<PAGE>
As filed with the Securities and Exchange Commission on April 26, 1999
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
----------------
UNIVERSAL HOSPITAL SERVICES, INC.
(Exact name of Registrant as specified in its charter)
----------------
Minnesota 7352 41-0760940
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code)
organization)
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)
David E. Dovenberg
Universal Hospital Services, Inc.
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)
Copies to:
Elizabeth C. Hinck, Esq.
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
(612) 340-2600
Facsimile: (612) 340-8738
----------------
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 in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box [_]
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. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earliest effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
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Proposed
Maximum
Proposed Aggregate Amount of
Title of Each Class of Amount to be Maximum Offering Registration
Securities to be Registered Registered Offering Price Price(1) Fee
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<S> <C> <C> <C> <C>
10 1/4% Senior Subordinated
Notes due 2008................. $35,000,000.00 100.0% $35,000,000.00 $9,730
</TABLE>
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(1) Estimated solely for the purpose of calculating registration fee.
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 the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to completion, dated April 26, 1999
PROSPECTUS
UNIVERSAL HOSPITAL SERVICES, INC.
EXCHANGE OFFER FOR $35,000,000
OF
10 1/4% SENIOR NOTES DUE 2008
--------------------------------
Material Terms of the Exchange Offer:
. We are offering to exchange the notes we sold on January 26, 1999 in a
private offering (the "Old Notes") for new registered notes (the "New
Notes"),
. The exchange offer expires at 5:00 p.m., New York City time, on ,
1999, unless extended.
. The terms of the New Notes are substantially identical to the Old Notes,
except for the transfer restrictions and registration rights relating to
the Old Notes,
. Tenders of Old Notes may be withdrawn any time prior to 5:00 p.m., New
York City time, on the expiration date of the exchange offer, and
. We will exchange all Old Notes that are properly tendered and not validly
withdrawn.
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 10 OF THIS
PROSPECTUS.
--------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense. No public market exists for the Old Notes or the New Notes.
We do not intend to list the New Notes on any securities exchange or to seek
approval for quotation through any automated quotation system.
This prospectus is dated , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PROSPECTUS SUMMARY........................................................ 1
RISK FACTORS.............................................................. 10
THE EXCHANGE OFFER........................................................ 15
USE OF PROCEEDS........................................................... 22
CAPITALIZATION............................................................ 23
UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA.............................. 24
SELECTED HISTORICAL FINANCIAL INFORMATION................................. 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 28
BUSINESS.................................................................. 37
MANAGEMENT AND DIRECTORS.................................................. 49
EXECUTIVE COMPENSATION.................................................... 51
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................ 56
PRINCIPAL SHAREHOLDERS.................................................... 57
DESCRIPTION OF THE REVOLVING CREDIT FACILITY.............................. 59
DESCRIPTION OF NOTES...................................................... 61
BOOK-ENTRY; DELIVERY AND FORM............................................. 86
FEDERAL TAX CONSIDERATIONS................................................ 88
PLAN OF DISTRIBUTION...................................................... 89
LEGAL MATTERS............................................................. 89
INDEPENDENT ACCOUNTANTS................................................... 89
</TABLE>
i
<PAGE>
PROSPECTUS SUMMARY
The following summary contains a general discussion of our business, the
exchange offer, the Old Notes and the New Notes and summary financial
information concerning Universal Hospital Services, Inc. ("UHS"). We encourage
you to read this entire prospectus for a more complete understanding of UHS and
the exchange offer.
Our Business
We are a leading nationwide provider of movable medical equipment to more
than 4,500 hospitals and alternate care providers through equipment rental and
outsourcing programs. Our principal rental program is an innovative Pay-Per-
Use(TM) program where we charge a per use rental fee based on daily use of
equipment per patient. We also offer other rental programs where we charge
customers on a daily, weekly or monthly basis. All of our rental programs
include a comprehensive range of support services, including equipment
delivery, training, technical and educational support, inspection, maintenance,
and comprehensive documentation. In addition, through our Asset Management
Partnership program, we allow customers to outsource substantially all, or a
significant portion of, their movable medical equipment needs by providing,
maintaining, managing and tracking that equipment for them. We also sell
disposable medical supplies to hospitals in conjunction with the equipment we
rent and to alternate care providers both in connection with our rental
equipment and on a stand-alone basis. We seek to maintain high utilization of
our rental equipment by pooling and redeploying that equipment among a diverse
customer base and adjusting pricing on a customer by customer basis to
compensate for their varying use rates. For the last twelve months ended
December 31, 1998, on a pro forma basis after giving effect to acquisitions
made during the period, we would have had revenues of $80.4 million and
Adjusted EBITDA of $34.7 million.
We believe that our 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. By using our rental programs,
health care providers, whose equipment needs fluctuate, can increase the
use rates of their medical equipment, allowing them to purchase less
equipment and reduce related costs.
. Outsource Support Services. Health care providers can reduce the
substantial operating costs associated with equipment ownership or lease
because we can often provide support services at a lower cost than
customers can themselves.
. Minimize Equipment Obsolescence Risk. Health care providers can
effectively eliminate the risk of equipment obsolescence through our
short-term rental and Pay-Per-Use programs.
We own a rental pool of over 72,000 pieces of movable medical equipment in
four primary categories: critical care, monitoring, respiratory therapy and
newborn care. We are one of only two national providers of movable medical
equipment rental and outsourcing programs. As of December 31, 1998, we operated
through 50 district offices and eight regional service centers, serving
customers in 47 states and the District of Columbia.
Company Strengths
We attribute our historical success to, and believe that our potential for
future growth comes from, the following strengths:
Superior Service and Strong Customer Relationships. Our 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 our equipment. As a result of our
service focus, of our 100 largest customers as of January 1, 1992, 83 remain
customers as of December 31, 1998.
<PAGE>
National Network. As of March 31, 1999, our national network of 53 district
offices and eight regional service centers serves hospital and alternate care
customers in 47 states and the District of Columbia. This broad network allows
us to meet the equipment rental and service needs of independent health care
facilities, national and regional health care chains and group purchasing
organizations.
Sophisticated Use of Information Technology. Through use of our internally-
developed information technology, we maintain a complete service history of all
our rental equipment, including data on length of placement, transfers,
modifications, repairs, maintenance and inspections. We use this information to
monitor and schedule preventive maintenance and safety testing programs and to
maximize equipment utilization. We also offer our customers software to track
the location, utilization and availability of all of their movable medical
equipment.
Depth and Breadth of Equipment Rental Pool; Purchasing Power. We own a rental
pool of over 72,000 pieces of movable medical equipment purchased from over 75
suppliers in 1998. The breadth of our product offerings gives us 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 our annual equipment purchases enables us to obtain favorable pricing
terms from many equipment vendors.
Experienced and Committed Management Team. We have a senior management team
comprised of operating managers who have been with us for an average of 21
years. Our management team has made a significant equity investment in the
Company, owning over 18% of our common stock on a fully-diluted basis.
Attractive Return on Rental Pool. Under our pricing strategy, we calculate
our rental rates to recoup the equipment's purchase price generally within 16
to 18 months. Excluding related service and support costs, we expect to achieve
a two year pay-back period on the original purchase price of our entire rental
pool. In contrast, the average useful life of the equipment in our rental pool
(excluding acquisitions) has historically been 8.2 years.
Large and Diversified Customer Base. We provide movable medical equipment to
approximately 1,900 hospitals and approximately 2,600 alternate care providers
(such as home care providers, nursing homes, surgicenters, subacute care
facilities and outpatient centers) throughout the United States.
Growth Strategy
We believe 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. Our strategy is to achieve continued
growth by:
Increasing Business with Existing Customers. Because our customers are
familiar with our programs and their benefits, we believe that our existing
customer base represents a significant expansion opportunity. We believe that
there is significant growth potential by increasing the level of revenue per
hospital customer throughout all of our offices.
Providing Comprehensive Equipment Management Programs. Through our Asset
Management Partnership ("AMP") program, we provide, maintain, manage and track
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. We plan to increase conversions of existing customers into the AMP
program as well as promote the AMP program to a target list of potential
customers.
2
<PAGE>
Developing Business with New Customers. We plan to further penetrate the
hospital and alternate care markets by establishing new customer relationships
either individually or through group purchasing organizations. To date, we have
signed agreements with several independent group purchasing organizations
("GPOs"), including Premier Technology Management, LLC ("Premier") and
Novation, LLC ("Novation"), two of the nation's largest health care alliances.
These agreements give us preferred supplier status to over 3,450 hospitals in
existing markets.
Opening New District Offices. In order to expand our geographic coverage, we
plan to open three to four new full-service district offices in 1999 and in
each of the subsequent several years. In choosing locations for our district
offices, we consider the nature and size of the potential customer market,
customer concentration and GPO affiliation within the market, demographics and
vendor relationships. We opened three new offices in March 1999 in Little Rock,
Arkansas, Salt Lake City, Utah and Nashville, Tennessee.
Pursuing Strategic Alliances. We intend 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 our rental programs and services would be marketed by the
manufacturer's sales distribution network.
Pursuing Strategic Acquisitions. We plan to pursue strategic acquisitions
that will increase our market share in existing markets, enable us to more
quickly penetrate new geographic and alternate care markets and/or improve our
overall operating efficiencies. Since August 1996, we have acquired five
companies: Biomedical Equipment Rental & Sales, Inc. ("BERS"), Patient's Choice
Healthcare, Inc. ("PCH"), Home Care Instruments, Inc. ("HCI"), Medical Rentals
Stat, Inc. ("MRS") and Express Medical Supply, Inc. ("EMS"). These acquisitions
expanded our market share and service capabilities in new regions and in the
alternate care market. Our strategy will be to expand our rental and disposable
sales presence in the alternate care market across all of our acute care
district offices.
Our executive offices are located at Suite 1250, 3800 West 80th Street,
Bloomington, Minnesota 55431-4442. Our telephone number is (612) 893-3200.
Risk Factors
You should consider all of the information in this prospectus before
tendering your Old Notes in this exchange offer. See the "Risk Factors" section
of this prospectus for a discussion of the risks involved in an investment in
our company.
Summary of The Terms of The Exchange Offer
On January 26, 1999, we completed the private offering of $35.0 million
principal amount of our 10 1/4% Senior Notes due 2008. In connection with that
offering, we agreed, among other things, to deliver to you this prospectus and
to use our best efforts to complete this exchange offer by July 21, 1999.
<TABLE>
<C> <S>
The Exchange Offer.......... We are offering to exchange an equal principal
amount of our 10 1/4% Senior Notes due 2008
which have been registered under the Securities
Act of 1933, as amended (the "Securities Act"),
for the tendered principal amount of the second
tranche of our outstanding 10 1/4% Senior Notes
due 2008, which were sold on January 26, 1999.
As of this date, there is $135.0 million
principal amount of our 10 1/4% Senior Notes due
2008 outstanding, $35.0 million of which are
being registered under this registration
statement (the "New Notes") and $100.0 million
of which were already registered under a
separate registration statement declared
effective July 6, 1998 (the "Outstanding
Notes"). The New Notes and the Outstanding Notes
have the same terms and are referred to in this
prospectus collectively as the "Notes."
</TABLE>
3
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<TABLE>
<C> <S>
In order to be exchanged, an Old Note must be
properly tendered and accepted. You may tender
Old Notes only in integral multiples of $1,000.
This exchange offer is not conditioned on any
minimum aggregate principal amount of Old Notes
being tendered for exchange.
Expiration Date............. The exchange offer will expire at 5:00 p.m., New
York City time, on , 1999, unless we decide
to extend the expiration date.
Accrued Interest on the
New Notes.................. If you exchange your Old Notes for New Notes in
the exchange offer, you will receive the same
interest payment on the next interest payment
date following the expiration date that you
would have received had you not accepted the
exchange offer. The next interest payment date
following the expiration date is expected to be
September 1, 1999.
