determined by the board:
(1) a share register not more than one year old, containing the names
and addresses of the shareholders and the number and classes of
shares held by each shareholder; and
(2) a record of the dates on which certificates or transaction
statements representing shares were issued.
Section 7.02. Other Books and Records. The board of directors shall cause
to be kept at its principal executive office, or, if its principal executive
office is not in Minnesota, shall make available
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at its Minnesota registered office within ten days after receipt by an officer
of the corporation of a written demand for them made by a shareholder or other
person authorized by the Minnesota Business Corporation Act, section 302A.461,
originals or copies of:
(1) records of all proceedings of shareholders for the last three years;
(2) records of all proceedings of the board for the last three years;
(3) its articles and all amendments currently in effect;
(4) its bylaws and all amendments currently in effect;
(5) financial statements required by the Minnesota Business Corporation
Act, section 302A.463 and the financial statements for the most
recent interim period prepared in the course of the operation of the
corporation for distribution to the shareholders or to a
governmental agency as a matter of public record;
(6) reports made to shareholders generally within the last three years;
(7) a statement of the names and usual business addresses of its
directors and principal officers; and
(8) any shareholder voting or control agreements of which the
corporation is aware.
Section 7.03. Fiscal Year. The fiscal year of the corporation shall be
determined by the board of directors.
ARTICLE VIII.
LOANS, GUARANTEES, SURETYSHIP
Section 8.01. The corporation may lend money to, guarantee an obligation
of, become a surety for, or otherwise financially assist a person if the
transaction, or a class of transactions to which the transaction belongs, is
approved by the affirmative vote of a majority of the directors present, and:
(1) is in the usual and regular course of business of the corporation;
(2) is with, or for the benefit of, a related corporation, an
organization in which the corporation has a financial interest, an
organization with which the corporation has a business relationship,
or an organization to which the corporation has the power to make
donations;
(3) is with, or for the benefit of, an officer or other employee of the
corporation or a subsidiary, including an officer or employee who is
a director of the corporation or a subsidiary, and may reasonably be
expected, in the judgment of the board, to benefit the corporation;
or
(4) has been approved by (a) the holders of two-thirds of the voting
power of the shares entitled to vote which are owned by persons
other than the interested person or persons, or (b) the unanimous
affirmative vote of the holders of all outstanding shares whether or
not entitled to vote.
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Such loan, guarantee, surety contract or other financial assistance may be with
or without interest, and may be unsecured, or may be secured in the manner as a
majority of the directors present approve, including, without limitation, a
pledge of or other security interest in shares of the corporation. Nothing in
this section shall be deemed to deny, limit or restrict the powers of guaranty,
surety or warranty of the corporation at common law or under a statute of the
state of Minnesota.
ARTICLE IX.
INDEMNIFICATION OF CERTAIN PERSONS
Section 9.01. The corporation shall indemnify all officers and directors
of the corporation, for such expenses and liabilities, in such manner, under
such circumstances and to such extent as permitted by section 302A.521 of the
Minnesota Business Corporation Act, as now enacted or hereafter amended. The
Board of Directors may authorize the purchase and maintenance of insurance
and/or the execution of individual agreements for the purpose of such
indemnification, and the corporation shall advance all reasonable costs and
expenses (including attorneys' fees) incurred in defending any action, suit or
proceeding to all persons entitled to indemnification under this section 9.01,
all in the manner, under the circumstances and to the extent permitted by
Section 302A.521 of the Minnesota Business Corporation Act, as now enacted or
hereafter amended. Unless otherwise approved by the board of directors, the
corporation shall not indemnify any employee of the corporation who is not
otherwise entitled to indemnification pursuant to this section 9.01.
ARTICLE X.
AMENDMENTS
Section 10.01. These bylaws may be amended or altered by a vote of the
majority of the whole board of directors at any meeting. Such authority of the
board of directors is subject to the power of the shareholders, exercisable in
the manner provided in the Minnesota Business Corporation Act, section 302A.181,
subd. 3, to adopt, amend, or repeal bylaws adopted, amended, or repealed by the
board of directors. After the adoption of the initial bylaws, the board of
directors shall not make or alter any bylaws fixing a quorum for meetings of
shareholders, prescribing procedures for removing directors or filling vacancies
in the board of directors, or fixing the number of directors or their
classifications, qualifications, or terms of office, except that the board of
directors may adopt or amend any bylaw to increase their number.
ARTICLE XI.
SECURITIES OF OTHER CORPORATIONS
Section 11.01. Voting Securities Held by the Corporation. Unless otherwise
ordered by the board of directors, the president shall have full power and
authority on behalf of the corporation (a) to attend any meeting of security
holders of other corporations in which the corporation may hold securities and
to vote such securities on behalf of this corporation; (b) to execute any proxy
for such meeting on behalf of the corporation; or (c) to execute a written
action in lieu of a meeting of such other corporation on behalf of this
corporation. At such meeting, the president shall possess and may exercise any
and all rights and powers incident to the ownership of such securities that the
corporation possesses. The board of directors may, from time to time, grant such
power and authority to one or more other persons and may remove such power and
authority from the president or any other person or persons.
Section 11.02. Purchase and Sale of Securities. Unless otherwise ordered
by the board of directors, the president shall have full power and authority on
behalf of the corporation to purchase, sell, transfer or encumber any and all
securities of any other corporation owned by the corporation, and
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may execute and deliver such documents as may be necessary to effectuate such
purchase, sale, transfer or encumbrance. The board of directors may, from time
to time, confer like powers upon any other person or persons.
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Exhibit 5.1
[LETTERHEAD OF DORSEY & WHITNEY LLP]
The Board of Directors
Universal Hospital Services, Inc.
1250 Northland Plaza
3800 West 80th Street
Bloomington, Minnesota 55431
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
We have acted as counsel to Universal Hospital Services, Inc., a Minnesota
corporation (the "Company"), in connection with a Registration Statement on Form
S-1 (the "Registration Statement") relating to the proposed issuance by the
Company of $100,000,000 aggregate principal amount of the Company's 10 1/4%
Senior Notes Due 2008 (the "New Notes") registered under the Securities Act of
1933, as amended (the "Securities Act"), in exchange for up to $100,000,000
aggregate principal amount of the Company's outstanding 10 1/4% Senior Notes Due
2008 (the "Old Notes"). The New Notes are issuable under an Indenture dated as
of Februaryu25, 1998 (the "Indenture") between the Company and First Trust
National Association, as Trustee (the "Trustee").
We have examined such documents, including resolutions adopted by written
consent by the Board of Directors of the Company on Februaryu25, 1998 (the
"Resolutions"), and have reviewed such questions of law as we have considered
necessary and appropriate for the purposes of our opinion set forth below. In
rendering our opinion, we have assumed the authenticity of all documents
submitted to us as originals, the genuineness of all signatures and the
conformity to authentic originals of all documents submitted to us as copies. We
have also assumed the legal capacity for all purposes relevant hereto of all
natural persons and, with respect to all parties to agreements or instruments
relevant hereto other than the Company, that such parties had the requisite
power and authority (corporate or otherwise) to execute, deliver and perform
such agreements or instruments, that such agreements or instruments have been
duly authorized by all requisite action (corporate or otherwise), executed and
delivered by such parties and that such agreements or instruments are the valid,
binding and enforceable obligations of such parties. As to questions of fact
material to our opinion, we have relied upon certificates of officers of the
Company and of public officials. Capitalized terms used herein and not otherwise
defined herein shall have the meanings assigned to them in the Indenture
incorporated by reference as Exhibits 4.1 to the Registration Statement.
Based on the foregoing, we are of the opinion that the New Notes have been
duly authorized by all requisite corporate action and, when executed and
authenticated as specified in the Indenture and delivered against surrender and
cancellation of a like principal amount of Old Notes in the manner described in
the Registration Statement, the New Notes will constitute valid and binding
obligations of the Company, enforceable in accordance with their terms.
<PAGE> 2
The Board of Directors
Universal Hospital Services, Inc.
Page 2
The opinions set forth above are subject to the following qualifications
and exceptions:
(a) Our opinions stated above are subject to the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar law of general application affecting creditors' rights.
(b) Our opinions stated above are subject to the effect of general
principles of equity, including (without limitation) concepts of
materiality, reasonableness, good faith and fair dealing, and other
similar doctrines affecting the enforceability of agreements generally
(regardless of whether considered in a proceeding in equity or at law).
(c) In rendering the opinions set forth above, we have assumed that,
at the time of the authentication and delivery of a series of New Notes,
the Resolutions referred to above will not have been modified or
rescinded, there will not have occurred any change in the law affecting
the authorization, execution, delivery, validity or enforceability of the
New Notes, the Registration Statement will have been declared effective by
the Commission and will continue to be effective, none of the particular
terms of a series of New Notes will violate any applicable law and neither
the issuance and sale thereof nor the compliance by the Company with the
terms thereof will result in a violation of any agreement or instrument
then binding upon the Company or any order of any court or governmental
body having jurisdiction over the Company.
(d) Minnesota Statutes ss. 290.371, Subd. 4, provides that any
corporation required to file a Notice of Business Activities Report does
not have a cause of action upon which it may bring suit under Minnesota
law unless the corporation has filed a Notice of Business Activities
Report and provides that the use of the courts of the State of Minnesota
for all contracts executed and all causes of action that arose before the
end of any period for which a corporation failed to file a required report
is precluded. Insofar as our opinion may relate to the valid, binding and
enforceable character of any agreement under Minnesota law or in a
Minnesota court, we have assumed that any party seeking to enforce such
agreement has at all times been, and will continue at all times to be,
exempt from the requirement of filing a Notice of Business Activities
Report or, if not exempt, has duly filed, and will continue to duly file,
all Notice of Business Activities Reports.
Our opinion expressed above is limited to the laws of the States of
Minnesota and New York and the federal laws of the United States of America.
We hereby consent to your filing of this opinion as an exhibit to the
Registration Statement, and to the reference to our firm under the caption
"Legal Matters" contained in the Prospectus included therein.
Dated: June 12, 1998
Very truly yours,
/s/ Dorsey & Whitney LLP
<PAGE> 1
Exhibit 10.5
UHS Acquisition Corp.
c/o J.W. Childs Associates, L.P.
One Federal Street
Boston, Massachusetts 02110
(617) 753-1100
Facsimile: (617) 753-1101
[DATE]
[NAME]
Universal Hospital Services, Inc.
1250 Northland Plaza
3800 West 80th Street
Bloomington, Minnesota 55431
Dear [NAME]:
Reference is made to the Agreement and Plan of Merger dated November
25, 1997 (the "Merger Agreement"), by and among J.W. Childs Equity Partners,
L.P. ("Holdings"), UHS Acquisition Corp., a Minnesota corporation and a wholly
owned subsidiary of Holdings ("Merger Sub"), and Universal Hospital Services,
Inc., a Minnesota corporation ("UHS"). As you know, subject to the terms and
conditions of the Merger Agreement, Merger Sub will merge with and into UHS (the
"Merger"), with UHS to be the surviving entity (UHS, in its capacity as the
corporation surviving the Merger, is sometimes hereinafter referred to as the
"Company").
You currently serve as [TITLE], and this Employment Agreement
is being entered into as inducement for Holdings and Merger Sub to consummate
the Merger and the other transactions contemplated by the Merger Agreement, for
other good and valuable consideration and to provide for your services to the
Company following the Merger as follows:
1. Position; Duties. From and after the date of the Merger, the
Company shall employ you, and you agree to serve and accept employment, for the
Term (as defined herein), as [TITLE]
<PAGE> 2
[NAME]
Page 2
subject to the direction and control of the Board of Directors of the Company
(the "Board"), and, in connection therewith, to reside in the United States, to
oversee and direct the financial operations of the Company and to perform such
other duties as the Board or the Chief Executive Officer of the Company may from
time to time reasonably direct. Your place of employment shall be in the
Minneapolis, Minnesota area. During the Term, you agree to devote all of your
time, energy, experience and talents during regular business hours, and as
otherwise reasonably necessary, to such employment, to devote your best efforts
to advance the interests of the Company and not to engage in any other business
activities of a material nature, as an employee, director, consultant or in any
other capacity, whether or not you receive any compensation therefor, without
the prior written consent of the Board. You shall not be given duties
inconsistent with your executive position.