Procedures for
Tendering Old Notes........ If you wish to tender your Old Notes for
exchange, you must transmit on or prior to the
expiration date a properly completed and duly
executed copy of the letter of transmittal
delivered with this prospectus, or a facsimile of
the letter of transmittal, including all other
documents required by the letter of transmittal,
to U.S. Bank Trust National Association, as
exchange agent for the exchange offer (the
"Exchange Agent"), and either:
. a timely confirmation of book-entry transfer
of your Old Notes in accordance with the
procedure for book-entry transfers described
in this prospectus in "The Exchange Offer"
section under the heading "Procedures for
Tendering,"
. or certificates for your Old Notes.
Guaranteed Delivery
Procedures................. If you wish to tender your Old Notes and, prior
to the expiration date of the exchange offer,
. your Old Notes are not immediately available,
. you cannot deliver your Old Notes, the letter
of transmittal or any
other required documents to the Exchange
Agent, as exchange agent, or
. you cannot complete the procedures for book-
entry transfer, you may tender your Old Notes
by following the guaranteed delivery
procedures described in "The Exchange Offer"
section under the heading "Guaranteed Delivery
Procedures."
Special Procedures for
Beneficial Owners.......... If you wish to tender Old Notes that are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee,
you should promptly instruct the registered
holder to tender on your behalf. If you wish to
tender on your own behalf, you must, prior to
completing the procedures described above under
the heading "Procedures for Tendering Old
Notes," either register ownership of the Old
Notes in your name or obtain a properly
completed bond power from the registered holder.
Withdrawal Rights........... You may withdraw the tender of your Old Notes at
any time prior to the close of business, New
York City time, on the expiration date.
Certain U.S. Federal Income
Tax Consequences........... The exchange of New Notes for Old Notes in this
exchange offer will generally not be a taxable
event for United States federal income tax
purposes.
</TABLE>
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<TABLE>
<C> <S>
Consequences of Failure to
Exchange Old Notes......... If you do not exchange your Old Notes for New
Notes, you will no longer be able to require us
to register the Old Notes under the Securities
Act. In addition, you will not be able to offer
or sell the Old Notes unless:
. they are registered under the Securities Act,
or
. you offer or sell them under an exemption
from the registration requirements of the
Securities Act.
Use of Proceeds............. We will not receive any proceeds from the
issuance of New Notes in the exchange offer.
Summary of Ability to Resell
the New Notes.............. We believe that the New Notes issued in the
exchange offer may be offered for resale, resold
or otherwise transferred by you without
compliance with the registration and prospectus
delivery provisions of the Securities Act, but
only if:
. you acquire the New Notes in the ordinary
course of business, you are not
participating, do not intend to participate
and have no arrangement or understanding with
any person to participate in a distribution
of the New Notes, and
. you are not an "affiliate" of UHS, as the
term affiliate is defined
in Rule 405 under the Securities Act and
which may include our executive officers and
directors, another person having control over
our operations or management or a person or
entity we control.
By executing and delivering the letter of
transmittal, you will represent to us that the
foregoing are true. If our belief is inaccurate,
or if any of the conditions stated above are not
met, and you transfer any New Note issued to you
in the exchange offer without delivering a
prospectus meeting the requirements of the
Securities Act or without an exemption from the
registration requirements of the Securities Act,
you may incur liability under the Securities Act.
We do not assume or indemnify you against
liability under the Securities Act.
Each broker-dealer that is issued New Notes in
the exchange offer for its own account in
exchange for Old Notes which were acquired by the
broker-dealer as a result of market-making or
other trading activities, must acknowledge that
it will deliver a prospectus meeting the
requirements of the Securities Act in connection
with any resale of the New Notes. A broker-dealer
may use this prospectus, as it may be amended or
supplemented from time to time, for an offer to
resell, resale or other transfer of the New Notes
issued to it in the exchange offer.
Holders who use the exchange offer to participate
in a distribution of New Notes, including broker-
dealers that acquired Old Notes directly from us,
but not as a result of market-making or other
trading activities, must comply with the
registration and prospectus delivery requirements
of the Securities Act in the absence of an
exemption from these requirements. Failure to
comply with the registration and prospectus
delivery requirements may result in these holders
incurring liabilities under the Securities Act
for which we will not indemnify them.
</TABLE>
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<PAGE>
Summary Description of the New Notes
<TABLE>
<C> <S>
Notes Offered............... We are offering $35.0 million aggregate
principal amount of 10 1/4% Senior Notes due
2008. The form and terms of the New Notes will
be the same as the form and terms of the Old
Notes except that:
. the New Notes will bear a different CUSIP
number from the Old Notes,
. the New Notes will have been registered under
the Securities Act
and, therefore, will not bear legends
restricting their transfer, and
. you will not be entitled to any exchange or
registration rights with respect to the New
Notes.
The New Notes will evidence the same debt as the
Old Notes, will be entitled to the benefits of
the Indenture entered into by UHS and U.S.
Bank Trust National Association, as trustee (the
"Indenture"), governing the Old Notes and will
be treated under the Indenture as a single class
with the Old Notes and the Outstanding Notes.
Issuer...................... Universal Hospital Services, Inc.
Maturity.................... March 1, 2008
Interest Payment Dates...... We will pay interest on the notes on March 1 and
September 1 of each year, beginning March 1,
1999.
Subsidiary Guarantees....... We do not presently have any subsidiaries. If we
acquire subsidiaries in the future, those
subsidiaries may be required to guarantee the
notes.
Ranking..................... The New Notes will be unsecured senior
obligations of UHS and will rank equal in right
of payment to our existing and future
unsubordinated debt, including the Outstanding
Notes. The New Notes will be subordinated to any
secured debt, including debt under our revolving
credit facility.
On a pro forma basis, after giving effect to the
issuance of the Old Notes on December 31, 1998,
the New Notes would have been subordinate to
approximately $18.9 million of senior debt
currently outstanding and an additional $31.1
million of senior debt available to be incurred
under our revolving credit facility.
Optional Redemption......... We may redeem any of the Notes on or after March
1, 2003 at the redemption prices set forth in
the "Description of Notes" section of this
prospectus under the heading "Redemption."
Before or on March 1, 2001, we may redeem up to
35.0% of the aggregate principal amount of the
then-outstanding New Notes, if we make one or
more sales of equity securities of UHS, as long
as:
. we pay 110 1/4% of the face amount of the New
Notes and Outstanding Notes, plus interest;
</TABLE>
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<TABLE>
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. we redeem the New Notes and Outstanding Notes
within 120 days of completing the equity
offering; and
. at least 65% of the aggregate principal
amount of the New Notes and Outstanding Notes
issued remains outstanding.
We may redeem the Notes, in whole or in part, if
a change of control of UHS occurs before March
1, 2003. If we redeem the New Notes after a
change of control, the redemption price will
equal the sum of (i) the principal amount plus,
(ii) accrued interest, if any, to the redemption
date plus (iii) the applicable premium with
respect to a Note will be the greater of:
. 1.0% of the face amount; and
. the excess of (i) the present value of the
redemption price on March 1, 2003 plus all
remaining required interest payments due
through March 1, 2003 (computed using a
discount rate equal to the treasury rate plus
50 basis points) over (ii) the face amount.
Change of Control........... If we experience specific kinds of changes in
control, we must offer to repurchase any then
issued notes at 101% of their face amount, plus
accrued and unpaid interest, if any, to the
repurchase date.
We might not be able to pay you the required
price of the New Notes you present to us at the
time of a change of Control because:
. we might not have enough funds at that time;
and
. the terms of our senior debt may prevent us
from paying.
Covenants................... The Indenture governing the Notes contains
covenants that, among other things, limit our
ability to:
. incur additional debt or enter into sale and
leaseback transactions;
. pay cash dividends or distributions on our
capital stock or repurchase our capital
stock;
. issue stock of subsidiaries;
. make certain investments;
. create liens on our assets to secure debt;
. enter into transactions with affiliates;
. merger or consolidate with another company;
and
. transfer or sell assets.
These covenants are subject to a number of
important limitations and exceptions.
</TABLE>
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Summary Historical and Pro Forma Financial Data
The summary historical financial data presented below are derived from the
audited financial statements of UHS (the "Financial Statements"). The unaudited
pro forma financial data presented below are not necessarily indicative of
UHS'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 UHS'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>
Years Ended December 31,
--------------------------------------
Pro forma
1998(1) 1998 1997 1996
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Statement of Operations Data: (dollars in thousands)
Revenues:
Equipment rentals.................... 67,141 $ 61,701 $ 54,489 $ 50,743
Sales of supplies and equipment, and
other............................... 12,406 7,672 5,586 6,198
------- -------- -------- --------
Total revenues......................... 79,547 69,373 60,075 56,941
------- -------- -------- --------
Costs of rentals and sales:
Cost of equipment rentals............ 16,853 16,312 13,577 13,332
Rental equipment depreciation........ 16,148 14,432 14,435 12,603
Loss on disposition of Bazooka Beds
(2)................................. 2,866 2,866 -- --
Cost of supplies and equipment
sales............................... 8,186 4,867 3,838 4,423
Write-down of DPAP inventories (3)... -- -- -- 2,213
------- -------- -------- --------
Total cost of rentals and sales........ 44,053 38,477 31,850 32,571
------- -------- -------- --------
Gross profit........................... 35,494 30,896 28,225 24,370
Selling, general and administrative.... 24,438 21,300 18,448 19,695
Recapitalization and transaction costs
(4)................................... -- 5,099 1,719 306
------- -------- -------- --------
Operating income....................... 11,056 4,497 8,058 4,369
Interest expense....................... 14,108 11,234 3,012 2,518
------- -------- -------- --------
(Loss) income before (benefit)
provision for income taxes and
extraordinary charge.................. (3,052) (6,737) 5,046 1,851
------- -------- -------- --------
Income taxes........................... (497) (1,097) 2,347 919
------- -------- -------- --------
(Loss) income before extraordinary
charge................................ (2,555) (5,640) 2,699 932
Extraordinary charge, net of tax
benefit of $1,300..................... -- 1,863 -- --
------- -------- -------- --------
Net (loss) income...................... $(2,555) $ (7,503) $ 2,699 $ 932
======= ======== ======== ========
Other Data:
Net cash provided by operating
activities............................ -- $ 9,740 $ 20,001 $ 14,657
Net cash used in investing activities.. -- (62,896) (18,026) (26,859)
Net cash provided by (used in)
financing activities.................. -- 53,156 (2,172) 12,400
EBITDA (5)............................. 31,368 22,145 24,129 18,266
Adjusted EBITDA (6).................... 34,234 30,110 25,848 20,785
Adjusted EBITDA margin (7)............. 43.0% 43.4% 43.0% 36.5%
Ratio of earnings to fixed charges
(8)................................... 0.8x 0.4x 2.7x 1.7x
Adjusted ratio of earnings to fixed
charges (9)........................... 0.8x 1.1x 3.2x 2.7x
Depreciation and amortization.......... $20,312 $ 17,648 $ 16,071 $ 13,897
Capital expenditures (cash flow
basis)................................ -- $ 28,584 $ 19,144 $ 15,210
Pro forma cash interest expense (10)... 13,965 -- -- --
Ratio of Adjusted EBITDA to pro forma
cash interest expense................. 2.5x -- -- --
Rental equipment (units at end
period)............................... 72,000 72,000 56,000 52,000
</TABLE>
8
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<TABLE>
<CAPTION>
As of December 31,
----------------------
1998 1997 1996
------- ------ ------
(dollars in
thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Working Capital (11).................................... $ 2,966 $7,617 $8,573
Total Assets............................................ 144,221 81,186 79,707
Total Debt.............................................. 150,116 33,945 37,150
Shareholders' (deficiency) equity....................... (35,702) 33,000 29,128
Other: (Unaudited)
Offices (at end of period).............................. 50 46 46
</TABLE>
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(1) Pro forma financial data are presented as if consummation of (i) our
recapitalization, (ii) the acquisition of HCI and (iii) the acquisition of
PCH occurred. 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 and acquisitions occurred
on the date indicated or that may be achieved in the future. Pro forma
financial data does not give effect to (i) the issuance of the Notes and
application of the proceeds therefrom and (ii) the acquisition of MRS and
EMS. Pro forma financial data excludes expenses incurred by UHS related to
the recapitalization.