2. Term of Employment Agreement. The term of your employment
hereunder shall begin as of the Effective Time (as defined in the Merger
Agreement) and end as of the close of business on the date which is [ ] years
from the Effective Time, subject to earlier termination pursuant to the terms
hereof (the "Term"). Following the Term, this Agreement shall automatically be
renewed for successive one-year terms (each a "Renewal Term") unless notice of
termination is given by either party upon not less than 30 days' written notice
prior to the date on which such renewal would otherwise occur.
3. Compensation and Benefits.
(a) Base Salary. Your base salary shall be at the annual rate
of [ ], payable in equal bi- weekly installments. Such base salary shall be
adjusted annually based on changes in the consumer price index (all urban
consumers, U.S. city average). The Board will annually review your base salary
beginning in 1999. Necessary withholding taxes, FICA contributions and the like
shall be deducted from your base salary.
(b) Bonus; Options. In addition to your base salary, you shall
be entitled to receive a bonus of
<PAGE> 3
[NAME]
Page 3
up to [ ]% of your base salary, based on the achievement of the annual EBITDA
targets contained in Exhibit A (such targets to be subject to adjustment by the
Board of Directors of the Company, in good faith, to reflect any acquisitions,
dispositions and material changes to capital spending). The amount of such bonus
would rise linearly from [ ]% of base salary to [ ]% of base salary based on
achievement of EBITDA of [ ]% to [ ]% of target EBITDA. No bonus shall be
payable if EBITDA is [ ]% or less of target EBITDA. You will also be entitled
to receive certain stock options pursuant to one or more executive or employee
stock option plans to be adopted by the Company; the proposed terms of such
stock options (which are subject to change) are contained in Exhibit A attached
hereto.
(c) Other. You shall be entitled to such health, life,
disability, vacation, pension, sick leave and other benefits as are generally
made available by the Company to its executive employees. Your benefits will
also consist of five weeks paid vacation time, an annual physical exam and
reimbursement for tax preparation costs.
4. Termination.
(a) Death. This Employment Agreement shall automatically
terminate upon your death. In the event of such termination, the Company shall
pay to your legal representatives your base salary in monthly installments and
continue to provide the benefits provided hereunder, in each case for six months
following such termination.
(b) Disability. If during the Term you become physically or
mentally disabled, whether totally or partially, either permanently or so that
you are unable substantially and competently to perform your duties hereunder
for a period of 90 consecutive days or for 90 days during any six-month period
during the Term (a "Disability"), the Company may terminate your employment
hereunder by written notice to you. In the event of such termination, the
Company shall pay to you your base salary in monthly installments and continue
to provide
<PAGE> 4
[NAME]
Page 4
the benefits provided hereunder, in each case for six months following such
termination.
(c) Cause. Your employment hereunder may be terminated at any
time by the Company for Cause (as defined herein) by written notice to you. In
the event of such termination, all of your rights to payments (other than
payment for services already rendered) and any other benefits otherwise due
hereunder shall cease immediately. The Company shall have "Cause" for
termination of your employment hereunder if any of the following has occurred:
(i) your continued failure, whether willful, intentional
or grossly negligent, after written notice, to perform substantially your duties
hereunder (other than as a result of a Disability);
(ii) dishonesty in the performance of your duties
hereunder;
(iii) conviction or confession of an act or acts on your
part constituting a felony under the laws of the United States or any state
thereof;
(iv) any other willful act or omission on your part
which is materially injurious to the financial condition or business reputation
of the Company or any of its subsidiaries; or
(v) you have breached any provision of this Employment
Agreement contained in Paragraphs 6, 7 or 8 hereof; or
(vi) you have breached any provision of this Employment
Agreement (other than Paragraph 6, 7, or 8 hereof) and such breach shall not
have been cured within sixty (60) days after notice thereof from the Company to
you.
(d) Without Cause. Your employment hereunder may be terminated
at any time by the Company without Cause by written notice to you. In the event
of such termination, the Company shall (i) continue to pay
<PAGE> 5
[NAME]
Page 5
you your base salary through the date which is twelve months from the Date of
Termination (as defined herein), and (ii) pay to you a prorated bonus based upon
the number of days that you were employed by the Company during the fiscal year
to which such bonus relates, such bonus to be payable at such time as annual
bonuses with respect to such fiscal year are paid to all other Executive
Employees (as defined herein) who are employed by the Company on the last day of
such fiscal year. It is acknowledged and agreed that termination of your
employment upon expiration of the Term, or any Renewal Term, shall not be deemed
to constitute a termination without Cause for purposes of this Employment
Agreement or for any other purpose. For purposes of this Employment Agreement
"Executive Employees" shall be deemed to mean the Vice President and Chief
Financial Officer of the Company, the Vice President of Rental and Sales - West
of the Company, the Director of Human Resources and Administration of the
Company, the Vice President of Rental and Sales - East of the Company and the
Vice President of Business and Development of the Company.
(e) Resignation Without Good Reason. You may terminate your
employment hereunder upon sixty days' written notice to the Company, without
Good Reason (as defined herein). In the event of such termination, all of your
rights to payment (other than payment for services already rendered) and any
other benefits otherwise due hereunder shall cease immediately. It is
acknowledged and agreed that termination of your employment upon expiration of
the Term or any Renewal Term shall not be deemed to constitute resignation
without Good Reason for purposes of this Employment Agreement or any other
purpose.
(f) Resignation For Good Reason. You may terminate your
employment hereunder at any time upon thirty days' written notice to the
Company, for Good Reason. In the event of such termination, the Company shall
(i) continue to pay you your base salary through the date which is twelve months
from the Date of Termination, and (ii) pay to you a prorated bonus based upon
the number of days that you were employed by the Company during the fiscal year
to which such bonus relates, such
<PAGE> 6
[NAME]
Page 6
bonus to be payable at such time as annual bonuses with respect to such fiscal
year are paid to all other Executive Employees who are employed by the Company
on the last day of such fiscal year.
You shall have "Good Reason" for termination of your employment
hereunder if, other than for Cause, any of the following has occurred:
(i) your base salary has been reduced other than in
connection with an across-the-board reduction (of approximately the same
percentage) in executive compensation to Executive Employees imposed by the
Board in response to negative financial results or other adverse circumstances
affecting the Company; or
(ii) the Company has reduced or reassigned a material
portion of your duties hereunder or has required you to relocate outside the
greater Minneapolis, Minnesota area; or
(iii) your illness, that in the good faith determination
of the Board of Directors of the Company is likely to result in you becoming
disabled and unable to continue your employment with the Company; or
(iv) the Company has breached this Employment Agreement
in any material respect.
(g) Date and Effect of Termination. The date of termination of
your employment hereunder, pursuant to this Paragraph 4, shall be, (i) in the
case of Paragraph 4(a), the date of your death, (ii) in the case of Paragraphs
4(b), (c) or (d), the date specified in the Company's notice to you of such
termination or (iii) in the case of Paragraph 4(e) or 4(f), the date specified
in your notice to the Company of such termination (in each case, the "Date of
Termination"). Upon any termination of your employment hereunder pursuant to
this Paragraph 4, you shall not be entitled to any further payments or benefits
of any nature pursuant to this Employment Agreement, or as a result of such
termination, except as specifically provided for in this Employment Agreement,
in any stock option plans adopted by the Company in
<PAGE> 7
[NAME]
Page 7
accordance with Paragraph 3(b) hereof, or as may be required by law.
(h) Other Employment. Notwithstanding anything in this
Employment Agreement to the contrary, if your employment hereunder is terminated
pursuant to Paragraph 4(d) or (f), and if prior to the date which is twelve
months after the Date of Termination you find other employment, the amount of
payments or benefits payable to you after such termination in accordance with
the terms of this Employment Agreement shall be reduced by the value of your
compensation in your new employment through the date which is twelve months
after the Date of Termination.
(i) Termination Following Non-Renewal. In the event that (i)
your employment hereunder is not renewed at the end of the Term or any Renewal
Term pursuant to a notice of termination given by the Company to you in
accordance with Paragraph 2 hereof, (ii) you are still employed by the Company
after such non-renewal as an employee at will, (iii) the Company thereafter
terminates your employment as an employee at will, and (iv) no circumstances
exist at the time of such termination which would constitute "Cause" as set
forth in Paragraph 4(c) hereof, any amounts to which you are entitled under any
severance plan or program of the Company then in effect which is generally
applicable to employees of the Company shall be paid to you in accordance with
the terms of such plan or program.
5. Acknowledgment. You agree and acknowledge that in the course of
rendering services to the Company and its clients and customers, you will have
access to and become acquainted with confidential information about the
professional, business and financial affairs of the Company and its affiliates.
You acknowledge that the Company is engaged and will be engaged in a highly
competitive business, and the success of the Company in the marketplace depends
upon its good will and reputation for quality and dependability. You agree and
acknowledge that reasonable limits on your ability to engage in activities
competitive with the Company are warranted to protect its substantial investment
in developing and
<PAGE> 8
[NAME]
Page 8
maintaining its status in the marketplace, reputation and good will. You
recognize that in order to guard the legitimate interests of the Company and its
affiliates, it is necessary for the Company to protect all confidential
information. The existence of any claim or cause of action by you against the
Company shall not constitute and shall not be asserted as a defense to the
enforcement by the Company of this Employment Agreement. You further agree that
your obligations under Paragraphs 6, 7 and 8 hereof shall be absolute and
unconditional.
6. Confidentiality. You agree that during and at all times after the
Term, you will keep secret all confidential matters and materials of the Company
(including its subsidiaries and affiliates), including, without limitation,
know-how, trade secrets, real estate plans and practices, individual office
results, customer lists, pricing policies, operational methods, any information
relating to the Company (including any of its subsidiaries and affiliates)
products, processes, customers and services and other business and financial
affairs of the Company (including its subsidiaries and affiliates)
(collectively, the "Confidential Information"), to which you had or may have
access and will not disclose such Confidential Information to any person other
than Holdings or the Company, their respective authorized employees and such
other persons to whom you have been instructed to make disclosure by the Board,
in each case only to the extent required in the course of your service to the
Company hereunder or as otherwise expressly required in connection with court
process. "Confidential Information" shall not include any information which is
in the public domain during or after the Term, provided such information is not
in the public domain as a consequence of disclosure by you in violation of this
Employment Agreement.
7. Non-competition. During the Prohibition Period (as hereinafter
defined), you will not, in any capacity, whether for your own account or for any
other person or organization, directly or indirectly, (i) within the United
States and Canada (a) own, operate, manage or control, (b) serve as an officer,
director, partner, employee, agent, consultant, advisor or devel-
<PAGE> 9
[NAME]
Page 9
oper or in any similar capacity to, or (c) have any financial interest in, or
aid or assist anyone else in the conduct of, any person or enterprise which is
engaged in the moveable medical equipment rental business; provided, however,
that the foregoing provisions of this Paragraph 7 shall not apply in the event
that (i) your employment hereunder is terminated upon the expiration of the Term
or any Renewal Term pursuant to a notice of termination given by the Company to
you in accordance with Paragraph 2 hereof, and (ii) no circumstances exist at
the time of such notice which would constitute "Cause" as set forth in Paragraph
4(c) hereof. As used herein, "Prohibition Period" means the period from and
after the Effective Time to and including the date which is twelve months from
the Date of Termination.
8. Non-solicitation. During the Prohibition Period, you will not,
directly or indirectly, hire, recruit, solicit, call upon, divert, take away,
entice or in any other manner persuade or attempt to do any of the foregoing
with respect to, any employee, independent contractor, dealer, supplier, client,
customer or business contact of the Company or any of its subsidiaries to
discontinue his or her position or relationship, or violate any agreement, with
the Company or any of its subsidiaries as employee, independent contractor,
dealer, supplier, client, customer or business contact, except with the prior
written consent of the Board, which consent shall be given at the sole
discretion of the Board.
9. Modification. You agree and acknowledge that the duration, scope
and geographic area of the covenants described in Paragraphs 6, 7 and 8 are
fair, reasonable and necessary in order to protect the good will and other
legitimate interests of the Company and its subsidiaries, that adequate
consideration has been received by you for such obligations, and that these
obligations do not prevent you from earning a livelihood. If, however, for any
reason any court of competent jurisdiction determines that any restriction
contained in Paragraphs 6, 7 or 8 are not reasonable, that consideration is
inadequate or that you have been prevented unlawfully from earning a livelihood,
such restriction shall be interpreted, modified or rewritten to include as
<PAGE> 10
[NAME]
Page 10
much of the duration, scope and geographic area identified in such Paragraph 6,
7 or 8 as will render such restrictions valid and enforceable.