(2) UHS's utilization of Bazooka Beds in its rental pool had been below the
desired level and had declined steadily during 1997 and 1998. Because
utilization levels did not meet expectations, UHS disposed of approximately
1,700 excess Bazooka Beds with a recorded loss of $2.9 million in the year
ended December 31, 1998.
(3) UHS 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, UHS's assessment
resulted in a write-down of $2.2 million in 1996.
(4) Reflects expenses, consisting primarily of legal, investment banking and
special committee fees, incurred prior to December 31, 1997 by UHS, 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 UHS related to our
recapitalization.
(5) 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.
(6) Adjusted EBITDA reflects EBITDA adjusted to exclude (i) the loss on
disposition of Bazooka Beds of $2.9 million for the year ended December 31,
1998, (ii) recapitalization and transaction costs of $5.1 million, $1.7
million, and $0.3 million for the years ended December 31, 1998, 1997 and
1996, respectively, and (iii) write-down of DPAP inventories of $2.2
million for the year ended December 31, 1996. 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.
(7) Adjusted EBITDA margin represents the ratio of Adjusted EBITDA to total
revenues.
(8) 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.
(9) 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, loss on disposition of Bazooka Beds and
Recapitalization and transaction costs. Fixed charges consist of interest
expense, which includes the amortization of deferred debt issuance costs.
(10) Pro forma cash interest expense is defined as interest expense less
amortization of debt issuance costs. Pro forma cash interest expense was
calculated using 10.25% for the Outstanding Notes, 8.25% for borrowings
under the Revolving Credit Facility (as defined herein) and a 0.50%
commitment fee on the unused portion thereunder. This calculation also
includes an estimate of interest expense related to seasonal borrowings.
(11) Represents total current assets (excluding cash and cash equivalents) less
total current liabilities, excluding current portion of long-term debt.
9
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RISK FACTORS
You should carefully consider the following factors and other information in
this prospectus before deciding to exchange Old Notes for New Notes. Any of the
following risks could have a material adverse effect on our business, financial
condition or results of operations or on the value of the Old Notes and New
Notes.
There may be adverse consequences for holders of the Old Notes who fail to
exchange them for New Notes
If you do not exchange your Old Notes for New Notes in this exchange offer,
you will continue to be subject to the restrictions on transfer of your Old
Notes as set forth in the legend on the Old Notes because the Old Notes have
not been registered under the Securities Act or applicable state securities
laws. In general, you may offer or sell the Old Notes only if they are
registered under the Securities Act and applicable state securities laws,
unless you sell them under an exemption from the Securities Act and state
securities laws. Except under certain limited circumstances, we do not intend
to register the Old Notes under the Securities Act.
If your tender of Old Notes in this exchange offer is for the purpose of
participating in a distribution of New Notes, the New Notes that you receive
will be restricted securities and you will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in any
resale of the New Notes. To the extent Old Notes are tendered and accepted in
the exchange offer, the trading market, if any, for the Old Notes which are not
tendered, and the price at which the Old Notes may be sold, could be adversely
affected. See "The Exchange Offer."
There is no established trading market for the New Notes, and even if one
develops, you may have difficulty selling them
There has not been any public market for the Old Notes, and we cannot assure
you that an active public or other market will develop for the New Notes. Since
the Old Notes were issued with original issue discount, the New Notes will not
trade interchangeably with the Outstanding Notes on the secondary market. If a
trading market does not develop or is not maintained, you may experience
difficulty in reselling New Notes, or you may be unable to sell them at all. We
do not intend to list the New Notes on any securities exchange or to seek their
admission to trading in any automated quotation system.
If a public trading market develops for the New Notes, it may not be liquid
and it may be discontinued at any time. Moreover, future trading prices of the
New Notes would depend on many factors, including, among other things,
prevailing interest rates, our operating results and the market for similar
securities. Depending on prevailing interest rates, the market for similar
securities and other factors, including our financial condition, the New Notes
could trade at a discount from their principal amount.
We have substantial indebtedness other than the Notes, which may affect our
ability to make scheduled payments on the Notes, to redeem them if we are
required to do so, and to pay the principal amounts of the Notes when due
We have substantial outstanding debt and are highly leveraged. As of December
31, 1998, on a pro forma basis after giving effect to the net proceeds of the
offering of the $35 million of Old Notes on January 26, 1999, we would have had
$155.4 million of debt outstanding, including $20.4 million of secured debt and
excluding $31.1 million available to borrow under our revolving credit
facility. We may incur additional debt in the future, including senior debt,
subject to certain limitations.
The degree to which we are leveraged may also have the following effects:
. a substantial portion of our cash flow from operations must be dedicated
to debt service and will not be available for other purposes;
. we may not be able to obtain additional debt financing in the future for
working capital, capital expenditures or acquisitions; and
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<PAGE>
. our flexibility to react to changes in the industry and economic
conditions may be limited. Certain of our competitors may currently
operate on a less leveraged basis and therefore could have significantly
greater operating and financing flexibility than UHS.
Borrowings made as part of our recapitalization resulted in a significant
increase in our interest expense in 1998 relative to prior periods. Our ability
to make cash payments with respect to the Notes and to satisfy or refinance our
other debt obligations will depend upon our future operating performance. We
believe, based on current circumstances, that our cash flow, together with
available borrowings under our revolving credit facility, will be sufficient to
permit us to pay the interest on the Notes and to service our other debt. This
belief assumes, among other things, that we will successfully implement our
business strategy and that there will be no material adverse developments in
our business, liquidity or capital requirements. However, if we are unable to
generate sufficient cash flow from operations, we 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 our debt or seeking additional equity capital. We cannot assure you
that any of these strategies will be effected on satisfactory terms, if at all.
If we are unable to repay our debt at maturity, we may have to obtain
alternative financing.
The Notes are subordinated in payment to other indebtedness of UHS
The Notes are unsecured and are effectively subordinated to our secured debt
to the extent of the value of the assets securing that debt. Any borrowing
under our revolving credit facility will be secured by substantially all of our
assets. The Indenture related to the Notes limits, but does not prohibit, us
from incurring additional secured indebtedness.
Restrictions imposed under our bank credit facility also may affect our ability
to make payments on the Notes
Under the Indenture related to the Notes, we are restricted in our ability to:
. incur additional indebtedness;
. pay cash 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 we violate these restrictions, we would be in default under the Indenture
and the principal and accrued interest on the Notes could be declared due and
payable. In addition, our revolving credit facility contains other and more
restrictive covenants and prohibits us from prepaying the Notes. Our revolving
credit facility also requires us to maintain specified financial ratios and
satisfy certain financial condition tests. We may be unable to meet those
financial ratios and tests because of events beyond our control. We cannot
assure you that we will meet those ratios and tests. A violation of these
restrictions or a failure to meet the ratios and tests could result in a
default under our revolving credit facility and/or the Indenture. If an event
of default should occur under our revolving credit facility, the lenders can
accelerate repayment of the debt, plus accrued interest. If we fail to repay
those amounts, the lenders could proceed against the collateral granted to them
to secure that debt and other debt of UHS. Substantially all of our assets are
pledged as security under our revolving credit facility. See "Description of
Our Revolving Credit Facility."
If there is a change of control of UHS, we may not be able to fund a required
repurchase of the Notes
Upon a change of control of UHS, we may be required to offer to repurchase
all of the Notes. However, it is possible that we will not have sufficient
funds at the time of the change of control to make the required
11
<PAGE>
repurchase. In addition, restrictions in our revolving credit facility prohibit
such repurchase, and a change of control of UHS would violate our revolving
credit facility. If our debt under the revolving credit facility became due as
a result of such a violation, the lenders would have a priority claim on our
assets securing our debt to them.
There is risk that we will not be able to execute our business strategy and may
suffer adverse consequences from our recent acquisitions
Our financial performance and profitability will depend on our ability to
execute our business strategy and manage our recent and possible future growth.
Since July 1998, we have acquired four new businesses, two of which primarily
serve the alternate care market. While we have substantially completed the
integration of these businesses and operations into our business and
operations, we cannot assure you that there will not be a significant loss of
customers from these acquired businesses. Unforeseen issues relating to the
assimilation of these businesses may adversely affect UHS. In addition, any
future acquisitions or other possible future growth may present operating and
other problems that could have a material adverse effect on our business,
financial condition and results of operations. Our financial performance will
also depend on our ability to maintain profitable operations as we invest our
efforts and resources to expand our presence in the alternate care market. We
cannot assure you that we will be able to continue the growth or maintain the
level of profitability we have recently experienced.
Reforms in the health care industry may limit our ability to be reimbursed for
medical equipment that we rent
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. These changes eliminate annual
payment updates for durable medical equipment, and allow states greater
flexibility in controlling Medicaid costs at the state level. We believe that
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. Our business, financial condition or results of
operations may be adversely affected by these current or any future
initiatives. In this event, the value of the Notes could be materially
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Industry Assessment," and "--Third Party
Reimbursement."
Substantially all of the payments made to us in connection with our rental
programs are received directly from health care providers, rather than from
private insurers, other third party payors or governmental entities. Under
current reimbursement regulations, we are 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 our
services depends substantially upon such payors' reimbursement policies.
Consequently, those policies have a direct effect on health care providers'
ability to pay for our services and an indirect effect on our 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 we offer and could indirectly have a material adverse
effect on our business, financial condition or results of operations. See
"Business--Third Party Reimbursement."
We do not have formal, long-term agreements with our customers and, as a
consequence, our business may be adversely affected by fluctuations in usage or
false reporting of usage by our customers
Our Pay-Per-Use program offers customers a flexible approach to obtaining
movable medical equipment. Our customers are generally not obligated to rent
our equipment under formalized agreements requiring long-term commitments or
otherwise fixing the rights and obligations of the parties regarding matters
such as billing,
12
<PAGE>
liability, warranty or use. Therefore, we face 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."
We may be subject to liabilities associated with the medical equipment that we
provide to our customers
Although we do not manufacture any medical equipment, our business entails
the risk of claims related to the medical equipment that we rent and service.
We have not suffered a material loss due to a claim. However, any such claims,
if made, could have a material adverse effect on our business, financial
condition or results of operations. Although we believe that our current
insurance coverage is adequate, we may be subject to claims exceeding our
coverage or we may not be able to continue to obtain liability insurance at
acceptable levels of cost and coverage. See "Business--Liability and
Insurance."
Our business may be adversely affected by competition
We believe that the strongest competition to our 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 we believe that we are able to demonstrate the cost-effectiveness of
renting medical equipment on a long term basis, we believe that many health
care providers will continue to purchase a substantial portion of their movable
medical equipment. Additionally, in a number of our geographic and product
markets, we compete with one principal competitor and various smaller equipment
rental companies that may compete primarily on the basis of price. These
competitors may be able to offer certain customers lower prices depending on
utilization levels and other factors. See "Business--Competition."
Our business may be adversely affected by adverse developments with our
suppliers
We purchased our movable medical equipment from approximately 75
manufacturers and our disposable medical supplies from approximately 85
suppliers in 1998. Our five largest suppliers of movable medical equipment,
which supplied approximately 57% of our direct movable medical equipment
purchases for 1998 are: Mallinckrodt (Nellcor Puritan Bennett Inc.), Baxter
Healthcare Corporation, The Kendall Company, Abbott Laboratories, Inc. and
Siemens Medical System. Adverse developments concerning key suppliers or our
relationships with them could have a material adverse effect on our business,
financial condition or results of operations. See "Business--Operations" and
"--Sale of Disposable Products."
We rely on a number of key personnel, the loss of whom could have a material
adverse effect on our business, financial condition or results of operations
We believe that our future success will depend greatly on our continued
ability to attract and retain highly skilled and qualified personnel. We have
employment agreements with David E. Dovenberg, Andrew R. Amicon, Gerald L.