10. Equitable Relief. You acknowledge that Merger Sub or the Company
will suffer irreparable harm as a result of a breach of this Employment
Agreement by you for which an adequate monetary remedy does not exist and a
remedy at law may prove to be inadequate. Accordingly, in the event of any
actual or threatened breach by you of any provision of this Employment
Agreement, Merger Sub or the Company shall, in addition to any other remedies
permitted by law, be entitled to obtain remedies in equity, including without
limitation specific performance, injunctive relief, a temporary restraining
order and/or a permanent injunction in any court of competent jurisdiction, to
prevent or otherwise restrain any such breach without the necessity of proving
damages, posting a bond or other security, and to recover any and all costs and
expenses, including reasonable counsel fees, incurred in enforcing this
Employment Agreement against you, and you hereby consent to the entry of such
relief against you and agree not to contest such entry. Such relief shall be in
addition to and not in substitution of any other remedies available to Merger
Sub or the Company. The existence of any claim or cause of action by you against
Merger Sub or the Company or any of its subsidiaries, whether predicated on this
Employment Agreement or otherwise, shall not constitute a defense to the
enforcement by Merger Sub or the Company of this Employment Agreement. You agree
not to defend on the basis that there is an adequate remedy at law.
11. Stockholders' Agreement. In connection with the acquisition of
any equity securities, or options therefor, of the Company, you will be expected
to enter, and you agree to enter, into a stockholders' agreement with the other
equity investors in the Company, substantially in the form attached hereto as
Exhibit B.
12. Life Insurance. Either Merger Sub or the Company, as the case
may be, may, at its discretion and at any time after the execution of this
Employment Agreement, apply for and procure, as owner and for its own benefit,
and at its own expense, insurance on your life,
<PAGE> 11
[NAME]
Page 11
in such amount and in such form or forms Merger Sub or the Company may
determine. You shall have no right or interest whatsoever in such policy or
policies, but you agree that you will, at the request of Merger Sub or the
Company, submit yourself to such medical examinations, supply such information
and execute and deliver such documents as may be required by the insurance
company or companies to which Merger Sub or the Company or any such subsidiary
has applied for such insurance.
13. Successors; Assigns; Amendment; Notice. This Employment
Agreement shall be binding upon and shall inure to the benefit of Merger Sub and
its successors (including, after the Effective Time, the Company). This
Employment Agreement shall be binding upon you and shall inure to the benefit of
your heirs, executors, administrators and legal representatives, but shall not
be assignable by you. This Employment Agreement may be amended or altered only
by the written agreement of Merger Sub (or, after the Effective Time, the
Company) and you. All notices or other communications permitted or required
under this Employment Agreement shall be in writing and shall be deemed to have
been duly given if delivered by hand, by facsimile transmission (if confirmed)
or mailed (certified or registered mail, postage prepaid, return receipt
requested) to you or Merger Sub (or, after the Effective Time, the Company) at
the respective addresses on the first page of this Employment Agreement, or such
other address as shall be furnished in writing by like notice by you or Merger
Sub (or, after the Effective Time, the Company) to the other.
14. Entire Agreement. This Employment Agreement, together with the
Stockholders' Agreement as executed in accordance with Paragraph 11 hereof,
embodies the entire agreement and understanding between you and Merger Sub (and,
after the Effective Time, the Company) with respect to the subject matter hereof
and supersedes all such prior agreements and understandings, including without
limitation the Severance Pay Plan for Displaced Universal Hospital Services,
Inc. Employees dated November 1997, and any other severance, separation or
termination pay plans, policies, programs, agreements or arrangements adopted by
the Company.
<PAGE> 12
[NAME]
Page 12
15. Severability. If any term, provision, covenant or restriction of
this Employment Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Employment Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.
16. Governing Law. This Employment Agreement shall be governed by
and construed and enforced in accordance with the laws of the state of Minnesota
applicable to contracts made and to be performed in such state without giving
effect to the principles of conflicts of laws thereof.
17. Counterparts. This Employment Agreement may be executed in two
or more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument, and all signatures need
not appear on any one counterpart.
18. Headings. All headings in this Employment Agreement are for
purposes of reference only and shall not be construed to limit or affect the
substance of this Employment Agreement.
<PAGE> 13
[NAME]
Page 13
If you accept and agree to the foregoing, please sign and return a
counterpart of this letter to Merger Sub at the above address, whereupon this
letter will become a binding Employment Agreement between you and the Company as
of the Effective Time.
Very truly yours,
UHS Acquisition Corp.
By:
-------------------------
Name:
Title:
Accepted and agreed to:
- ------------------------------
[NAME]
<PAGE> 1
Exhibit 10.6
UNIVERSAL HOSPITAL SERVICES, INC.
1998 STOCK OPTION PLAN
1. Purpose; Types of Awards; Construction.
The purpose of the Universal Hospital Services, Inc. 1998 Stock
Option Plan (the "Plan") is to afford an incentive to selected employees of
Universal Hospital Services, Inc. (the "Company"), or any Subsidiary or
Affiliate thereof that now exists or hereafter is organized or acquired, to
acquire a proprietary interest in the Company, to continue as employees, to
increase their efforts on behalf of the Company and to promote the success of
the Company's business through the grant of options ("Options") pursuant to
Section 6 hereof, which Options may be non-qualified stock options or "incentive
stock options" in accordance with section 422 of the Code. From and after the
consummation of a Public Offering, the Plan is intended to satisfy the
requirements of Rule 16b-3 promulgated under Section 16 of the Exchange Act and
section 162(m) of the Code and shall be interpreted in a manner consistent with
the requirements thereof.
2. Definitions.
For purposes of the Plan, the following terms shall be defined as
set forth below:
(a) "Affiliate" shall mean any Person that directly or indirectly
controls, is controlled by, or is under common control with, another
Person.
(b) "Beneficial Owner" has the meaning ascribed to it in Rule 13d-3
promul gated under the Exchange Act.
(c) "Beneficiary" shall mean the person, persons, trust or trusts
that have been designated by an Optionee in his or her most recent written
beneficiary designation filed with the Company to receive the benefits
specified under the Plan upon his or her death, or, if there is no
designated Beneficiary or surviving designated Beneficiary, then the
person, persons, trust or trusts entitled by will or the laws of descent
and distribution to receive such benefits.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Cause" shall mean, unless otherwise defined in an employment
agree ment between the Optionee and the Company, if applicable, or the
Option Agreement, with respect to an Optionee, (i) the continued failure,
whether willful,
<PAGE> 2
intentional or grossly negligent, after written notice, to perform
substantially his or her duties as an employee of the Company or any of
its Subsidiaries, other than as a result of a Disability; (ii) dishonesty
in the performance of such Optionee's duties as an employee of the Company
or any of its Subsidiaries; (iii) conviction or confession of an act or
acts on such Optionee's part constituting a felony under the laws of the
United States or any state thereof; (iv) any willful act or omission on
such Optionee's part that is materially injurious to the financial
condition or business reputation of the Company or any of its
Subsidiaries; (v) a breach of any duty or obligation of noncompetition or
confidentiality owed by such Optionee to the Company or any of its
Subsidiaries; or (vi) a breach of any provision or covenant contained in
any employment agreement between such Optionee and the Company or any of
its Subsidiaries, which breach shall not have been cured within sixty (60)
days after notice thereof from the Company to the Optionee.
(f) "Change in Control" shall mean when any "person" (as defined in
Section 13(d) and 14(d) of the Exchange Act), other than the Company, J.W.
Childs Equity Partners, L.P., any trustee or other fiduciary holding
securities under an employee benefit plan of the Company or any
Subsidiary, or any corporation owned, directly or indirectly, by the
stockholders of the Company, in substantially the same proportions as
their ownership of stock of the Company, acquires "beneficial ownership"
(as defined in Rule 13d-3 under the Exchange Act) of securities
representing more than 50% of the com bined voting power of the Company
(or, prior to a Public Offering, more than 50% of the Company's
outstanding shares of Common Stock.
(g) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(h) "Committee" shall mean a committee appointed by the Board to
adminis ter the Plan and to perform the functions set forth herein. From
and after the consummation of a Public Offering, the composition of the
Committee, at all times (i) shall satisfy the provisions of Rule 16b-3
under the Exchange Act, and (ii) shall be "outside directors" within the
meaning of Section 162(m). With respect to the period prior to
consummation of a Public Offering, references to the "Committee" shall be
deemed to also refer to the Board.
(i) "Common Stock" shall mean shares of Common Stock, par value $.01
per share, of the Company.
(j) "Company" shall mean Universal Hospital Services, Inc., a
corporation organized under the laws of the State of Minnesota, or any
successor corporation.
(k) "Disability" shall mean, unless otherwise defined in an
employment agreement between the Optionee and the Company, if applicable,
or in the Option
2
<PAGE> 3
Agreement, when the Optionee becomes physically or mentally disabled,
whether totally or partially, either permanently or so that he or she is
unable substantially and competently to perform his or her duties for the
Company or any Subsidiary for a period of 90 consecutive days or for 90
days during any six-month period.
(l) "Effective Date" shall mean, subject to the provisions of
Section 7(i) hereof, the date upon which the Plan is adopted by the Board.
(m) "Effective Time of the Merger" shall mean February 25, 1998.
(n) "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time, and as now or hereafter construed,
interpreted and applied by regulations, rulings and cases.
(o) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time, and as now or hereafter construed,
interpreted and applied by regulations, rulings and cases.
(p) "Fair Market Value" shall mean the fair market value of the
shares of Common Stock as determined by the Board in its sole discretion;
provided, however, that (i) if the shares of Common Stock are admitted to
trading on a national securities exchange, Fair Market Value on any date
shall be the last sale price reported for the shares of Common Stock on
such exchange on such date or on the last date preceding such date on
which a sale was reported, (ii) if the shares of Common Stock are admitted
to quotation on The Nasdaq Stock Market ("NASDAQ") or other comparable
quotation system and have been designated as a National Market System
("NMS") security, Fair Market Value on any date shall be the last sale
price reported for the shares of Common Stock on such system on such date
or on the last day preceding such date on which a sale was reported, or
(iii) if the shares of Common Stock are admitted to quotation on NASDAQ
and have not been designated a NMS security, Fair Market Value on any date
shall be the average of the highest bid and lowest asked prices of the
shares of Common Stock on such system on such date.
(q) "Good Reason" shall mean, unless otherwise defined in an
employment agreement between the Optionee and the Company, if applicable,
or in the Option Agreement, with respect to any Optionee, such Optionee's
resignation from his or her employment with the Company or any of its
Subsidiaries following and because of (i) the Company's reducing or
reassigning a material portion of the Optionee's duties, without Cause; or
(ii) a reduction of the Optionee's base salary other than in connection
with an across-the-board reduction of executive compensation imposed by
the Board in response to negative financial results or other adverse
circumstances affecting the Company.
3
<PAGE> 4
(r) "Incentive Stock Option" shall mean any Option intended to be
and designated as an incentive stock option within the meaning of section
422 of the Code.
(s) "Initial Option" shall have the meaning ascribed to it in
Section 4 hereof.
(t) "Initial Optionee" shall have the meaning ascribed to it in
Section 4 hereof.
(u) "J.W. Childs Equity Partners, L.P." shall mean J.W. Childs
Equity Partners, L.P., a Delaware limited partnership.
(v) "Merger" shall mean the transactions contemplated by that
certain Agreement and Plan of Merger, dated November 25, 1997, by and
among UHS Acquisi tion Corp., a Minnesota corporation ("Merger Sub"), J.W.
Childs Equity Partners, L.P. and the Company, providing for, among other
things, the merger of Merger Sub with and into the Company, with the
Company being the surviving corporation in the Merger.
(w) "Option" shall mean a right, granted to an Optionee under
Section 4 or 6 hereof, to purchase shares of Common Stock.
(x) "Option Agreement" shall mean any written agreement, contract,
or other instrument or document evidencing the grant of an Option.