Brandt, Robert H. Braun, Randy C. Engen, Michael R. Johnson, Gary L. Preston
and Jeffrey L. Singer. However, we cannot assure you that key personnel will
stay with us or that we will be able to attract and retain qualified personnel
in the future. If we fail to attract or retain such personnel, our business,
financial condition or results of operations could be adversely affected. See
"Certain Relationships and Related Transactions."
We rely on qualified sales representatives and service specialists, the loss of
whom could have a material adverse effect on our business, financial condition
or results of operations
We believe that to be successful we must continue to hire, train and retain
highly qualified sales representatives and service specialists. Our 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 our customers. Due to the
relationships developed between our sales representatives and
13
<PAGE>
our customers, we face the risk of losing our customers when a sales
representative leaves UHS. We have experienced and will continue to experience
intense competition for managers and experienced sales representatives. We
cannot assure you that we will be able to retain or attract qualified personnel
in the future. If we fail to attract or retain such personnel, our business,
financial condition or results of operations could be adversely effected. From
February 10, 1997 through September 22, 1997, we lost 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."
We are effectively controlled by one shareholder and its affiliates, who can
significantly influence our company
J. W. Childs & Associates, Inc. and its affiliates ("Childs") beneficially
owns shares representing approximately 78% of the fully diluted common equity
in UHS. Accordingly, Childs and its affiliates have the power to elect our
board of directors, appoint new management and approve any action requiring a
shareholder vote, including amendments to our Articles of Incorporation and
approving mergers or sales of substantially all of our assets. The directors
elected by Childs will have the authority to make decisions affecting our
capital structure, including the issuance of additional indebtedness and the
declaration of dividends.
This prospectus contains forward-looking statements which are only predictions
from which actual events or results may materially differ
This prospectus includes forward-looking statements within the meaning of
securities laws, principally in this "Risk Factors" section and in the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" sections of this prospectus. We have based these
forward-looking statements largely on our current expectations and projections
about future events and financial trends affecting our business. The words
"believe,"may," "will," "estimate," "continue," "anticipate," "intend,"
"expect" and similar words are intended to identify forward-looking statements.
We undertake no obligation to publicly update or revise any forward-looking
statements because of new information, future events or otherwise. In light of
these risks and uncertainties, the forward-looking events and circumstances
discussed in this prospectus might not transpire. Our forward-looking
statements are subject to risks, uncertainties and assumptions including, among
other things:
. general economic and business conditions, both nationally and in our
markets,
. our expectations and estimates concerning future financial performance,
financing plans and the impact of competition,
. anticipated trends in our industry, and
. other risk factors discussed above.
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<PAGE>
THE EXCHANGE OFFER
Terms of this Exchange Offer, Period for Tendering Old Notes
On January 26, 1999, we completed the private offering of $35.0 million
principal amount of the Old Notes. Upon the terms and subject to the conditions
set forth in this prospectus and in the accompanying letter of transmittal, UHS
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 ,
1999; provided, however, that if UHS in its sole discretion, has extended the
period of time for which this exchange offer is open, the term "Expiration
Date" means the latest time and date to which this exchange offer is extended.
As of the date of this prospectus, $35,000,000 aggregate principal amount of
the Old Notes was outstanding and $100,000,000 aggregate principal amount of
the Outstanding Notes was outstanding. This prospectus, together with the
letter of transmittal, is first being sent on or about , 1999, to
all holders of Old Notes known to UHS. Our obligation to accept Old Notes for
exchange under this exchange offer is subject to certain conditions as set
forth below under "--Certain Conditions to the Exchange Offer. "
We reserve the right, at any time or from time to time, to extend the period
of time during which this 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 of Old Notes. During any such extension, all Old Notes
previously tendered will remain subject to this exchange offer and may be
accepted for exchange by UHS. Any Old Notes not accepted for exchange for any
reason will be returned without expense to the tendering holder as promptly as
practicable after the expiration or termination of this exchange offer.
Old Notes tendered in this exchange offer must be in denominations of
principal amount of $1,000 and any integral multiple thereof.
We reserve the right to amend or terminate this exchange offer, and not to
accept for exchange any Old Notes not already accepted for exchange, upon the
occurrence of any of the events specified below under "-- Certain Conditions to
the Exchange Offer." We 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. The notice in the case of any extension will 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
Your tender to us of Old Notes and our acceptance will constitute a binding
agreement between you and UHS 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, if you wish to tender Old Notes for exchange under this
exchange offer you must transmit either:
. a properly completed and duly executed letter of transmittal, including
all other documents required by such letter of transmittal, to U.S. Bank
National Association, as Exchange Agent, at the address set forth below
under "--Exchange Agent" on or prior to the Expiration Date, or
. if such Old Notes are tendered under the procedures for book-entry
transfer set forth below, you 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:
. certificates for such Old Notes must be received by the Exchange Agent
along with the letter of transmittal,
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<PAGE>
. 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") under 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 Expiration Date, or
. you 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 that such
participant has received and agrees to be bound by the letter of transmittal
and we 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 YOUR ELECTION AND RISK. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT YOU USE REGISTERED MAIL, PROPERLY
INSURED, WITH RETURN RECEIPT REQUESTED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES
SHOULD BE SENT TO UHS.
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 under
such letter are tendered:
. 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
. 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 us in our 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 us in our sole discretion, which determination shall be final and binding.
We reserve 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 our judgment or our counsel, be unlawful. We also reserve
the absolute right to waive any defects or irregularities or conditions of this
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 this exchange offer). Our interpretation of
the terms and conditions of this exchange offer as to any particular Old Notes
either before or after the Expiration Date (including the letter of transmittal
and the instructions thereto) 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 we will
determine. Neither we, 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.
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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
us, proper evidence satisfactory to us of their authority to so act must be
submitted.
By tendering, each holder will represent to us that, among other things, the
New Notes acquired under this 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 Notes. In the case of a holder that is not a broker-dealer, each
such holder, by tendering, will also represent to us 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 our "affiliate" as defined under Rule 405 of
the Securities Act, 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 under this 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 this exchange offer,
we 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 this
exchange offer, we shall be deemed to have accepted properly tendered Old Notes
for exchange when, as and if we have given oral or written notice of acceptance
to the Exchange Agent, with written confirmation of any oral notice to be given
promptly.
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 January 26,
1999, the date of original issuance of the Old Notes. If this exchange offer is
not consummated by August 21, 1999, the interest rate on the Old Notes from and
including such date until but excluding the date of consummation of this
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 canceled 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 under this 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
17
<PAGE>
. all other required documents or, in the case of a Book-Entry
Confirmation, an Agent's Message.
If any tendered Old Notes are not accepted for any reason set forth in the
terms and conditions of this 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 under 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 this 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 this
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 through book-entry transfer at the Book-
Entry Transfer Facility, the letter of transmittal, 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:
. the tender is made through an Eligible Institution;
. prior to the Expiration Date, the Exchange Agent received from such
Eligible Institution a properly completed and duly executed letter of
transmittal and Notice of Guaranteed Delivery, substantially in the form
provided by UHS (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
. 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
You may withdraw your tender of Old Notes 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
18
<PAGE>
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 under 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 us and our 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 this 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 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 under 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
this 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.
Certain Conditions to this Exchange Offer
Notwithstanding any other provision of this exchange offer, we will not be
required to accept for exchange, or to issue New Notes in exchange for, any Old
Notes and may terminate or amend this 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 which in the reasonable
judgment of UHS in any case, makes it inadvisable to proceed with this exchange
offer and/or with such acceptance for exchange or with such exchange:
(i) 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,
. seeking to restrain or prohibit the making or consummation of this
exchange offer or any other transaction contemplated by this
exchange offer, or assessing or seeking any damages as a result
thereof, or
. resulting in a material delay in our ability to accept for exchange
or exchange some or all of the Old Notes under this exchange offer,
or
. any statute, rule, regulation, order or injunction shall be sought,
proposed, introduced, enacted, promulgated or deemed applicable to
this exchange offer or any of the transactions contemplated by this
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 our reasonable judgment might
directly or indirectly result in any of the consequences referred to
in the two aforementioned clauses or, in our reasonable judgment,
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 this exchange offer; or
(ii) there shall have occurred:
. 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,
19
<PAGE>
. any limitation by any governmental agency or authority which may
adversely affect our ability to complete the transactions
contemplated by this exchange offer,
. 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
. 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 this exchange offer, a material acceleration
or worsening thereof; or
(iii) any change (or any development involving a prospective change) shall
have occurred or be threatened in our business, properties, assets,
liabilities, financial condition, operations, results of operations
or prospects that, in our reasonable judgment, is or may be adverse
to us, or we shall have become aware of facts that, in our
reasonable judgment, have or may have adverse significance with
respect to the value of the Old Notes or the New Notes.
The foregoing conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any such condition or may be
waived by us in whole or in part at any time and from time to time in its sole
discretion. Our failure 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, we 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
"Trust Indenture Act").
Exchange Agent
U.S. Bank Trust National Association has been appointed as the Exchange Agent
for this 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: U.S. Bank Trust National Association, Exchange Agent
By Mail: By Overnight Courier or Hand:
U.S. Bank Trust National U.S. Bank Trust National
Association 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
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.
20
<PAGE>
Fees and Expenses
We will not make any payment to brokers, dealers, or others soliciting
acceptances of this exchange offer.
The estimated cash expenses to be incurred in connection with this exchange
offer will be paid by us and are estimated in the aggregate to be $1,100,000.
Transfer Taxes
You will not be obligated to pay any transfer taxes in connection with the
tender of your Old Notes, except that any holder who instructs us to register
New Notes in the name of, or request that Old Notes not tendered or not
accepted in this exchange offer be returned to, a person other than the
registered tendering holder will be responsible for the payment of any
applicable transfer tax.
Consequences of Exchanging Old Notes
If you do not exchange your Old Notes for New Notes in this exchange offer,
you 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 a consequence of the issuance of the Old Notes under 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
under an exemption from, or in a transaction not subject to, the Securities Act
and applicable state securities, laws. We do not currently anticipate that we
will register Old Notes under the Securities Act. Based on interpretations by
the staff of the Commission, as set forth in no-action letters issued to third
parties, we believe that New Notes issued under this 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 our "affiliate" 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 or understanding with any person
to participate in the distribution of such New Notes. However, we do not intend
to request the Commission to consider, and the Commission has not considered,
this 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 this exchange offer as in such other circumstances. Unless you
are a borker-dealer, you, must acknowledge that you are not engaged in, and do
not intend to engage in, a distribution of New Notes and have no arrangement or
understanding to participate in a distribution of New Notes. If you are an
affiliate of UHS and are engaged in or intend to engage in or have any
arrangement or understanding with respect to the distribution of the New Notes
to be acquired under this exchange offer, you (i) can 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. UHS 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.
21
<PAGE>
USE OF PROCEEDS
The exchange offer is intended to satisfy obligations we have under the
registration rights agreement entered into in connection with the January 1999
offering of the Old Notes. We will not receive any cash proceeds from the
issuance of the New Notes in the exchange offer.
The net proceeds to UHS from the sale of the Old Notes were approximately
$29.0 million, after original issued discount and deduction of estimated fees
and expenses of the offering and sale. The net proceeds were used to reduce our
outstanding debt under our five-year revolving credit facility. The debt under
our revolving credit facility was used to finance a portion of our
recapitalization in February 1998 and our acquisitions in 1998.
22
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited capitalization of UHS as of
December 31, 1998 on a pro forma basis as adjusted to give effect to the
issuance of the Old Notes and application of the proceeds from the issuance of
the Old Notes. This table should be read in conjunction with "Description of
the Notes," "Description of Our Revolving Credit Facility" and the Financial
Statements.
<TABLE>
<CAPTION>
As of December 31, 1998
--------------------------
Actual Pro Forma
----------- -------------
(dollars in thousands)
<S> <C> <C>
Total debt:
Revolving Credit Facility(1)....................... $ 48,600 $ 18,850
Outstanding Notes.................................. 100,000 100,000
Notes offered hereby(2)............................ -- 35,000
Other existing indebtedness........................ 1,516 1,516
----------- -----------
Total debt....................................... 150,116 155,366
----------- -----------
Series B 13% Cumulative Accruing Pay-in-Kind
Preferred Stock, $.01 par value:
25,000 shares authorized; 6,246 shares issued and
outstanding......................................... 5,277 5,277
Shareholders' (deficiency) equity:
Common Stock, $.01 par value; 50,000,000 shares
authorized and 15,938,845 shares issued and
outstanding(3).................................... 160 160
Additional paid-in capital......................... 2,051 2,051
Accumulated deficit................................ (37,865) (37,865)
Stock subscription receivable........................ (49) (49)
----------- -----------
Total shareholders' (deficiency) equity.............. (35,702) (35,702)
----------- -----------
Total capitalization................................. $ 119,691 $ 124,941
=========== ===========
</TABLE>
- --------
(1) As of December 31, 1998, UHS had availability of $1.4 million under our
revolving credit facility. As of such date, on a pro forma basis after
giving effect to the offering and the use of proceeds, UHS would have had
availability of $31.2 million under our revolving credit facility. See
"Description of Credit Facility."
(2) Does not give effect to original issue discount of $5.3 million.
(3) Does not include outstanding options to purchase an aggregate of 3,012,467
shares of our common stock and outstanding warrants to purchase 350,000
shares of our common stock.
23
<PAGE>
UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA
The following unaudited pro forma condensed financial data are based on the
historical financial statements of UHS included elsewhere in this prospectus,
adjusted to give effect to the pro forma adjustments described in the notes
hereto. The unaudited pro forma condensed statement of operations give effect
(i) to the recapitalization, (ii) the acquisition of HCI and (iii) the
acquisition of PCH as though these transactions had occurred on January 1,
1998. Pro forma financial data does not give effect to (i) the issuance of the
Old Notes and application of the proceeds therefrom and (ii) the acquisition of
MRS.
The pro forma adjustments are based upon available data and certain
assumptions that UHS believes are reasonable. The unaudited pro forma condensed
financial data are not necessarily indicative of UHS's financial position or
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 UHS's financial position or 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 prospectus.
UNIVERSAL HOSPITAL SERVICES, INC.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Year Ended December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Universal
Hospital Home Care Patient's Choice
Services, Inc. Instruments, Inc. Healthcare, Inc.
-------------- ----------------- ---------------- Pro Forma Pro
Historical(a) Historical(b) Historical(c) Adjustments Forma
-------------- ----------------- ---------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals...... $ 61,701 $3,529 $1,911 $ 67,141
Sales of supplies and
equipment, and
other................. 7,672 976 3,758 12,406
-------- ------ ------ --------
Total revenues....... 69,373 4,505 5,669 79,547
Costs of rental and
sales:
Cost of equipment
rentals............... 16,312 541 -- 16,853
Rental equipment
depreciation.. 14,432 783 933 16,148
Loss on disposition of
Bazooka Beds.......... 2,866 -- -- 2,866
Cost of supplies and
equipment sales....... 4,867 725 2,594 8,186
-------- ------ ------ --------
Total costs of
rentals and sales... 38,477 2,049 3,527 44,053
-------- ------ ------ --------
Gross profits........ 30,896 2,456 2,142 35,494
Selling, general and
administrative......... 21,300 1,447 1,390 $ 301 (d) 24,438
Recapitalization and
transaction costs...... 5,099 -- -- (5,099)(e)
-------- ------ ------ ------ --------
Operating income..... 4,497 1,009 752 4,798 11,056
Interest expense........ 11,234 209 123 2,542 (f) 14,108
-------- ------ ------ ------ --------
(Loss) income before
income taxes and
extraordinary charge... (6,737) 800 629 2,256 (3,052)
-------- ------ ------ ------ --------
(Benefit) provision for
income taxes........... (1,097) 292 -- 308 (g) (497)
-------- ------ ------ ------ --------
(Loss) income before
extraordinary charge... (5,460) 508 629 1,948 (2,555)
Extraordinary charge,
net of deferred tax
benefit of $1,300...... 1,863 -- -- (1,863)(h) --
-------- ------ ------ ------ --------
Net (loss) income.... $ (7,503) $ 508 $ 629 $3,811 $ (2,555)
======== ====== ====== ====== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated statements
of income.
24
<PAGE>
The following Notes to Unaudited Pro Forma Condensed Statement of Operations
describe adjustments to UHS's historical statement of operations for the year
ended December 31, 1998 to give effect to the acquisitions and the
Recapitalization as though they had occurred on January 1, 1998. Other than the
pro forma adjustments described in Notes (d), (e) and (h) below (net of income
tax effect, as applicable), UHS does not expect any other material nonrecurring
charges resulting directly from the Recapitalization which will be included in
the income of UHS within the 12 months following the recapitalization.
(a) Derived from the audited historical statement of operations of UHS for the
year ended December 31, 1998.
(b) Derived from the unaudited historical statement of operations of HCI for
the year ended July 31, 1998 (through the date of acquisition).
(c) Derived from the unaudited historical statement of operations of PCH for
the period from January 1, 1998 through August 15, 1998 (the date of
acquisition).
(d) Represents the following:
<TABLE>
<S> <C>
Decrease in senior management team compensation that did not continue
employment with the Company
after the recapitalization.......................................... $(213)
Childs Associates' annual management fee............................. 38
Net increase in goodwill amortization as a result of the acquisitions
of HCI and PCH and the elimination of
HCI historical goodwill............................................. 948
Removal of compensation expense of employees of HCI and PCH
terminated as a result of the acquisitions
and not replaced and decrease in HCI senior management compensation
per employment agreements........................................... (400)
Reduction of office rent for HCI and PCH offices closed as a result
of the acquisitions................................................. (72)
-----
$(301)
=====
</TABLE>
(e) Reflects recapitalization and transaction costs consisting primarily of
legal, investment banking and special committee fees, incurred by UHS in
connection with the recapitalization.
(f) Reflects the net change in interest expense as a result of the acquisitions
of HCI and PCH and recapitalization:
<TABLE>
<S> <C>
Outstanding Notes $ 1,608
Interest expense related to the Revolving Credit Facility and capital
leases (including incremental borrowing related
to the acquisitions of HCI and PCH)................................. 1,545
Elimination of historical interest expense related to debt retired
using the proceeds of the Outstanding Notes......................... (440)
Elimination of historical interest expense of HCI and PCH related to
outstanding debt of HCI and PCH paid at the
closing of the acquisitions......................................... (332)
Amortization of deferred placement costs, over the 10-year term of
the Outstanding Notes and the 5-year term of
the Revolving Credit Facility....................................... 143
Commitment fee of 0.5%
on unused portion of Revolving Credit Facility...................... 12
Annual administrative agent's fee, related to the Revolving Credit
Facility............................................................ 6
-------
Net increase in interest expense..................................... $ 2,542
=======
</TABLE>
Interest expense and commitment fee related to the revolving credit
facility is determined based on monthly average borrowings (including
seasonal borrowings): (a) Revolving Credit Facility--8.25%, (b) Outstanding
Notes--10.25%. Does not give effect to the issuance of the Notes and the
application of the proceeds therefrom.
(g) Represents the increase (reduction) in income to record the income tax
expense (benefit) related to pro forma adjustments that affected pre-tax
amounts, computed using a marginal income tax rate consistent with the
historic effective rate for the period.
(h) 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
Outstanding Notes.
25
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
The selected financial data set forth below (excluding rental equipment
units, EBITDA, Adjusted EBITDA, pro forma adjusted EBITDA and related data) for
and as of each of the years in the five year period ended December 31, 1998 are
derived from UHS's audited financial statements. The selected historical
financial information should be read in conjunction with our financial
statements and the notes thereto appearing elsewhere in this prospectus, and
the section of this prospectus captioned "Management's Discussion of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(dollars in thousands)
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals............... $61,701 $54,489 $50,743 $45,870 $38,980
Sales of supplies and equipment,
and other...................... 7,672 5,586 6,198 7,166 8,309
------- ------- ------- ------- -------
Total revenues................... 69,373 60,075 56,941 53,036 47,289
------- ------- ------- ------- -------
Costs of rentals and sales:
Cost of equipment rentals....... 16,312 13,577 13,332 11,841 10,018
Rental equipment depreciation... 14,432 14,435 12,603 10,800 9,527
Loss on disposition of Bazooka
Beds (1)....................... 2,866 -- -- -- --
Cost of supplies and equipment
sales.......................... 4,867 3,838 4,423 5,352 6,419
Write-down of DPAP inventories
(2)............................ -- -- 2,213 -- --
------- ------- ------- ------- -------
Total costs of rentals and
sales........................... 38,477 31,850 32,571 27,993 25,964
------- ------- ------- ------- -------
Gross profit..................... 30,896 28,225 24,370 25,043 21,325
Selling, general and
administrative.................. 21,300 18,448 19,695 18,560 16,561
Recapitalization and transaction
costs (3)....................... 5,099 1,719 306 -- --
------- ------- ------- ------- -------
Operating income................. 4,497 8,058 4,369 6,483 4,764
Interest expense................. 11,234 3,012 2,518 1,784 1,268
------- ------- ------- ------- -------
(Loss) income before income taxes
and extraordinary charge........ (6,737) 5,046 1,851 4,699 3,496
------- ------- ------- ------- -------
(Benefit) provision for income
taxes........................... (1,097) 2,347 919 1,949 1,499
------- ------- ------- ------- -------
(Loss) income before
extraordinary charge............ (5,640) 2,699 932 2,750 1,997
Extraordinary charge net of
deferred tax benefit of $1,300.. 1,863 -- -- -- --
------- ------- ------- ------- -------
Net (loss) income................ $(7,503) $ 2,699 $ 932 $ 2,750 $ 1,997
======= ======= ======= ======= =======
<CAPTION>
Other Data:
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities...................... $ 9,740 $20,001 $14,657 $13,071 $11,550
Net cash used in investing
activities...................... (62,896) (18,026) (26,859) (19,725) (15,534)
Net cash provided by (used in)
financing activities............ 53,156 (2,172) 12,400 6,654 3,984
EBITDA (4)....................... 22,145 24,129 18,266 18,246 15,160
Adjusted EBITDA (5).............. 30,110 25,848 20,785 18,246 15,160
Adjusted EBITDA margin (6)....... 43.4% 43.0% 36.5% 34.4% 32.1%
Pro forma adjusted EBITDA (7).... 34,684 -- -- -- --
Ratio of earnings to fixed
charges (8)..................... 0.4x 2.7x 1.7x 3.6x 3.8x
Adjusted ratio of earnings to
fixed charges (9)............... 1.1x 3.2x 2.7x 3.6x 3.8x
Depreciation and amortization.... $17,648 $16,071 $13,897 $11,763 $10,396
Capital expenditures (cash flow
basis).......................... $28,584 $19,144 $15,210 $19,911 $15,921
Rental equipment (units at end
period)......................... 72,000 56,000 52,000 45,000 38,000
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
As of December 31,
-----------------------------------------
1998 1997 1996 1995 1994
-------- ------- ------- ------- -------
(dollars in thousands)
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Working Capital (10)................. $ 2,966 $ 7,617 $ 8,573 $ 5,059 $ 5,354
Total Assets......................... 144,221 81,186 79,707 66,849 53,184
Total Debt........................... 150,116 33,945 37,150 23,588 17,135
Shareholders' (deficiency) equity.... (35,702) 33,000 29,128 28,712 26,035
<CAPTION>
Other: (Unaudited)
<S> <C> <C> <C> <C> <C>
Offices (at end of period)........... 50 46 46 43 39
</TABLE>
- --------
(1) UHS's utilization of Bazooka Beds in its rental pool had been below the
desired level and had declined steadily during 1997 and 1998. Because
utilization levels did not meet expectations, UHS disposed of approximately
1,700 excess Bazooka Beds with a recorded loss of $2.9 million in the year
ended December 31, 1998.