(y) "Optionee" shall mean a person who, as an employee of the
Company or any Subsidiary or Affiliate thereof, has been granted an Option
under the Plan.
(z) "Person" has the meaning ascribed to it in Section 13(d)(3) or
14(d)(2) of the Exchange Act.
(aa) "Plan" shall mean this Universal Hospital Services, Inc. 1998
Stock Option Plan, as amended from time to time.
(bb) "Public Offering" shall mean an underwritten initial public
offering of shares of Common Stock by the Company.
(cc) "Rollover Agreement" shall have the meaning ascribed to it in
Section 4 hereof.
(dd) "Rollover Option" shall have the meaning ascribed to it in
Section 4 hereof.
4
<PAGE> 5
(ee) "Rollover Optionee" shall have the meaning ascribed to it in
Section 4 hereof.
(ff) "Rule 16b-3" shall mean Rule 16b-3, as from time to time in
effect, promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act, including any successor to such Rule.
(gg) "Secondary Option" shall have the meaning ascribed to it in
Section 4 hereof.
(hh) "Secondary Optionee" shall have the meaning ascribed to it in
Section 4 hereof.
(ii) "Section 162(m)" shall mean section 162(m) of the Code and the
regulations promulgated thereunder, as amended from time to time,
including any successor to such Section.
(jj) "Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if, at the time of granting of an
Option, each of the corporations (other than the last corporation in the
unbroken chain) owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in
the chain.
(kk) "Ten-Percent Stockholder" shall mean an Optionee, who, at the
time an Incentive Stock Option is to be granted to such Optionee, owns
(within the meaning of section 422(b)(6) of the Code) stock possessing
more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company, a "parent" or a "subsidiary" within the
meaning of sections 422(e) and 422(f), respectively, of the Code.
3. Administration.
The Plan shall be administered by the Committee. The Committee shall
have the authority, in its reasonable discretion, subject to and not
inconsistent with the express provisions of the Plan, to administer the Plan and
to exercise all the powers and authorities either specifically granted to it
under the Plan or as may be reasonably necessary or advisable in the
administration of the Plan, including, without limitation, the authority to
grant Options; to determine the persons to whom and the time or times at which
Options shall be granted; to determine the type and number of Options to be
granted, the number of shares of Common Stock to which an Option may relate and
the terms, conditions, restrictions and performance criteria relating to any
Option (including, without limitation, acceleration of such Option's
exercisability in the event of a Change in Control, and a prohibition against
employment of an Optionee by any competitor of the Company or against an
Optionee's dissemination of any confidential information belonging to the
Company); to determine whether, to what extent, and
5
<PAGE> 6
under what circumstances an Option may be settled, cancelled, forfeited,
exchanged, or surrendered; to make adjustments in the terms and conditions of,
and the criteria and performance objectives (if any) included in, Options in
recognition of unusual or nonrecurring events affecting the Company or any
Subsidiary or Affiliate thereof or the financial statements of the Company or
any Subsidiary or Affiliate thereof, or in response to changes in applicable
laws, regulations, or accounting principles; to construe and interpret the Plan
and any Option; to prescribe, amend and rescind rules and regulations relating
to the Plan; to determine the terms and provisions of the Option Agreements
(which need not be identical for each Optionee); and to make all other
determinations deemed necessary or advisable for the administration of the Plan;
provided, however, that no such amendment, modification or adjustment shall
adversely affect any then outstanding Option without the prior written consent
of the holder thereof.
The Committee may appoint a chairperson and a secretary and may make
such rules and regulations for the conduct of its business as it shall deem
advisable, and shall keep minutes of its meetings. All determinations of the
Committee shall be made by a majority of its members either present in person or
participating by conference telephone at a meeting or by written consent. The
Committee may delegate to one or more of its members or to one or more agents
such administrative duties as it may deem advisable, and the Committee or any
person to whom it has delegated duties as aforesaid may employ one or more
persons to render advice with respect to any responsibility the Committee or
such person may have under the Plan. All decisions, determinations and
interpretations of the Committee shall be final and binding on all persons,
including the Company, any Subsidiary or Affiliate thereof, any Optionee (or any
person claiming any rights under the Plan from or through any Optionee) and any
stockholder.
No member of the Board or Committee shall be liable for any action
taken or determination made in good faith with respect to the Plan or any Option
granted hereunder.
4. Eligibility.
Effective as of the Effective Date, each of the individuals who has
been selected by the Board to participate in the initial management incentive
option program (each such individual, an "Initial Optionee") shall be granted an
Option (each, an "Initial Option") to purchase the number of shares of Common
Stock designated for such Initial Optionee under such program. Effective as of
the Effective Date of the Merger, each of the rollover options (the "Rollover
Options"), which were granted to the individuals (the "Rollover Optionees") who
were parties to the Rollover and Waiver Agreements between the Company and the
respective Rollover Optionees (the "Rollover Agreements"), shall be covered
under the terms of the Plan. Following the Effective Date, Options may be
granted to selected employees of the Company and its present or future
Subsidiaries and Affiliates, in the discretion of the Committee.
6
<PAGE> 7
In addition, if within five years following the Merger, a Change in
Control shall have occurred, and thereafter, the original Common Stock investors
of the Company shall have achieved a "realized value" on their original
investment at least equal to the multiples set forth in Schedule II hereto for
the corresponding period, then the Committee shall grant Options ("Secondary
Options") to certain individuals who were selected to participate in the
secondary management incentive option program ("Secondary Optionees"). For
purposes of this paragraph and Schedule II, "realized value" shall mean cash and
the market value of registered securities, publicly traded securities and
tradeable securities that are not subject to transfer or restrictions under Rule
144 of the Securities Act of 1933.
In determining the persons (other than the Initial Optionees, the
Secondary Optionees and the Rollover Optionees) to whom Options may be granted,
the Committee shall take into account such factors as the Committee shall deem
relevant in connection with accomplishing the purposes of the Plan; provided,
however, that no person shall be granted an Incentive Stock Option unless he or
she is an employee of the Company or a Subsidiary at the time the Incentive
Stock Option is granted.
5. Stock Subject to the Plan.
The maximum number of shares of Common Stock reserved for the grant
of Options under the Plan shall be five million (5,000,000), subject to
adjustment as provided herein; provided, however, that the maximum number of
allotted shares that any Optionee may receive during any one calendar year may
not exceed one million (1,000,000), subject to adjustment as provided herein.
Such shares may, in whole or in part, be authorized but unissued shares or
shares that shall have been or may be reacquired by the Company in the open
market, in private transactions or otherwise. If any shares subject to an Option
are forfeited, cancelled, exchanged or surrendered or if an Option otherwise
terminates or expires without a distribution of shares to the Optionee, the
shares of Common Stock with respect to such Option shall, to the extent of any
such forfeiture, cancellation, exchange, surrender, termination or expiration,
again be available for Options under the Plan.
In the event that any dividend or other distribution (whether in the
form of cash, Common Stock, or other property), recapitalization, stock split,
reverse split, reorganization, merger, consolidation, spin-off, combination,
repurchase, or share exchange, or other similar corporate transaction or event
shall occur after the date hereof that the Committee, in its reasonable
discretion, determines affects the Common Stock such that an adjustment is
appropriate in order to prevent dilution or enlargement of the rights of
Optionees under the Plan, then the Committee shall make such equitable changes
or adjustments as it deems necessary or appropriate to any or all of (i) the
number and kind of shares of capital stock that may thereafter be issued upon
exercise of Options, including the maximum number reserved under the Plan and
the maximum number that may be received by any Optionee in any one calendar
year, (ii) the number and kind of shares of capital stock issued or issuable in
respect of outstanding Options, and (iii) the exercise price, grant price, or
purchase price relating to
7
<PAGE> 8
any Option; provided, that, with respect to Incentive Stock Options, such
adjustment shall be made in accordance with the provisions of section 424(h) of
the Code (or any successor thereto); and further provided, that no such change
or adjustment shall be made in the event that (x) capital stock is issued by the
Company in exchange for cash or property or pursuant to any employee benefit
plan (as defined in section 3(3) of ERISA) of the Company and (y) no change or
adjustment is made for the benefit of holders of the outstanding Common Stock as
a result thereof.
6. Terms of Options. Options may be granted on such terms as may be
determined by the Committee, provided that such terms and conditions are
consistent with the following:
(a) Exercise Price. The exercise price per share of Common Stock
purchasable under the Initial Options and Secondary Options shall be the
price set forth in the applicable Option Agreements. The exercise price
per share of Common Stock purchasable under a Rollover Option shall be the
price set forth in the applicable Rollover Agreement or Option Agreement.
The exercise price per share of Common Stock purchasable under all other
Options granted under the Plan shall be determined by the Committee;
provided, however, that in the case of an Incentive Stock Option,
generally such exercise price shall be not less than the Fair Market Value
of a share of Common Stock on the date of grant of such Option, and in the
case of an Incentive Stock Option granted to a Ten-Percent Stockholder,
such exercise price shall not be less than 110% of the Fair Market Value
of a share of Common Stock on the date of grant of such Option.
(b) Term of Options. An Option granted under the Plan shall expire
no later than ten (10) years and six (6) months from the date of grant;
provided, however, that in the case of an Incentive Stock Option, such
Option shall expire no later than ten (10) years from the date of grant,
and in the case of an Option granted to a Ten-Percent Stockholder, such
Option shall expire no later than five (5) years from the date of grant.
(c) Vesting and Exercisablity of Options. Each Initial Option shall
vest and become exercisable pursuant to Schedule I hereto. Each Rollover
Option shall vest and become exercisable pursuant to the terms of the
applicable Rollover Agreement and Option Agreement. Each Secondary Option
shall become exercisable pursuant to the terms of the applicable Option
Agreement. All other Options under the Plan shall vest and become
exercisable at such time and in such manner as the Committee shall
determine.
(d) Method of Exercise. The exercise of an Option shall be made only
by a written notice delivered to the Secretary of the Company at the
Company's principal executive office, specifying the number of shares of
Common Stock to be purchased
8
<PAGE> 9
and accompanied by payment therefor and otherwise in accordance with the
Option Agreement pursuant to which the Option was granted. The purchase
price for any shares of Common Stock purchased pursuant to the exercise of
an Option shall be paid in full upon such exercise in cash, by check, or,
at the discretion of the Committee and upon such terms and conditions as
the Committee shall approve, including, by transferring shares of Common
Stock to the Company or by a cashless exercise procedure. Any shares of
Common Stock transferred to the Company as payment of the purchase price
under an Option shall be valued at their Fair Market Value on the day
preceding the date of exercise of such Option. If requested by the
Committee, the Optionee shall deliver the Option Agreement evidencing the
Option to the Secretary of the Company who shall endorse thereon a
notation of such exercise and return such Option Agreement to the
Optionee.
(e) Initial and Rollover Options. The Initial Options shall also be
subject to the terms and conditions set forth in Schedule I hereto and the
applicable Option Agreements. Rollover Options shall also be governed by
the terms and conditions set forth in the applicable Rollover Agreements
and Option Agreements. The terms of the Rollover Agreements shall be
incorporated into the terms of the Plan.
7. General Provisions.
(a) Compliance with Local and Exchange Requirements. The Plan, the
granting and exercising of Options thereunder, and the other obligations
of the Company under the Plan and any Option Agreement or other agreement
shall be subject to, and the Company shall take all reasonable steps to
comply with, all applicable federal and state laws, rules and regulations,
and to such approvals by any regulatory or governmental agency as may be
required. The Company, in its discretion, may postpone the issuance or
delivery of Common Stock under any Option until completion of such stock
exchange listing or registration or qualification of such Common Stock or
other required action under any state, federal or foreign law, rule or
regulation as the Company may consider appropriate, and may require any
Optionee to make such representations and furnish such information as it
may consider appropriate in connection with the issuance or delivery of
Common Stock in compliance with applicable laws, rules and regulations.
Subsequent to the registration of a class of equity securities of the
Company under Section 12 of the Exchange Act, any provisions of the Plan
inconsistent with Rule 16b-3 under the Exchange Act shall be inoperative
and shall not affect the validity of the Plan.