(2) UHS experienced declining sales of Demand Positive Airway Pressure devices
for adult obstructive sleep apnea during 1996. Because market acceptance of
the DPAP devices did not meet expectations, UHS'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 prior to December 31, 1997 by UHS, 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 UHS related to the
Recapitalization.
(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 or as a measure of a company's profitability or liquidity.
(5) Adjusted EBITDA reflects EBITDA adjusted to exclude (i) loss on disposition
of Bazooka Beds of $2.9 million for the year ended December 31, 1998, (ii)
recapitalization and transaction costs of $5.1 million, and $1.7 million,
and $0.1 million for the years ended December 31, 1998 and 1997 and 1996,
respectively, and (iii) the write-down of DPAP inventories of $2.2 million
for the year ended December 31, 1996. 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) Pro forma adjusted EBITDA represents adjusted EBITDA including the pro
forma results of the acquisitions of HCI, PCH, and MRS, assuming such
acquisitions had occurred on January 1, 1998. See "Business--Growth
Strategies, Pursuing Strategic Alliances"
(8) 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.
(9) 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, loss on disposition of Bazooka Beds and
Recapitalization and transaction costs. Fixed charges consist of interest
expense, which includes the amortization of deferred debt issuance costs.
(10) Represents total current assets (excluding cash and cash equivalents) less
total current liabilities, excluding current portion of long-term debt.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
We are a leading nationwide provider of movable medical equipment to more
than 4,500 hospitals and alternate care providers through its equipment rental
and outsourcing programs.
The following discussion addresses our financial condition as of December 31,
1998 and the results of operations and cash flows for the years ended December
31, 1998, 1997 and 1996. This discussion should be read in conjunction with the
Financial Statements included elsewhere in this prospectus.
Safe Harbor Statements under the Private Securities Litigation Reform Act of
1995: Statements in this prospectus looking forward in time involve risks and
uncertainties. The following factors, among others, could cause our actual
results to differ materially from those expressed in any forward-looking
statements: our substantial outstanding debt and high degree of leverage and
the continued availability, terms and deployment of capital, including our
ability to service or refinance debt; restrictions imposed by the terms of our
debt; adverse regulatory developments affecting, among other things, the
ability of our customers to obtain reimbursement of payments made to us;
changes and trends in customer preferences, including increased purchasing of
movable medical equipment; difficulties or delays in our continued expansion
into certain markets and development of new markets; unanticipated costs or
difficulties or delays in implementing the components of our strategy and plan
and possible adverse consequences relating to our ability to successfully
integrate recent acquisitions; effect of and changes in economic conditions,
including inflation and monetary conditions; actions by competitors;
availability of and ability to retain qualified personnel; and unanticipated
costs or difficulties or delays in implementing our Year 2000 compliance
modifications. For a more complete discussion of these risk factors, See "Risk
Factors."
Industry Assessment
Our 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. We believe 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, we believe that the 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.
We believe our 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
our 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 us.
Because the capital equipment procurement decisions of health care providers
are significantly influenced by the regulatory and political environment for
health care, historically we have 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 our business,
financial condition and results of operations.
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Recapitalization, Financing and Related Transactions
In February 1998 we completed a recapitalization transaction in which:
. our existing shareholders and option holders (other than management
investors) received cash in the aggregate amount of approximately $84.7
million (net of aggregate option exercise prices), or $15.50 per share;
. we repaid outstanding borrowings of approximately $35.5 million under
existing loan agreements;
. we paid fees and expenses of approximately $11.5 million related to the
recapitalization;
. we paid approximately $3.3 million in severance payments to certain non-
continuing members of management; and
. our common stock ceased to be quoted on The Nasdaq National Stock
Market, and we terminated the registration of our common stock under the
Securities Exchange Act of 1934.
We financed the Recapitalization through a combination of the following:
. we received an equity contribution of approximately $21.3 million in
cash from Childs and related parties and from management investors;
. we issued $100.0 million principal amount of the Outstanding Notes; and
. we borrowed approximately $14.3 million under our revolving credit
facility.
In addition, management investors retained their existing shares of common
stock and options.
J.W. Childs Associates, L.P., a Boston-based private investment firm, manages
$1.4 billion of institutional private equity through Childs and J.W. Childs
Equity Partners II, L.P. (together, the "Funds"). The Funds invest in equity
positions primarily in established middle-market growth companies. Childs
Associates' 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 Associates 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.
MEDIQ Transaction
On February 10, 1997, we entered into a definitive agreement with MEDIQ
Incorporated ("MEDIQ") for MEDIQ to acquire UHS for $17.50 per share of our
common stock. Including the assumption of our debt, the total purchase price
would have been approximately $138.0 million excluding fees and expenses. On
September 22, 1997 (the "Termination Date"), we mutually terminated the
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 UHS on anti-
competitive grounds.
From February 10, 1997 through the Termination Date, we 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 of our potential and existing customers
deferred entering into new rental agreements while others terminated rental
agreements with us, each as a result of uncertainty regarding the ownership of
UHS. Management believes that the disruption resulting from the MEDIQ
Transaction, has been largely mitigated by: (i) the termination of the
agreement with MEDIQ; (ii) the
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<PAGE>
completion of our recapitalization; and (iii) the addition of 55 employees,
excluding acquisitions, from the Termination Date through December 31, 1998.
Completed Acquisitions
On July 30, 1998, we completed the purchase of Home Care Instruments, Inc.
for a purchase price of approximately $19.3 million, including the repayment of
approximately $3.6 million of outstanding indebtedness.
On August 17, 1998, we completed the purchase of Patient's Choice Healthcare,
Inc. for a purchase price of approximately $14.6 million, including the
repayment of approximately $2.7 million of outstanding indebtedness.
On November 5, 1998, we completed the purchase of Medical Rental Stat, Inc.
for a purchase price of approximately $1.8 million, including the repayment of
approximately $0.4 million of outstanding indebtedness.
On March 31, 1999, we completed the purchase of Express Medical Supply, Inc.
for a purchase price of approximately $0.8 million.
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 Percentage
Total Revenues Increase (Decrease)
-------------------- ---------------------
Year Ended Year Ended
Years ended 1998 over 1997 over
December 31, Year 1997 Year 1996
-------------------- ---------- ----------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C> <C> <C>
Rentals:
Equipment Rentals................. 88.9% 90.7% 89.1% 13.2% 7.4%
Sales of supplies and equipment,
and other........................ 11.1 9.3 10.9 37.3 (9.9)
----- ----- ----- ----- -----
Total Revenues.................... 100.0 100.0 100.0 15.5 5.5
Cost of rentals and sales:
Cost of equipment rentals......... 23.5 22.6 23.4 20.1 1.8
Rental equipment depreciation..... 20.8 24.0 22.1 0.0 14.5
Loss on disposition of Bazooka
Beds............................. 4.2 -- -- N/A --
Cost of supplies and equipment
sales............................ 7.0 6.4 7.8 26.8 (13.2)
Write-down of DPAP inventories.... -- -- 3.9 -- N/A
----- ----- ----- ----- -----
Gross Profit...................... 44.5 47.0 42.8 9.5 15.8
Selling, general and
administrative................... 30.7 30.7 34.6 15.5 (6.3)
Recapitalization and transaction
costs............................ 7.3 2.9 0.6 196.6 461.8
Interest expense.................. 16.2 5.0 4.4 273.0 19.6
----- ----- -----
(Loss) income before income taxes
and extraordinary charge......... (9.7) 8.4 3.2 N/A 172.6
----- ----- -----
(Benefit) provision for income
taxes............................ (1.6) 3.9 1.6 N/A 155.4
----- ----- -----
(Loss) income before extraordinary
charge........................... (8.1) 4.5 1.6 N/A 189.6
Extraordinary charge.............. 2.7 -- -- N/A --
----- ----- -----
Net (loss) income................. (10.8)% 4.5% 1.6% N/A 189.6
===== ===== =====
</TABLE>
30
<PAGE>
1998 Compared to 1997
Equipment Rental Revenues. Equipment rental revenues for the year ended
December 31, 1998 were $61.7 million, representing a $7.2 million, or 13.2%
increase from rental revenues of $54.5 million for the same period of 1997.
Without considering the acquisitions of HCI, PCH, and MRS, equipment rental
revenue would have increased 6.1% for the year ended December 31, 1998 compared
to the year ended 1997. The rental revenue increase resulted from the
acquisitions of HCI, PCH and MRS, which contributed approximately $3.9 million
of rental revenue growth combined with continued growth at our acute care
hospital customers and at both established and new district offices.
Sales of Supplies and Equipment, and Other. Sales of supplies and equipment,
and other for the year ended December 31, 1998 were $7.7 million, representing
a $2.1 million, or 37.3% increase from sales of supplies and equipment, and
other of $5.6 million for the same period of 1997. These increases are the
result of the acquisitions of HCI, PCH and MRS which have generated sales of
supplies and equipment, and other of approximately $2.9 million since the
acquisitions were completed. PCH placed a greater emphasis on sales of
disposable products and generated approximately two-thirds of its revenue from
sales of disposables to health care providers.
Cost of Equipment Rentals. Cost of equipment rentals for the year ended
December 31, 1998 was $16.3 million, representing a $2.7 million, or 20.1%,
increase from cost of equipment rentals of $13.6 million for the same period of
1997. For the year of 1998, cost of equipment rentals, as a percentage of
equipment rental revenues, increased to 26.4% from 24.9% for the same period of
1997. During 1998, we changed our emphasis to increase support staff 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. This was combined with lower repair
and replacement expenses in 1997 as a result of the uncertainty in our
ownership.
Rental Equipment Depreciation. Rental equipment depreciation for each of the
years ending December 31, 1998 and 1997 was $14.4 million. For the year of
1998, rental equipment depreciation, as a percentage of equipment rental
revenues, decreased to 23.4% from 26.5% for the same period of 1997. These
decreases were the result of our change in rental equipment depreciation lives
from a range of five to seven years to seven years for all rental equipment.
(See footnote 8 to the financial statements). This change was effective July 1,
1998. The change in rental equipment depreciation lives decreased rental
equipment depreciation by approximately $2.4 million in 1998.
Loss on Disposal of Bazooka Beds. The utilization of Bazooka beds in our
rental pool had been below the desired level and had declined steadily during
1997 and 1998. We had acquired our equipment pool of Bazooka portable specialty
beds under an exclusive agreement, which we terminated in March 1996. Because
of the continued decline in utilization, we decided to dispose of approximately
1,700 excess Bazooka beds and associated products in the third quarter of 1998.
The disposition of the units resulted in a loss of $2.9 million in the third
quarter of 1998. We retained approximately 750 units of Bazooka beds for
rental.
Gross Profit. Total gross profit for the year ended December 31, 1998,
exclusive of the loss on disposition of Bazooka beds, was $33.8 million,
representing a $5.6 million, or 19.6% increase from total gross profit of $28.2
million for the same period of 1997. For the year of 1998, total gross profit,
exclusive of the loss on disposition of Bazooka beds, as a percentage of total
revenues, increased to 48.7% from 47.0% for the same period of 1997. This
increase was predominately due to the change in rental equipment depreciation
lives. Gross profit on rentals represents equipment rental revenues reduced by
the cost of equipment rentals and rental equipment depreciation. Gross profit
on rentals for 1998 increased to 50.2% from 48.6% in 1997. This increase was
predominately due to the previously discussed change in depreciation lives on
the rental equipment.
Gross margin on sales of supplies and equipment and other for the year of
1998 increased to 36.6% from 31.3% for the same period of 1997. This increase
in sales gross margin was due to the acquisition of PCH
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<PAGE>
which, since the acquisition, generated approximately $0.9 million of higher
margin sales, mainly to alternate care providers.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the year ended December 31, 1998 were $21.3
million, representing a $2.9 million, or 15.5%, increase from $18.4 million for
the same period of 1997. The increase for the year is the result of the
acquisitions of HCI, PCH and MRS in 1998 in addition to increased employee
count in 1998 over 1997. The employee count was abnormally low in 1997 due to
employees who had left us as a result of the uncertainty relating to the
potential sale of UHS to MEDIQ. These employee expenses were not offset by the
reduction in salary expenses of the executive staff who did not continue on
with us after our recapitalization.