(b) Nontransferability of Options. Except as otherwise provided by
the Committee, Options shall not be transferable by an Optionee except by
will or the laws of descent and distribution, and shall be exercisable
during the lifetime of an Optionee only by such Optionee or his or her
guardian or legal representative. Consistent with the foregoing, the
Committee may provide that a grant of an Option may permit the
9
<PAGE> 10
transfer of the Option by an Optionee solely to members of the Optionee's
immediate family or trusts or family partnerships for the benefit of such
persons, subject to such terms and conditions as may be established by the
Committee.
(c) No Right to Continued Employment or Benefits. Nothing in the
Plan or in any Option granted or any Option Agreement or other agreement
entered into pursuant hereto shall be construed as a contract of
employment with any Optionee or confer upon any Optionee the right to
continue in the employ of, or the affiliation with, the Company, any
Subsidiary or any Affiliate thereof or to be entitled to any remuneration
or benefits not set forth in the Plan or such Option Agreement or other
agreement or to interfere with or limit in any way the right of the
Company or any such Subsidiary or Affiliate thereof to terminate such
Optionee's employment or affiliation with the Company.
(d) Taxes. The Company or any Subsidiary or Affiliate thereof is
authorized to withhold from any payment relating to an Option under the
Plan, including from a distribution of Common Stock, or any other payment
to an Optionee, amounts of withholding and other taxes due in connection
with any transaction involving an Option, and to take such other action as
the Committee may deem advisable to enable the Company and Optionees to
satisfy obligations for the payment of withholding taxes and other tax
obligations relating to any Option. This authority shall include authority
to withhold or receive Common Stock or other property and to make cash
payments in respect thereof in satisfaction of an Optionee's tax
obligations.
(e) Amendment and Termination of the Plan. The Board may at any time
and from time to time alter, amend, suspend or terminate the Plan in whole
or in part; provided, however, that, except as provided in Section 5
hereof, no amendment shall be effective unless approved by the
stockholders of the Company where stockholder approval of such amendment
is required (a) to comply with Rule 16b-3 under the Exchange Act
subsequent to the registration of a class of equity securities of the
Company under Section 12 of the Exchange Act, (b) to comply with Section
162(m), if and to the extent applicable, or (c) to comply with any other
applicable law, regulation or stock exchange rule. Notwithstanding the
foregoing, no amendment shall affect adversely any of the rights of any
Optionee, without such Optionee's consent, under any Option previously
granted under the Plan.
(f) No Rights to Options; No Stockholder Rights. Except for the
Initial Optionees with respect to the Initial Options, the Secondary
Optionees with respect to the Secondary Options and Rollover Options with
respect to Rollover Optionees, no Optionee shall have any claim to be
granted any Option under the Plan, and there is no obligation for
uniformity of treatment of Optionees. Except as provided specifically
herein, an Optionee or a transferee of an Option shall have no rights as a
stockholder with respect to any shares covered by the Option until the
date of the issuance of a stock certificate to such Optionee for such
shares.
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<PAGE> 11
(g) No Fractional Shares. No fractional shares of Common Stock shall
be issued or delivered pursuant to the Plan or any Option. The Committee
shall determine whether cash, other Options or other property shall be
issued or paid in lieu of such fractional shares.
(h) Governing Law. The Plan and all determinations made and actions
taken pursuant hereto shall be governed by the laws of the State of
Minnesota without giving effect to the conflict of laws principles
thereof.
(i) Effective Date; Plan Termination. The Plan shall take effect
upon the Effective Date, but the Plan shall be subject to the approval of
the holder(s) of a majority of the issued and outstanding shares of voting
securities of the Company entitled to vote, which approval must occur
within twelve months of the date the Plan is adopted by the Board. In the
absence of such approval, all Options granted under the Plan shall be null
and void.
11
<PAGE> 12
Schedule I
Terms and Conditions of Initial Options
1. Unless otherwise defined herein, defined terms shall have the
respective meanings ascribed to them in the Plan.
2. Initial Options shall vest based on the Company's achievement of
the annual "EBITDA" (as defined in Section 9, below) targets set forth in
Appendix A (subject to audited results), as may be amended or revised in good
faith by the Board, for acquisitions, divestitures or other circumstances. Such
annual EBITDA targets are referred to herein respectively as the "Management
Targets."
(a) Initial Options to acquire between 0% and 20% of the total
number of shares of Common Stock subject to such options shall vest in
each fiscal year beginning with the fiscal year ending on December 31,
1998, in which the Company meets or exceeds 90% of the Management Target,
on a linear basis such that, if, for example, the Company achieves 95% of
the Management Target, 10% of the total number of option shares would
vest.
(b) Initial Options to acquire 20% of the total shares of Common
Stock subject to such options shall vest in each fiscal year beginning
with the fiscal year ending on December 31, 1998, in which the Company
meets or exceeds the Management Target. No more than 20% of the total
number of shares of Common Stock subject to such options shall vest in any
fiscal year, except as noted in paragraph c. or d. below, or Section 3
below.
(c) Irrespective of the foregoing, if at the end of the fifth fiscal
year the Company: (i) on a cumulative basis meets the cumulative
Management Target for such period; and (ii) meets or exceeds the annual
Management Target for the fifth fiscal year, additional shares of Common
Stock subject to Initial Options shall then vest such that the total
number of vested shares of Common Stock subject to all Initial Options
under the initial management incentive option program shall be no less
than 100% of the total number of shares of Common Stock allocated to
Initial Options under the initial management incentive option program
implementing the Initial Option grants.
(d) Notwithstanding the foregoing, all unvested shares of Common
Stock subject to an Initial Optionee's Initial Options shall vest eight
(8) years following the date of grant, provided that the Initial Optionee
has been continuously employed by the Company or any Subsidiary through
such date.
12
<PAGE> 13
3. In the event of a Change of Control, the unvested shares of
Common Stock subject to Initial Options shall become vested in a proportion
equal to the ratio of shares of Common Stock subject to Initial Options that
have actually vested at such time to the total number of shares of Common Stock
subject to Initial Options that would have vested had the Company achieved the
Management Target for all periods prior to the Change of Control.
4. Each Initial Option shall expire, unless earlier exercised or
terminated, ten years and six months from the date of grant. The period of time
during which the Initial Option is in effect is hereinafter referred to as the
"term of the Initial Option."
5. In the case of termination of an Initial Optionee's employment
for Cause or resignation without Good Reason, each Initial Option shall
terminate at the time of termination of employment.
6. In the case of termination of an Initial Optionee's employment
without Cause or the Initial Optionee's resignation for Good Reason, Options
that have vested at the time of termination or resignation shall terminate on
the 91st day after the date of employment termination or resignation, and
Initial Options that have not vested shall terminate immediately.
7. If the Initial Optionee's employment is terminated due to death
or Disability, Initial Options that have vested at the time of termination or
resignation shall terminate on the 181st day after the date of employment
termination or death and may be exercised during such period by the Initial
Optionee or his or her legal representative or estate, as the case may be, and
Initial Options that have not vested shall terminate immediately.
8. In consideration for the grant of the Initial Options, each
Initial Optionee shall agree that:
(a) during the Prohibition Period (as defined below), he or she
shall not, in any capacity, whether for his or her own account or for any
other person or organization, directly or indirectly, (i) within the
United States and Canada (A) own, operate, manage or control, (B) serve as
an officer, director, partner, employee, agent, consultant, advisor or
developer or in any similar capacity to, or (C) have any financial
interest in, or aid or assist anyone else in the conduct of, any person or
enterprise that is engaged in the moveable medical equipment rental
business. As used herein, "Prohibition Period" shall mean (i) if the
Initial Optionee is a party to an employment agreement with the Company,
the meaning ascribed to the term therein, and (ii) with respect to all
other Initial Optionees, the period from and after the date of grant of
the Initial Option to and including the date that is eighteen months from
the date of termination of the Initial Optionee's employment; and
(b) during and at all times after the term of the Initial Option,
the Initial Optionee shall keep secret all confidential matters and
materials of the Company (including its
13
<PAGE> 14
Subsidiaries and Affiliates), including, without limitation, know-how,
trade secrets, real estate plans and practices, individual office results,
customer lists, pricing policies, operational methods, any information
relating to the Company (including any of its Subsidiaries and Affiliates)
products, processes, customers and services and other business and
financial affairs of the Company (including its Subsidiaries and
Affiliates) (collectively, the "Confidential Information"), to which the
Initial Optionee had or may have access and will not disclose such
Confidential Information to any person other than the Company and J.W.
Childs Associates, L.P. ("J.W. Childs Associates"), their respective
authorized employees and such other persons to whom the Initial Optionee
has been instructed to make disclosure by the Board, in each case only to
the extent required in the course of the Initial Optionee's service to the
Company or as otherwise expressly required in connection with court
process. "Confidential Information" shall not include any information that
is in the public domain during or after the term of the Initial Option,
provided such information is not in the public domain as a consequence of
disclosure by the Initial Optionee in violation of this provision.
9. For purposes of the Plan and this Schedule I, "EBITDA" shall
mean, as of any date for which it is to be determined, the consolidated earnings
of the Company and its Subsidiaries before interest, taxes, depreciation and
amortization and after deduction of all operating expenses, all as calculated in
accordance with generally accepted accounting principles consistently applied,
as reflected in the Company's consolidated financial statements for the four (4)
most recent consecutive fiscal quarters of the Company ending at least 45 days
prior to such date. Calculation of EBITDA shall specifically exclude expenses
related to (i) any payments to J.W. Childs Associates; (ii) annual bank fees
related to the Merger and related financing transactions; (iii) Bazooka bed
asset impairment write-downs; and (iv) all severance payment incurred, accrued
or paid prior to the first anniversary of the closing of the Merger. In
addition, calculation of EBITDA shall specifically include pro forma adjustments
made to the compensation of certain members of the Company's senior management.
14
<PAGE> 15
Appendix A
Management Targets
<TABLE>
<CAPTION>
Fiscal Year Ended EBITDA Target ($000)
- --------------------------------------------------------------------------------
<S> <C>
December 31, 1998 $29,709
December 31, 1999 32,977
December 31, 2000 36,445
December 31, 2001 40,314
December 31, 2002 44,635
</TABLE>
15
<PAGE> 16
Schedule II
<TABLE>
<CAPTION>
Realized value achieved prior Minimum multiple of realized
to the following years after value to original Common Stock
closing of Merger investors
- --------------------------------------------------------------------------------
<S> <C>
Year 3 4.0x
Year 4 4.5x
Year 5 5.0x
- --------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1
(File No. 333-49743) of our report dated March 4, 1998, on our audits of the
financial statements and financial statement schedule of Universal Hospital
Services, Inc. as of December 31, 1997 and 1996 and for each of the three years
in the period ended December 31, 1997. We also consent to the reference to our
firm under the caption "Experts".
PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
July 6, 1998
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM T-1
Statement of Eligibility Under the
Trust Indenture Act of 1939 of a Corporation
Designated to Act as Trustee
U.S. BANK TRUST NATIONAL ASSOCIATION
(Exact name of Trustee as specified in its charter)
United States 41-0257700
(State of Incorporation) (I.R.S. Employer
Identification No.)
U.S. Bank Trust Center
180 East Fifth Street
St. Paul, Minnesota 55101
(Address of Principal Executive Offices) (Zip Code)
UNIVERSAL HOSPITAL SERVICES, INC.
(Exact name of Registrant as specified in its charter)
Minnesota 41-0760940
(State of Incorporation) (I.R.S. Employer
Identification No.)
1250 Northland Plaza
3800 West 80th Street
Bloomington, MN 55431-4442
(Address of Principal Executive Offices) (Zip Code)
10- 1/4% SENIOR EXCHANGE NOTES DUE 2008
(Title of the Indenture Securities)
<PAGE> 2
GENERAL
1. General Information Furnish the following information as to the
Trustee.
(a) Name and address of each examining or supervising authority to
which it is subject. Comptroller of the Currency Washington,
D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes
2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS If the obligor or any
underwriter for the obligor is an affiliate of the Trustee, describe
each such affiliation.
None
See Note following Item 16.
Items 3-15 are not applicable because to the best of the Trustee's
knowledge the obligor is not in default under any Indenture for which the
Trustee acts as Trustee.
16. LIST OF EXHIBITS List below all exhibits filed as a part of this
statement of eligibility and qualification.
1. Copy of Articles of Association.*
2. Copy of Certificate of Authority to Commence Business.*
3. Authorization of the Trustee to exercise corporate trust powers
(included in Exhibits 1 and 2; no separate instrument).*
4. Copy of existing By-Laws.*
5. Copy of each Indenture referred to in Item 4. N/A.
6. The consents of the Trustee required by Section 321(b) of the act.
7. Copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or examining
authority is incorporated by reference to Registration Number 333-53211.
* Incorporated by reference to Registration Number 22-27000.
<PAGE> 3
NOTE
The answers to this statement insofar as such answers relate to what
persons have been underwriters for any securities of the obligors within three
years prior to the date of filing this statement, or what persons are owners of
10% or more of the voting securities of the obligors, or affiliates, are based
upon information furnished to the Trustee by the obligors. While the Trustee has
no reason to doubt the accuracy of any such information, it cannot accept any
responsibility therefor.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, U.S. Bank Trust National Association, an Association organized and
existing under the laws of the United States, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, and its seal to be hereunto affixed and attested, all
in the City of Saint Paul and State of Minnesota on the 2nd day of July, 1998.
U.S. BANK TRUST NATIONAL ASSOCIATION
/s/ Richard H. Prokosch
--------------------------------
Richard H. Prokosch
Assistant Vice President
/s/ Judith M. Zuzek
- --------------------------------
Judith M. Zuzek
Assistant Secretary
<PAGE> 4
EXHIBIT 6
CONSENT
In accordance with Section 321(b) of the Trust Indenture Act of 1939,
the undersigned, U.S. BANK TRUST NATIONAL ASSOCIATION hereby consents that
reports of examination of the undersigned by Federal, State, Territorial or
District authorities may be furnished by such authorities to the Securities and
Exchange Commission upon its request therefor.
Dated: July 2, 1998
U.S. BANK TRUST NATIONAL ASSOCIATION
/s/ Richard H. Prokosch
-----------------------
Richard H. Prokosch
Assistant Vice President
<PAGE> 1
Exhibit 99.1
LETTER OF TRANSMITTAL
UNIVERSAL HOSPITAL SERVICES, INC.
Offer for all Outstanding
10 1/4% Senior Notes due 2008
in Exchange for
10 1/4% Senior Notes due 2008
which Have Been Registered Under
the Securities Act of 1933, As Amended,
Pursuant to the Prospectus, dated [ ],1998
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON [ ],
1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
Delivery To: First Trust National Association, Exchange Agent
By Mail: By Overnight Courier:
First Trust National Association First Trust National Association
[ADDRESS] [ADDRESS]
[ADDRESS] [ADDRESS]
Attention: [NAME] Attention: [NAME]
[NAME] [NAME]
By Hand: in New York (as Drop Agent) By Hand: in [CITY]
First Trust National Association First Trust National Association
[ADDRESS] [ADDRESS]
[ADDRESS] [ADDRESS]
For Information Call:
[NUMBER]
By Facsimile Transmission
(for Eligible Institutions only):
[NUMBER]
Attention: [DEPARTMENT]
Confirm by Telephone:
[NUMBER]
Delivery of this instrument to an address other than as set forth above,
or transmission of instructions via facsimile other than as set forth above,
will not constitute a valid delivery.
The undersigned acknowledges that he or she has received and reviewed the
Prospectus, dated [ ], 1998 (the "Prospectus"), of Universal Hospital
Services, Inc., a Minnesota corporation (the "Company"), and this Letter of
Transmittal (the "Letter"), which together constitute the Company's offer (the
"Exchange Offer") to exchange an aggregate principal amount of up to
$100,000,000 of the Company's 10 1/4% Senior Notes due 2008 which have been
registered under the Securities Act of 1933, as amended (the "New Notes"), for a
like principal amount of the Company's issued and outstanding 10 1/4% Senior
Notes due 2008 (the "Old Notes") from the registered holders thereof (the
"Holders").
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. The New Notes will bear interest from the most recent date to which
interest has been paid on the Old Notes or, if no interest has been paid on the
Old Notes, from February 25, 1998. Accordingly, registered Holders of New Notes
on the relevant record date for the first interest payment date following the
consummation of the Exchange Offer will receive interest accruing from the most
recent date to which interest has been paid or, if no interest has been paid,
from February 25, 1998. Old Notes accepted for exchange will cease to accrue
interest from and after the date of consummation of the Exchange Offer. Holders
of Old Notes whose Old Notes are accepted for exchange will not receive any
payment in respect of accrued interest on such Old Notes otherwise payable on
any interest payment date the record date for which occurs on or after
consummation of the Exchange Offer.
This Letter is to be completed by a holder of Old Notes either if
certificates are to be forwarded herewith or if a tender of certificates for Old
Notes, if available, is to be made by book-entry transfer to the account
maintained by the Exchange
<PAGE> 2
Agent at The Depository Trust Company (the "Book-Entry Transfer Facility")
pursuant to the procedures set forth in "The Exchange Offer--Book-Entry
Transfer" section of the Prospectus. Holders of Old Notes whose certificates are
not immediately available, or who are unable to deliver their certificates or
confirmation of the book-entry tender of their Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility (a "Book-Entry
Confirmation") and all other documents required by this Letter to the Exchange
Agent on or prior to the Expiration Date, must tender their Old Notes according
to the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus. See
Instruction 1. Delivery of documents to the Book-Entry Transfer Facility does
not constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
List below the Old Notes to which this Letter relates. If the space
provided below is inadequate, the certificate numbers and principal amount of
Old Notes should be listed on a separate signed schedule affixed hereto.
- --------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES 1 2 3
- --------------------------------------------------------------------------------
Aggregate
Name(s) and Address(es) Principal Principal
of Registered Holder(s) Certificate Amount of Amount
(Please fill in, if blank) Number(s)* Old Note(s) Tendered**
- --------------------------------------------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
Total
- --------------------------------------------------------------------------------
* Need not be completed if Old Notes are being tendered by book-entry
transfer.
** Unless otherwise indicated in this column, a holder will be deemed to have
tendered ALL of the Old Notes represented by the Old Notes indicated in
column 2. See Instruction 2. Old Notes tendered hereby must be in
denominations of principal amount of $1,000 and any integral multiple
thereof. See Instruction 1.
- --------------------------------------------------------------------------------
|_| CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ____________________________________________
Account Number _____________________ Transaction Code Number _____________
|_| CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s) __________________________________________
Window Ticket Number (if any) ____________________________________________
Date of Execution of Notice of Guaranteed Delivery _______________________
Name of Institution Which Guaranteed Delivery ____________________________
If Delivered by Book-Entry Transfer, Complete the Following:
Account Number _____________________ Transaction Code Number _____________
|_| CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: __________________________________________________________________________
Address: _______________________________________________________________________
2
<PAGE> 3
_______________________________________________________________________
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of New
Notes. If the undersigned is a broker-dealer that will receive New Notes for its
own account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus meeting the requirements of the Securities Act of
1933, as amended, in connection with any resale of such New Notes; however, by
so acknowledging and by delivering such a prospectus the undersigned will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act of 1933, as amended. If the undersigned is a broker-dealer that will receive
New Notes, it represents that the Old Notes to be exchanged for the New Notes
were acquired as a result of market-making activities or other trading
activities.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of Old
Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of the Old Notes tendered hereby, the undersigned hereby sells, assigns
and transfers to, or upon the order of, the Company all right, title and
interest in and to such Old Notes as are being tendered hereby.
The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as the undersigned's true and lawful agent and attorney-in-fact with
respect to such tendered Old Notes, with full power of substitution, among other
things, to cause the Old Notes to be assigned, transferred and exchanged. The
undersigned hereby represents and warrants that the undersigned has full power
and authority to tender, sell, assign and transfer the Old Notes, and to acquire
Exchange Notes issuable upon the exchange of such tendered Old Notes, and that,
when the same are accepted for exchange, the Company will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim when the same are accepted
by the Company. The undersigned hereby further represents that any New Notes
acquired in exchange for Old Notes tendered hereby will have been acquired in
the ordinary course of business of the person receiving such New Notes, whether
or not such person is the undersigned, that neither the Holder of such Old Notes
nor any such other person is participating in, intends to participate in or has
an arrangement or understanding with any person to participate in the
distribution of such New Notes and that neither the Holder of such Old Notes nor
any such other person is an "affiliate," as defined in Rule 405 under the
Securities Act of 1933, as amended (the "Securities Act"), of the Company.
The undersigned acknowledges that this Exchange Offer is being made in
reliance on interpretations by the staff of the Securities and Exchange
Commission (the "SEC"), as set forth in no-action letters issued to third
parties, that the New Notes issued pursuant to the Exchange Offer in exchange
for the Old Notes may be offered for resale, resold and otherwise transferred by
Holders thereof (other than any such Holder that is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such Holders' business and such Holders have no arrangement with any person
to participate in the distribution of such New Notes. However, the SEC has not
considered the Exchange Offer in the context of a no-action letter and there can
be no assurance that the staff of the SEC would make a similar determination
with respect to the Exchange Offer as in other circumstances. If the undersigned
is not a broker-dealer, the undersigned represents that it is not engaged in,
and does not intend to engage in, a distribution of New Notes and has no
arrangement or understanding to participate in a distribution of New Notes. If
any Holder is an affiliate of the Company, is engaged in or intends to engage in
or has any arrangement or understanding with respect to the distribution of the
New Notes to be acquired pursuant to the Exchange Offer, such Holder (i) could
not rely on the applicable interpretations of the staff of the SEC and (ii) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. If the undersigned is
a broker-dealer that will receive New Notes for its own account in exchange for
Old Notes, it represents that the Old Notes to be exchanged for the New Notes
were acquired by it as a result of market-making activities or other trading
activities and acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes; however, by so acknowledging and by delivering a prospectus meeting the
requirements of the Securities Act, the undersigned will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected
3
<PAGE> 4
by, and shall survive, the death or incapacity of the undersigned. This tender
may be withdrawn only in accordance with the procedures set forth in "The
Exchange Offer--Withdrawal Rights" section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
in the name of the undersigned or, in the case of a book-entry delivery of Old
Notes, please credit the account indicated above maintained at the Book-Entry
Transfer Facility. Similarly, unless otherwise indicated under the box entitled
"Special Delivery Instructions" below, please send the New Notes (and, if
applicable, substitute certificates representing Old Notes for any Old Notes not
exchanged) to the undersigned at the address shown above in the box entitled
"Description of Old Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS
SET FORTH IN SUCH BOX ABOVE.
- --------------------------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(See Instructions 3 and 4)
- --------------------------------------------------------------------------------
To be completed ONLY if certificates for Old Notes not exchanged and/or
New Notes are to be issued in the name of and sent to someone other than the
person or persons whose signature(s) appear(s) on this Letter above, or if Old
Notes delivered by book-entry transfer which are not accepted for exchange are
to be returned by credit to an account maintained at the Book-Entry Transfer
Facility other than the account indicated above.
Issue: New Notes and/or Old Notes to:
Name(s) ........................................................................
(Please Type or Print)
................................................................................
(Please Type or Print)
Address ........................................................................
................................................................................
(Zip Code)
(Complete Substitute Form W-9)
|_| Credit unexchanged Old Notes delivered by book-entry transfer to the
Book-Entry Transfer Facility account set forth below.
--------------------------------------------------------------------------
(Book-Entry Transfer Facility
Account Number, if applicable)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 3 and 4)
- --------------------------------------------------------------------------------
To be completed ONLY if certificates for Old Notes not exchanged and/or
New Notes are to be sent to someone other than the person or persons whose
signature(s) appear(s) on this Letter above or to such person or persons at an
address other than shown in the box entitled "Description of Old Notes" on this
Letter above.
Mail: New Notes and/or Old Notes to:
Name(s).........................................................................
(Please Type or Print)
................................................................................
(Please Type or Print)
Address ........................................................................
................................................................................
(Zip Code)
- --------------------------------------------------------------------------------
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES FOR
OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR THE
NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO
5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
4
<PAGE> 5
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(Complete Accompanying Substitute Form W-9 on reverse side)
x ............................................. ........................, 1998
x ............................................. ........................, 1998
Signature(s) of Owner Date
Area Code and Telephone Number......................................