Recapitalization and Transaction Costs. For the year ended December 31, 1998,
we incurred $5.1 million of non-recurring expenses, consisting primarily of
legal, accounting, and other advisory related fees, associated with our
recapitalization.
For the year of 1997, we incurred $1.7 million of non-recurring expenses,
consisting primarily of legal, investment banking and special committee fees,
associated with our subsequently mutually terminated acquisition agreement with
MEDIQ.
Adjusted EBITDA. We believe earnings before interest, taxes, depreciation,
and amortization ("EBITDA") to be a measurement of operating performance.
Adjusted EBITDA, which adjusts for the loss on disposal of Bazooka beds and
non-recurring Recapitalization and transaction costs for the year ended
December 31, 1998 was $30.1 and $25.8 for the corresponding period in 1997.
Adjusted EBITDA as a percentage of total revenue increased to 43.4% for the
year of 1998 from 43.0% for the same period in 1997. See Notes 4, 5 and 6 to
"Selected Historical Financial Data." Pro forma adjusted EBITDA for the year
ended December 31, 1998 was $34.7 million.
Interest Expense. Interest expense for the year ended December 31, 1998 was
$11.2 million, representing a $8.2 million increase from $3.0 million for the
same period of 1997. This increase primarily reflects our recapitalization,
incremental borrowings associated with capital equipment additions and the
acquisitions of HCI, PCH and MRS. Average borrowings increased from $34.6
million for the year of 1997, to $114.4 million for the year of 1998.
Income Taxes. Our effective income tax rate for 1998 was a benefit of 16.3%
due to the net loss of UHS compared to a statutory income tax rate of 37.0%.
This reduced tax rate is primarily due to the effect of non-deductible expenses
associated with our recapitalization.
Extraordinary Charge. In conjunction with our recapitalization and Senior
Note issuance in the first quarter of 1998, we prepaid existing notes and a
credit facility totaling $35.5 million, which resulted in an incurrence of a
prepayment penalty of $2.9 million, and write off of deferred finance costs of
$0.3 million. These extraordinary charges were reduced by the tax affect of
these charges of approximately $1.3 million.
1997 Compared to 1996
Completed BERS Acquisition. On August 13, 1996, we completed our acquisition
of BERS pursuant to a stock purchase agreement with the shareholders of BERS.
As a result of the acquisition, we acquired all of the outstanding capital
stock of BERS, and BERS became a wholly-owned subsidiary of UHS. In connection
with the acquisition, we 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.
Equipment Rental Revenues. Equipment rental revenues were $54.5 million in
1997, representing a $3.8 million, or 7.4%, increase from equipment rental
revenues of $50.7 million in 1996. This increase resulted
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<PAGE>
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. We
expect 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 of $6.2 million in
1996. This decrease was primarily due to a decline in the sales of the DPAP
devices as we 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 our larger customers. This trend resulted in a $0.3 million
decline in sales in 1997. We did not emphasize sales to acute care customers
but offered them as a full service provider.
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 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 our
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.
See Note 2 to "Selected Historical Financial Data." 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.
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 our expense control
initiatives implemented in late 1996. Additionally, the loss of employees due
to the MEDIQ Transaction reduced SG&A for 1997.
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<PAGE>
Recapitalization and Transaction Costs. We 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 us 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 $5.0 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
Notes 4, 5 and 6 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 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. Our 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 our lower taxable income in 1996.
Liquidity and Capital Resources Liquidity and Capital Resources
Historically, we have financed our equipment purchases primarily through
internally generated funds and borrowings under our existing revolving credit
facility. As an asset intensive business, we have required continued access to
capital to support the acquisition of equipment for rental to its customers. We
purchased on a cashflow basis $14.5 million, $18.9 million and $27.7 million of
rental equipment in 1996, 1997 and 1998, respectively. Including acquisitions,
we expect to purchase $29.7 million of rental equipment in 1999, of which
approximately $10.5 million is estimated to be maintenance capital
expenditures.
Due to the acquisitions of HCI, PCH and MRS, our revolving credit facility
was increased from $30.0 million to $50.0 million. Borrowings under our
revolving credit facility were $48.6 million at December 31, 1998.
During the years ended December 31, 1998 and 1997, net cash flows provided by
operating activities were $9.7 million and $20.0 million, respectively. Net
cash flows used in investing activities were $63.6 million and $18.0 million,
in each of these periods. Net cash flows provided by (used in) financing
activities were $53.9 million and ($2.2 million), respectively.
During the years ended December 31, 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.
Our principal sources of liquidity are expected to be cash flows from
operating activities and borrowings under its revolving credit facility. It is
anticipated that our 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 our strategic plans.
As of December 31,1998, we were capitalized with $100.0 million of
Outstanding Notes and $48.6 million outstanding under our $50.0 million senior
secured revolving credit facility. Interest on loans outstanding under our
revolving credit facility is payable at a rate per annum, selected at option
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 we satisfy
certain leverage ratios. Our revolving
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credit facility contains restrictive covenants which, among other things, limit
us from entering into additional indebtedness, dividends, transactions with
affiliates, asset sales, acquisitions, mergers and consolidations, liens and
encumbrances and prepayments of other indebtedness.
On August 17, 1998, we issued 6,000 shares of its Series A 12% Cumulative
Convertible Accruing Pay-In-Kind Preferred Stock (the "Series A Preferred
Stock") to an affiliate of Childs, the holder of approximately 78% of our
common stock, for an aggregate price of $6.0 million.
On December 18, 1998, we redeemed our Series A Preferred Stock for an
aggregate price of approximately $6.3 million and issued 6,246 shares of Series
B 13% Cumulative Accruing Pay-in-Kind Preferred Stock to an insurance company,
together with warrants to purchase 350,000 shares of our common stock for an
aggregate price of approximately $6.3 million.
On January 26, 1999, we issued the $35 million of Old Notes and received
proceeds of approximately $29.8 million, net of the original issue discount.
The proceeds were used to reduce borrowings under our revolving credit
facility.
We believe that with the proceeds from the issuance of the $35 million of the
Old Notes and based on current levels of operations and anticipated growth,
cash from operations, together with other sources of liquidity, including
borrowings available under our 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 our debt, including payments due
on the Notes and obligations under our revolving credit facility. We believe
that our ability to repay the Notes and amounts outstanding under our 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
us, or that any such financing will be on terms favorable to us. In addition,
we continually evaluate potential acquisitions and expects to fund such
acquisitions from its available sources of liquidity, including borrowings
under our revolving credit facility.
Our expansion and acquisition strategy may require substantial capital, and
no assurance can be given that we will be able to raise any necessary
additional funds through bank financing or the issuance of equity or debt
securities on terms acceptable to us, if at all.
In 1998, we incurred non-recurring costs related to our recapitalization of
approximately $8.9 million, including $3.2 million in severance expense to
certain non-continuing members of management, $2.8 million ($1.4 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 $1.7 million in additional recapitalization expenses (of which
$0.6 million was recorded directly in equity).
The Year 2000 Issue
Many currently installed computer systems and software are coded to accept
only two-digit entries in the data code fields. These data code fields will
need to accept four-digit entries to distinguish 21st century dates from 20th
century dates. This problem could result in system failures or miscalculations
causing disruptions of business operations (including, among other things, a
temporary inability to process transactions, send invoices or engage in other
similar business activities). As a result, many companies' computer systems and
software will need to be upgraded or replaced in order to comply with Year 2000
requirements. The potential global impact of the Year 2000 problem is not
known, and, if not corrected in a timely manner, could affect us and the U.S.
and world economy generally.
Our Quality Assurance Department procedures currently contain steps to
include Year 2000 compliance verification for all current and future rental
products. We have been contacting the rental equipment manufacturers regarding
Year 2000 compliance. The equipment generally falls into five categories:
. Equipment that is currently Year 2000 compatible;
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. Equipment that does not need date processing and therefore is
compatible;
. Equipment that will require the date to be manually reset (The equipment
will continue to function but may record or print out the incorrect
year);
. Equipment that will require software or hardware upgrades. (we believe
the upgrades will be completed by our technicians at no material
additional expense to us. It is estimated that the costs of the upgrades
will be approximately $225,000.); and
. Equipment that will need to be disposed of (we anticipate the net book
value of this equipment will be immaterial and will be disposed of over
the next five quarters).
Most of our equipment is currently Year 2000 compliant, and we believe that
compliance for all of our products will be achieved prior to January 1, 2000.
We are currently using line management to address internal and external Year
2000 issues. Our internal financial and other computer systems are being
reviewed to assess and remediate Year 2000 problems. Our assessment of internal
systems includes its informational technology ("IT") as well as non-IT systems.
Our Year 2000 IT compliance program includes the following phases: identifying
systems that need to be modified or replaced; carrying out remediation work to
modify existing systems or convert to new systems; and conducting validation
testing of systems and applications to ensure compliance. We are currently
carrying out all phases of the compliance program. We formed a project team in
the first quarter of 1999 consisting of representatives from our Information
Technology, Finance, Quality Assurance, Sales, and Legal Departments to address
other internal and external Year 2000 issues.
The amount of remediation work required to address Year 2000 problems is not
expected to be extensive. We have or are currently replacing certain of its
financial and operational systems, and we believe that the new equipment and
software substantially addresses Year 2000 issues. However, we will be required
to modify some of our existing software in order for our computer systems to
function properly in the year 2000 and thereafter. We estimate that we will
complete our Year 2000 compliance program for all of our significant internal
systems no later than September 30, 1999.
In addition, we are requesting and will continue to gain assurances from our
major suppliers that the suppliers are addressing the Year 2000 issue and that
the products we purchased from such suppliers will function properly in the
year 2000. Also, we will contact our major customers. These actions are
intended to help mitigate the possible external impact of the Year 2000
problem. However, it is impossible to fully assess the potential consequences
in the event service interruptions from suppliers occur or in the event that
there are disruptions in such infrastructure areas as utilities,
communications, transportation, banking and government.
The total estimated cost for resolving our Year 2000 issues is approximately
$350,000, of which approximately $75,000 has been charged to earnings through
December 31, 1998. The total cost estimate includes the cost of replacing non-
compliant systems as a remediation cost in cases where we have accelerated
plans to replace such systems. Estimates of Year 2000 cost are based on
numerous assumptions, and there can be no assurance that the estimate is
correct or that actual cost will not be materially greater than anticipated.
Based on our assessments to date, we believe we will not experience any
material disruption as a result of Year 2000 problems in information processing
or interface with major customers, or with processing orders and billing.
However, if certain critical third-party providers, such as those providers
supplying electricity, water or telephone service, experience difficulties
resulting in disruption of service to us, a shutdown of our operations at
individual facilities could occur for the duration of the disruption. We have
not yet developed a contingency plan to provide for continuity of processing in
such event of various problem scenarios, but we will assess the need to develop
such a plan based on the outcome of our validation phase of our Year 2000
compliance program and the results of surveying our major suppliers and
customers. Assuming no major disruptions in service from utility companies, or
other critical third-party providers, we believe that we will be able to manage
our total Year 2000 transition without any material effect on our results of
operations or financial condition.
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New Accounting Standards New Accounting Standards
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." SOP 98-1 provides guidance on
accounting for the costs of computer software developed or obtained for
internal use. We are reviewing the requirements of the SOP and has not
determined the impact, if any, of the SOP on our financial statements. SOP 98-1
is required to be adopted no later than the year ending December 31, 1999.