If a holder is tendering any Old Notes, this Letter must be signed by the
registered holder(s) as the name(s) appear(s) on the certificate(s) for the Old
Notes or by any person(s) authorized to become registered holder(s) by
endorsements and documents transmitted herewith. If signature is by a trustee,
executor, administrator, guardian, officer or other person acting in a fiduciary
or representative capacity, please set forth full title. See Instruction 3.
Name(s):..............................................................
......................................................................
(Please Type or Print)
Capacity:.............................................................
Address:..............................................................
......................................................................
(Including Zip Code)
SIGNATURE GUARANTEE
(If required by Instruction 3)
Signature(s) Guaranteed by
an Eligible Institution: .............................................
(Authorized Signature)
......................................................................
(Title)
......................................................................
(Name and Firm)
Dated: ........................................................, 1998
- --------------------------------------------------------------------------------
5
<PAGE> 6
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer for the
10 1/4% Senior Notes due 2008 of Universal Hospital Services, Inc.
in Exchange for the
10 1/4% Senior Notes due 2008 of Universal Hospital Services, Inc.,
which Have Been Registered Under the
Securities Act of 1933, As Amended
1. Delivery of this Letter and Notes; Guaranteed Delivery Procedures.
This Letter is to be completed by holders of Old Notes either if
certificates are to be forwarded herewith or if tenders are to be made pursuant
to the procedures for delivery by book-entry transfer set forth in "The Exchange
Offer--Book-Entry Transfer" section of the Prospectus. Certificates for all
physically tendered Old Notes, or Book-Entry Confirmation, as the case may be,
as well as a properly completed and duly executed Letter (or manually signed
facsimile hereof) and any other documents required by this Letter, must be
received by the Exchange Agent at the address set forth herein on or prior to
the Expiration Date, or the tendering holder must comply with the guaranteed
delivery procedures set forth below. Old Notes tendered hereby must be in
denominations of principal amount of $1,000 and any integral multiple thereof.
Holders whose certificates for Old Notes are not immediately available or
who cannot deliver their certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or who cannot complete the
procedure for book-entry transfer on a timely basis, may tender their Old Notes
pursuant to the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus. Pursuant to
such procedures, (i) such tender must be made through an Eligible Institution,
(ii) prior to 5:00 P.M., New York City time, on the Expiration Date, the
Exchange Agent must receive from such Eligible Institution a properly completed
and duly executed Letter (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by facsimile
transmission, mail or hand delivery), setting forth the name and address of the
holder of Old Notes and the amount of Old Notes tendered, stating that the
tender is being made thereby and guaranteeing that within three New York Stock
Exchange ("NYSE") trading days after the Expiration Date, the certificates for
all physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by this
Letter will be deposited by the Eligible Institution with the Exchange Agent,
and (iii) the certificates for all physically tendered Old Notes, in proper form
for transfer, or a Book-Entry Confirmation, as the case may be, and all other
documents required by this Letter, are received by the Exchange Agent within
three NYSE trading days after the Expiration Date.
The method of delivery of this Letter, the Old Notes and all other
required documents is at the election and risk of the tendering holders, but the
delivery will be deemed made only when actually received or confirmed by the
Exchange Agent. If Old Notes are sent by mail, it is suggested that the mailing
be registered mail, properly insured, with return receipt requested, made
sufficiently in advance of the Expiration Date to permit delivery to the
Exchange Agent prior to 5:00 P.M., New York City time, on the Expiration Date.
See "The Exchange Offer" section of the Prospectus.
2. Partial Tenders (not applicable to noteholders who tender by book-entry
transfer).
If less than all of the Old Notes evidenced by a submitted certificate are
to be tendered, the tendering holder(s) should fill in the aggregate principal
amount of Old Notes to be tendered in the box above entitled "Description of Old
Notes--Principal Amount Tendered." A reissued certificate representing the
balance of nontendered Old Notes will be sent to such tendering holder, unless
otherwise provided in the appropriate box on this Letter, promptly after the
Expiration Date. All of the Old Notes delivered to the Exchange Agent will be
deemed to have been tendered unless otherwise indicated.
3. Signatures on this Letter; Bond Powers and Endorsements; Guarantee of
Signatures.
If this Letter is signed by the registered holder of the Old Notes
tendered hereby, the signature must correspond exactly with the name as written
on the face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all of such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
6
<PAGE> 7
When this Letter is signed by the registered holder or holders of the Old
Notes specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If, however, the New Notes are to be issued,
or any untendered Old Notes are to be reissued, to a person other than the
registered holder, then endorsements of any certificates transmitted hereby or
separate bond powers are required. Signatures on such certificate(s) must be
guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder or
holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name or names of the registered holder or holders appear(s) on
the certificate(s) and signatures on such certificate(s) must be guaranteed by
an Eligible Institution.
If this Letter or any certificates or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
Endorsements on certificates for Old Notes or signatures on bond powers
required by this Instruction 3 must be guaranteed by a firm which is a financial
institution (including most banks, savings and loan associations and brokerage
houses) that is a participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Program or the Stock
Exchanges Medallion Program (each an "Eligible Institution").
Signatures on this Letter need not be guaranteed by an Eligible
Institution, provided the Old Notes are tendered: (i) by a registered holder of
Old Notes (which term, for purposes of the Exchange Offer, includes any
participant in the Book-Entry Transfer Facility system whose name appears on a
security position listing as the holder of such Old Notes) who has not completed
the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on this Letter, or (ii) for the account of an Eligible
Institution.
4. Special Issuance and Delivery Instructions.
Tendering holders of Old Notes should indicate in the applicable box the
name and address to which New Notes issued pursuant to the Exchange Offer and or
substitute certificates evidencing Old Notes not exchanged are to be issued or
sent, if different from the name or address of the person signing this Letter.
In the case of issuance in a different name, the employer identification or
social security number of the person named must also be indicated. Noteholders
tendering Old Notes by book-entry transfer may request that Old Notes not
exchanged be credited to such account maintained at the Book-Entry Transfer
Facility as such noteholder may designate hereon. If no such instructions are
given, such Old Notes not exchanged will be returned to the name and address of
the person signing this Letter.
5. Taxpayer Identification Number.
Federal income tax law generally requires that a tendering holder whose
Old Notes are accepted for exchange must provide the Company (as payor) with
such holder's correct Taxpayer Identification Number ("TIN") on Substitute Form
W-9 below, which in the case of a tendering holder who is an individual, is his
or her social security number. If the Company is not provided with the current
TIN or an adequate basis for an exemption from backup withholding, such
tendering holder may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, the Exchange Agent may be required to withhold 31% of the
amount of any reportable payments made after the exchange to such tendering
holder of New Notes. If withholding results in an overpayment of taxes, a refund
may be obtained.
Exempt holders of Old Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed Guidelines of Certification of Taxpayer
Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for
additional instructions.
To prevent backup withholding, each tendering holder of Old Notes must
provide its correct TIN by completing the Substitute Form W-9 set forth below,
certifying, under penalties of perjury, that the TIN provided is correct (or
that such holder is awaiting a TIN) and that (i) the holder is exempt from
backup withholding, or (ii) the holder has not been notified by the Internal
Revenue Service that such holder is subject to backup withholding as a result of
a failure to report all interest or dividends or (iii) the Internal Revenue
Service has notified the holder that such holder is no longer subject to backup
withholding. If the tendering holder of Old Notes is a nonresident alien or
foreign entity not subject to backup withholding, such holder must give the
Exchange Agent a completed Form W-8, Certificate of Foreign Status. These forms
may be obtained
7
<PAGE> 8
from the Exchange Agent. If the Old Notes are in more than one name or are not
in the name of the actual owner, such holder should consult the W-9 Guidelines
for information on which TIN to report. If such holder does not have a TIN, such
holder should consult the W-9 Guidelines for instructions on applying for a TIN,
check the box in Part 2 of the Substitute Form W-9 and write "applied for" in
lieu of its TIN. Note: Checking this box and writing "applied for" on the form
means that such holder has already applied for a TIN or that such holder intends
to apply for one in the near future. If the box in Part 2 of the Substitute Form
W-9 is checked, the Exchange Agent will retain 31% of reportable payments made
to a holder during the sixty (60) day period following the date of the
Substitute Form W-9. If the holder furnishes the Exchange Agent with his or her
TIN within sixty (60) days of the Substitute Form W-9, the Exchange Agent will
remit such amounts retained during such sixty (60) day period to such holder and
no further amounts will be retained or withheld from payments made to the holder
thereafter. If, however, such holder does not provide its TIN to the Exchange
Agent within such sixty (60) day period, the Exchange Agent will remit such
previously withheld amounts to the Internal Revenue Service as backup
withholding and will withhold 31% of all reportable payments to the holder
thereafter until such holder furnishes its TIN to the Exchange Agent.
6. Transfer Taxes.
The Company will pay all transfer taxes, if any, applicable to the
transfer of Old Notes to it or its order pursuant to the Exchange Offer. If,
however, New Notes and/or substitute Old Notes not exchanged are to be delivered
to, or are to be registered or issued in the name of, any person other than the
registered holder of the Old Notes tendered hereby, or if tendered Old Notes are
registered in the name of any person other than the person signing this Letter,
or if a transfer tax is imposed for any reason other than the transfer of Old
Notes to the Company or its order pursuant to the Exchange Offer, the amount of
any such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted herewith, the
amount of such transfer taxes will be billed directly to such tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes specified in this Letter.
7. Waiver of Conditions.
The Company reserves the absolute right to waive satisfaction of any or
all conditions enumerated in the Prospectus.
8. No Conditional Tenders.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old Notes, by execution of this Letter, shall
waive any right to receive notice of the acceptance of their Old Notes for
exchange.
Neither the Company, the Exchange Agent nor any other person is obligated
to give notice of any defect or irregularity with respect to any tender of Old
Notes nor shall any of them incur any liability for failure to give any such
notice.
9. Mutilated, Lost, Stolen or Destroyed Old Notes.
Any holder whose Old Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
10. Withdrawal Rights
Tenders of Old Notes may be withdrawn at any time prior to 5:00 P.M., New
York City time, on the Expiration Date.
For a withdrawal of a tender of Old Notes to be effective, a written
notice of withdrawal must be received by the Exchange Agent at the address set
forth above prior to 5:00 P.M., New York City time, on the Expiration Date. Any
such notice of withdrawal must (i) specify the name of the person having
tendered the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old
Notes to be withdrawn (including certificate number or numbers and the principal
amount of such Old Notes), (iii) contain a statement that such holder is
withdrawing his election to have such Old Notes exchanged, (iv) be signed by the
holder in the same manner as the original signature on the Letter by which such
Old Notes were tendered (including any required signature guarantees) or be
accompanied by documents of transfer to have the Trustee with respect to the Old
Notes register the transfer of such Old Notes in the name of the person
withdrawing the tender and (v) specify the name in which such Old Notes are
registered, if different from that of the Depositor. If Old Notes have been
tendered pursuant to the
8
<PAGE> 9
procedure for book-entry transfer set forth in "The Exchange Offer--Book-Entry
Transfer" section of the Prospectus, any notice of withdrawal must specify the
name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Old Notes and otherwise comply with the procedures
of such facility. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer and no New Notes will be issued with respect
thereto unless the Old Notes so withdrawn are validly retendered. Any Old Notes
that have been tendered for exchange but which are not exchanged for any reason
will be returned to the Holder thereof without cost to such Holder (or, in the
case of Old Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures set forth in "The Exchange Offer--Book-Entry Transfer" section of the
Prospectus, such Old Notes will be credited to an account maintained with the
Book-Entry Transfer Facility for the Old Notes) as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following the procedures described
above at any time on or prior to 5:00 P.M., New York City time, on the
Expiration Date.
11. Requests for Assistance or Additional Copies.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, and requests for Notices of
Guaranteed Delivery and other related documents may be directed to the Exchange
Agent, at the address and telephone number indicated above.
9
<PAGE> 10
TO BE COMPLETED BY ALL TENDERING HOLDERS
(See Instruction 5)
PAYOR'S NAME: STATE STREET BANK AND TRUST COMPANY
- --------------------------------------------------------------------------------
SUBSTITUTE
Form W-9
Department of the Treasury
Internal Revenue Service
Payor's Request for
Taxpayer
Identification Number
("TIN") and
Certification
- --------------------------------------------------------------------------------
Part 1--PLEASE PROVIDE YOUR TIN
IN THE BOX AT RIGHT AND CERTIFY TIN: ______________________________
BY SIGNING AND DATING BELOW. Social Security Number or
Employer Identification Number
- --------------------------------------------------------------------------------
Part 2--TIN Applied For |_|
- --------------------------------------------------------------------------------
CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
(1) the number shown on this form is my correct (or I am waiting for a number
to be issued to me).
(2) I am not subject to backup withholding either because: (a) I am exempt
from backup withholding, or (b) I have not been notified by the Internal
Revenue Service (the "IRS") that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (c) the IRS
has notified me that I am no longer subject to backup withholding, and
(3) any other information provided on this form is true and correct.
SIGNATURE ....................................... DATE ......................
- --------------------------------------------------------------------------------
You must cross out item (2) of the above certification if you have been notified
by the IRS that you are subject to backup withholding because of underreporting
of interest or dividends on your tax return and you have not been notified by
the IRS that you are no longer subject to backup withholding.
- --------------------------------------------------------------------------------
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 2 OF SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of the exchange, 31 percent
of all reportable payments made to me thereafter will be withheld until I
provide a number.
- -------------------------------------- -------------------------------
Signature Date
- --------------------------------------------------------------------------------
10
<PAGE> 1
NOTICE OF GUARANTEED DELIVERY
FOR
UNIVERSAL HOSPITAL SERVICES, INC.
This form or one substantially equivalent hereto must be used to accept
the Exchange Offer of Universal Hospital Services, Inc. (the "Company") made
pursuant to the Prospectus, dated [ ], 1998 (the "Prospectus"), if certificates
for the outstanding 10 1/4% Senior Notes due 2008 of the Company (the "Old
Notes") are not immediately available or if the procedure for book-entry
transfer cannot be completed on a timely basis or time will not permit all
required documents to reach First Trust National Association, as exchange agent
(the "Exchange Agent") prior to 5:00 P.M., New York City time, on the Expiration
Date of the Exchange Offer. Such form may be delivered or transmitted by
facsimile transmission, mail or hand delivery to the Exchange Agent as set forth
below. In addition, in order to utilize the guaranteed delivery procedure to
tender Old Notes pursuant to the Exchange Offer, a completed, signed and dated
Letter of Transmittal (or facsimile thereof) must also be received by the
Exchange Agent prior to 5:00 P.M., New York City time, on the Expiration Date.
Capitalized terms not defined herein are defined in the Prospectus.
Delivery To: First Trust National Association, Exchange Agent
By Mail: By Overnight Courier:
First Trust National Association First Trust National Association
[ADDRESS] [ADDRESS]
[ADDRESS] [ADDRESS]
Attention: [NAME] Attention: [NAME]
[NAME] [NAME]
By Hand: in New York (as Drop Agent) By Hand: in [CITY]
First Trust National Association First Trust National Association
[ADDRESS] [ADDRESS]
[ADDRESS] [ADDRESS]
For Information Call:
[NUMBER]
By Facsimile Transmission
(for Eligible Institutions only):
[NUMBER]
Attention: [DEPARTMENT]
Confirm by Telephone:
[NUMBER]
Delivery of this instrument to an address other than as set forth above,
or transmission of instructions via facsimile other than as set forth above,
will not constitute a valid delivery.
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount of Old Notes set forth below pursuant to the
guaranteed delivery procedure described in "The Exchange Offer--Guaranteed
Delivery Procedures" section of the Prospectus.
<PAGE> 2
Principal Amount of Old Notes
Tendered:*
$____________________________________
Certificate Nos. (if available): If Old Notes will be delivered by
book-entry transfer to The Depository
_____________________________________ Trust Company, provide account number.
Total Principal Amount Represented by
Old Notes Certificate(s):
$____________________________________ Account Number _______________________
- --------------------------------------------------------------------------------
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
X _____________________________ __________
X _____________________________ __________
Signature(s) of Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number:______________________
Must be signed by the holder(s) of Old Notes as their name(s) appear(s) on
certificates for Old Notes or on a security position listing, or by person(s)
authorized to become registered holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below.
Please print name(s) and address(es)
Name(s): ___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
Capacity: ___________________________________________________________________
Address(es): ___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a financial institution (including most banks, savings
and loan associations and brokerage houses) that is a participant in the
Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program or the Stock Exchanges Medallion Program, hereby
guarantees that the certificates representing the principal amount of Old Notes
tendered hereby in proper form for transfer, or timely confirma tion of the
book-entry transfer of such Old Notes into the Exchange Agent's account at The
Depository Trust Company pursuant to the procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus, together with
any required signature guarantee and any other documents required by the Letter
of Transmittal, will be received by the Exchange Agent at the address set forth
above, no later than three New York Stock Exchange trading days after the
Expiration Date.
- ----------
* Must be in denominations of principal amount of $1,000 and any integral
multiple thereof.
<PAGE> 3
____________________________________ ________________________________________
Name of Firm Authorized Signature
____________________________________ ________________________________________
Address Title
____________________________________ Name: __________________________________
Zip Code (Please Type or Print)
Area Code and Tel. No.______________ Dated: _________________________________
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. CERTIFICATES FOR
OLD NOTES SHOULD BE SENT ONLY WITH A COPY OF YOUR PREVIOUSLY EXECUTED
LETTER OF TRANSMITTAL.
<PAGE> 1
Exhibit 99.3
UNIVERSAL HOSPITAL SERVICES, INC.
Offer for all Outstanding
10 1/4% Senior Notes due 2008
in Exchange for
10 1/4% Senior Notes due 2008,
which Have Been Registered Under
the Securities Act of 1933,
As Amended
To: Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
Universal Hospital Services, Inc. (the "Company") is offering, upon and
subject to the terms and conditions set forth in the Prospectus, dated
[ ], 1998 (the "Prospectus"), and the enclosed Letter of Transmittal (the
"Letter of Transmittal"), to exchange (the "Exchange Offer") its 10 1/4% Senior
Notes due 2008, which have been registered under the Securities Act of 1933, as
amended, for its outstanding 10 1/4% Senior Notes due 2008 (the "Old Notes").
The Exchange Offer is being made in order to satisfy certain obligations of the
Company contained in the Registration Rights Agreement dated February 25, 1998,
by and among the Company and the subsidiary guarantors referred to therein and
the initial purchasers referred to therein.
We are requesting that you contact your clients for whom you hold Old
Notes regarding the Exchange Offer. For your information and for forwarding to
your clients for whom you hold Old Notes registered in your name or in the name
of your nominee, or who hold Old Notes registered in their own names, we are
enclosing the following documents:
1. Prospectus dated [ ], 1998;
2. The Letter of Transmittal for your use and for the information of your
clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange Offer
if certificates for Old Notes are not immediately available or time will not
permit all required documents to reach the Exchange Agent prior to the
Expiration Date (as defined below) or if the procedure for book-entry transfer
cannot be completed on a timely basis;
4. A form of letter which may be sent to your clients for whose account
you hold Old Notes registered in your name or the name of your nominee, with
space provided for obtaining such clients' instructions with regard to the
Exchange Offer;
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
6. Return envelopes addressed to State Street Bank and Trust Company, the
Exchange Agent for the Exchange Offer.
<PAGE> 2
Your prompt action is requested. The Exchange Offer will expire at 5:00
P.M., New York City time, on [ ], 1998, unless extended by the Company (the
"Expiration Date"). Old Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time before the Expiration Date.
To participate in the Exchange Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, should be sent to the
Exchange Agent and certificates representing the Old Notes should be delivered
to the Exchange Agent, all in accordance with the instructions set forth in the
Letter of Transmittal and the Prospectus.
If a registered holder of Old Notes desires to tender, but such Old Notes
are not immediately available, or time will not permit such holder's Old Notes
or other required documents to reach the Exchange Agent before the Expiration
Date, or the procedure for book-entry transfer cannot be completed on a timely
basis, a tender may be effected by following the guaranteed delivery procedures
described in the Prospectus under "The Exchange Offer--Guaranteed Delivery
Procedures."
The Company will, upon request, reimburse brokers, dealers, commercial
banks and trust companies for reasonable and necessary costs and expenses
incurred by them in forwarding the Prospectus and the related documents to the
beneficial owners of Old Notes held by them as nominee or in a fiduciary
capacity. The Company will pay or cause to be paid all stock transfer taxes
applicable to the exchange of Old Notes pursuant to the Exchange Offer, except
as set forth in Instruction 6 of the Letter of Transmittal.
Any inquiries you may have with respect to the Exchange Offer, or requests
for additional copies of the enclosed materials, should be directed State Street
Bank and Trust Company, the Exchange Agent for the Exchange Offer, at its
address and telephone number set forth on the front of the Letter of
Transmittal.
Very truly yours,
UNIVERSAL HOSPITAL SERVICES, INC.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY
OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF EITHER OF
THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN
THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
Enclosures
2
<PAGE> 1
Exhibit 99.4
UNIVERSAL HOSPITAL SERVICES, INC.
Offer for all Outstanding
10 1/4% Senior Notes due 2008
in Exchange for
10 1/4% Senior Notes due 2008,
which Have Been Registered Under
the Securities Act of 1933,
As Amended
To Our Clients:
Enclosed for your consideration is a Prospectus, dated [ ], 1998 (the
"Prospectus"), and the related Letter of Transmittal (the "Letter of
Transmittal"), relating to the offer (the "Exchange Offer") of Universal
Hospital Services, Inc. (the "Company") to exchange its 10 1/4% Senior Notes due
2008, which have been registered under the Securities Act of 1933, as amended
(the "New Notes"), for its outstanding 10 1/4% Senior Notes due 2008 (the "Old
Notes"), upon the terms and subject to the conditions described in the
Prospectus and the Letter of Transmittal. The Exchange Offer is being made in
order to satisfy certain obligations of the Company contained in the
Registration Rights Agreement dated February 25, 1998, by and among the Company,
the subsidiary guarantors referred to therein and the initial purchasers
referred to therein.
This material is being forwarded to you as the beneficial owner of the Old
Notes held by us for your account but not registered in your name. A tender of
such Old Notes may only be made by us as the holder of record and pursuant to
your instructions.
Accordingly, we request instructions as to whether you wish us to tender
on your behalf the Old Notes held by us for your account, pursuant to the terms
and conditions set forth in the enclosed Prospectus and Letter of Transmittal.
Your instructions should be forwarded to us as promptly as possible in
order to permit us to tender the Old Notes on your behalf in accordance with the
provisions of the Exchange Offer. The Exchange Offer will expire at 5:00 P.M.,
New York City time, on [ ], 1998, unless extended by the Company. Any Old
Notes tendered pursuant to the Exchange Offer may be withdrawn at any time
before the Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for any and all Old Notes.
2. The Exchange Offer is subject to certain conditions set forth in the
Prospectus in the section captioned "The Exchange Offer--Certain Conditions to
the Exchange Offer."
3. Any transfer taxes incident to the transfer of Old Notes from the
holder to the Company will be paid by the Company, except as otherwise provided
in the Instructions in the Letter of Transmittal.
4. The Exchange Offer expires at 5:00 P.M., New York City time, on [ ],
1998, unless extended by the Company.
If you wish to have us tender your Old Notes, please so instruct us by
completing, executing and returning to us the instruction form on the back of
this letter. The Letter of Transmittal is furnished to you for information only
and may not be used directly by you to tender Old Notes.
<PAGE> 2
INSTRUCTIONS WITH RESPECT TO
THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer made by Universal
Hospital Services, Inc. with respect to its Old Notes.
This will instruct you to tender the Old Notes held by you for the account
of the undersigned, upon and subject to the terms and conditions set forth in
the Prospectus and the related Letter of Transmittal.
Please tender the Old Notes held by you for my account as indicated below:
Aggregate Principal Amount of Old Notes
---------------------------------------
10 1/4% Senior Notes due 2008
|_| Please do not tender any Old
Notes held by you for my
account.
Dated: , 1998
Signature(s)
Please print name(s) here
Address(es)
Area Code and Telephone Number
Tax Identification or Social Security No(s).
None of the Old Notes held by us for your account will be tendered unless
we receive written instructions from you to do so. Unless a specific contrary
instruction is given in the space provided, your signature(s) hereon shall
constitute an instruction to us to tender all the Old Notes held by us for your
account.