BUSINESS
General
We are a leading nationwide provider of movable medical equipment to more
than 4,500 hospitals and alternate care providers through equipment rental and
outsourcing programs. Our principal rental program is an innovative Pay-Per-
Use(TM) program where we charge a per use rental fee based on daily use of
equipment per patient. We also offer other rental programs where we charge
customers on a daily, weekly or monthly basis. All of our rental programs
include a comprehensive range of support services, including equipment
delivery, training, technical and educational support, inspection, maintenance,
and comprehensive documentation. In addition, through our Asset Management
Partnership ("AMP") program, we allow customers to outsource substantially all,
or a significant portion of, their movable medical equipment needs by
providing, maintaining, managing and tracking that equipment for them. We also
sell disposable medical supplies to hospitals in conjunction with the equipment
we rent and to alternate care providers both in connection with our rental
equipment and on a stand-alone basis. We seek to maintain high utilization of
our rental equipment by pooling and redeploying that equipment among a diverse
customer base and adjusting pricing on a customer by customer basis to
compensate for their varying use rates. For the year ended December 31, 1998,
we had total revenues of approximately $69.4 million and adjusted EBITDA of
$30.1 million, which excludes the loss on the disposition of Bazooka beds and
shareholder value expenses. For the year ended December 31, 1998, on a pro
forma basis, including the three acquisitions made in 1998, our revenue and pro
forma adjusted EBITDA (as defined herein) were $80.4 million and $34.7 million,
respectively.
We believe that our 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 using our rental programs, health care
providers can increase the use rates of their medical equipment,
allowing them to purchase less equipment and reduce related costs.
Furthermore, our rental programs, especially our Pay-Per-Use program,
allow customers more effectively to match the costs of variable
equipment use with actual patient charges.
. Outsource Support Services. Our full range of support services are
included in our rental fee. We believe that we 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 our
short-term rental and Pay-Per-Use programs. Our obsolescence risk is
reduced because we can maintain high utilization of our equipment.
We own a rental pool of over 72,000 pieces of movable medical equipment in
four primary categories: critical care, monitoring, respiratory therapy and
newborn care. We are one of only two national providers of movable medical
equipment rental and outsourcing programs. As of December 31, 1998 we operated
through 50 district offices and eight regional service centers, serving
customers in 47 states and the District of Columbia.
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Market Overview
Historically, hospitals have purchased a majority of their movable medical
equipment. In response to cost containment pressures, however, hospitals and
other health care providers are seeking ways to reduce their movable medical
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 and
obsolescence. We estimate that utilization rates of movable medical equipment
owned by hospitals average between 45-68%, based on over 300 studies we and/or
these hospitals conducted. We believe that these studies show that hospitals
can purchase less equipment and reduce related costs by participating in our
rental programs.
Company Strengths
We attribute our historical success to, and believe that our potential for
future growth comes from, the following strengths:
Superior Service and Strong Customer Relationships. We distinguish ourself by
being a leading service company rather than just an equipment rental provider.
We compete on the basis of our value-added, full-service features of our rental
programs in addition to price. Our 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 our equipment. As a result of our service focus, we enjoy
strong customer relationships. Of our 100 largest customers as of January 1,
1992, 83 remain customers as of December 31, 1998.
National Network. We are one of only two national providers of a broad range
of movable medical equipment rental and outsourcing programs. Currently, our
national network of 53 district offices and eight regional service centers
serves hospital and alternate care customers in 47 states and the District of
Columbia. This broad network allows us to meet the equipment rental and service
needs of independent health care facilities, national and regional health care
chains and group purchasing organizations. Our national network also enables us
to redeploy equipment throughout our system in order to maintain high levels of
equipment utilization and customer service.
Sophisticated Use of Information Technology. Through our commitment to
information technology, we developed proprietary systems designed to enhance
our and our customers' operating efficiencies. We maintain a complete service
history of all our rental equipment, including data on length of placement,
transfers, modifications, repairs, maintenance and inspections. We use this
information to monitor and schedule preventive maintenance and safety testing
programs and to maximize equipment utilization. Our systems provide information
that helps customers meet their equipment documentation needs under applicable
industry standards and regulations. We also offer our customers software to
track the location, utilization and availability of all of their movable
medical equipment. Our MIS staff designed these systems and will continue to
upgrade these systems and develop new applications.
Depth and Breadth of Equipment Rental Pool; Purchasing Power. We own a rental
pool of over 72,000 pieces of movable medical equipment in four primary
categories: critical care, monitoring, respiratory therapy and newborn care.
Our diversified equipment rental pool includes equipment purchased from
approximately 75 suppliers in the year ended December 31, 1998 and enables us
to offer customers numerous models from different manufacturers within each
primary equipment category. The breadth of our product offerings gives us 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 our annual equipment purchases enables us to obtain
favorable pricing terms from many equipment vendors. As of December 31, 1998,
approximately 61% of our rental pool (valued at original cost and excluding
companies acquired in 1998) was purchased within the last four years. We
generally purchase new equipment for our rental pool.
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Experienced and Committed Management Team. As part of our recapitalization,
we installed a new senior management team comprised of operating managers who
have been with us for an average of 21 years. Through our subsequent
acquisitions, we have expanded our management team with people experienced in
the alternate care market by retaining the senior managers of the acquired
companies. This management team is refocusing and expanding our growth
strategy. Our management team has made a significant equity investment in UHS,
owning over 18% of our common stock on a fully-diluted basis.
Attractive Return on Rental Pool. Our pricing strategy is designed to
generate a pay-back period which is substantially shorter than the useful life
of a particular piece of equipment. We calculate our rental rates to recoup the
equipment's purchase price generally within 16 to 18 months. Excluding related
service and support costs, we expect to achieve a two year pay-back period on
the original purchase price of our entire rental pool. In contrast, the average
useful life of the equipment in our rental pool (excluding acquisitions) has
historically been 8.2 years.
Large and Diversified Customer Base. We provide movable medical equipment to
approximately 1,900 hospitals and approximately 2,600 alternate care providers
(such as home care providers, nursing homes, surgicenters, subacute care
facilities and outpatient centers) throughout the United States. For the year
ended December 31, 1998, our top ten customers accounted for approximately 14%
of total rental revenues.
Growth Strategy
We believe that the aging population, increased life expectancy and managed
care will provide significant growth opportunities in both hospital and
alternate care settings. Our strategy is to achieve continued growth by:
Increasing Business with Existing Customers. We seek to increase our business
with existing customers by renting additional equipment to them and reaching
additional departments. Because our customers are familiar with our programs
and their benefits, we believe that our existing customer base represents a
significant expansion opportunity. Our two largest district offices generated
an average monthly rental revenue per hospital customer census bed (i.e.,
occupied bed) of approximately $85 for the year ended December 31, 1998, an
increase of 12% from approximately $76 for the same period in 1997. We believe
that there is significant growth potential by increasing the level of revenue
per hospital customer throughout all of our offices. Company-wide, we generated
an average monthly rental revenue per hospital customer census bed of
approximately $20 for the year of 1998, an increase of 5% from approximately
$19 for the same period in 1997.
Providing Comprehensive Equipment Management Programs. We offer a total
equipment management outsourcing program called Asset Management Partnership,
or AMP. Through this program, we provide, maintain, manage and track
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. We plan 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 December 31, 1998, we had 15 AMP accounts, 10 of which we have
added since January 1, 1996. The average monthly rental revenue at these ten
accounts increased 127% after conversion to AMP.
Developing Business with New Customers. We plan to further penetrate the
hospital and alternate care markets by establishing new customer relationships
either individually or through group purchasing organizations. To date, we have
signed agreements with several independent Group Purchasing Organizations
(GPOs), including Premier and Novation, two of the nation's largest health care
alliances. These agreements give us preferred supplier status to over 3,450
hospitals in existing markets. We also plan to expand business with alternate
care providers. Our alternate care business increased to 18% of rental revenue
for the year ended December 31, 1998 from 4% in 1992.
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Opening New District Offices. In order to expand our geographic coverage, we
plan to open three to four new full-service district offices in 1999 and in
each of the subsequent several years. In choosing locations for our district
offices, we consider the nature and size of the potential customer market,
customer concentration and GPO affiliation within the market, demographics and
vendor relationships. While major metropolitan areas will remain a primary
focus for expansion, we expect that regional clusters of hospitals will provide
attractive expansion opportunities. We opened three offices in March 1999,
Little Rock, Arkansas, Salt Lake City, Utah and Nashville, Tennessee.
Pursuing Strategic Alliances. We intend 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 our 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.
Pursuing Strategic Acquisitions. We plan to pursue strategic acquisitions
that will increase our market share in existing markets, enable us to more
quickly penetrate new geographic and alternate care markets and/or improve our
overall operating efficiencies. Since August 1996, we have acquired the
following companies:
<TABLE>
<CAPTION>
LTM Total LTM
Company Location Date Revenues(1) EBITDA
- ------------------------ ----------------------- ------------- ---------- ------
(in thousands)
<S> <C> <C> <C> <C>
Biomedical Equipment
Rental &
Sales, Inc............. Raleigh, North Carolina August 1996 $6,035 $2,853
Home Care Instruments,
Inc.................... St. Louis, Missouri July 1998 7,920 3,229
Patient's Choice
Healthcare, Inc........ Columbus, Ohio August 1998 8,653 2,432
Medical Rentals Stat,
Inc.................... Oklahoma City, Oklahoma November 1998 926 441
Express Medical Supply,
Inc.................... Nashville, Tennessee March 1999 982 139
</TABLE>
- --------
(1) Total revenues and EBITDA are for the last twelve months ("LTM")
immediately preceding the acquisition date.
These acquisitions expanded our market share and service capabilities in new
regions and in the alternate care market. Our strategy will be to expand our
rental and disposable sales presence in the alternate care market across all of
our acute care district offices.
Equipment Management Programs
Description
Rental Programs. Our primary equipment rental program is our 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 our customers request a
piece of equipment, we provide the equipment in "patient-ready" condition. Upon
delivery, each piece of rented equipment is logged into our tracking system as
being placed with the particular customer. We provide 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. We
generally do not use written agreements with our customers but emphasize
continuous contact and shared information with each customer. Under our Pay-
Per-Use program, the customer is responsible for keeping a record of each
equipment use and reporting the use to UHS on a monthly basis. Many customers
report equipment utilization in conjunction with their patient billing
procedures. We bill each customer monthly based on this reported usage. The
customer is under no obligation to use the equipment and may request that we
remove the equipment at any time. Correspondingly, we may remove equipment or
raise the per-use rental fee if we are under-utilized.
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Outsourcing Programs. The scope of our relationship with some of our largest
customers has evolved into the AMP program. Through this program, we provide,
maintain, manage and track substantially all, or a significant portion of, a
customer's movable medical equipment within the customer's facility or
organization. One or more of our 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. our 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. We emphasize the full-service features of our equipment rental
and outsourcing programs. Our 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 UHS. We maintain a total service
history of any rented equipment, which includes inspection, repair and
modification activities for the entire life of the unit. We also offer 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. Our operational structure is designed to enable us
to respond quickly to a customer's needs. Through our district offices, we
maintain both a local and system-wide inventory network which is designed to
assure access to a broad range of medical equipment. Our 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. We seek to allocate our pool of rental
equipment efficiently among our customers by continually monitoring customers'
equipment utilization levels. We review 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 while allowing
us to attempt to maximize the utilization of the equipment in our inventory.
See "Operations--Pricing."
Diverse Equipment Selection. We generally purchase new equipment which we
believe to be state-of-the-art from manufacturers with a reputation for
quality, product support and innovation. We purchase from a number of different
manufacturers to address our 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. Our 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. We seek to set our rental rates to recoup the
equipment's purchase price generally within 16 to 18 months. On a customer-
specific basis, we then develop 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, we may adjust the rental fee, which benefits the customer by
permitting them to obtain a lower rental fee while allowing us to attempt to
maximize the utilization of our equipment inventory. The rental rate is
designed not only to recoup costs but also to provide us a targeted financial
return on our investment for the particular category of equipment. Service
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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 us to continuously
monitor actual revenues as compared to targeted return objectives.
Equipment Inventory. We purchase movable medical equipment in the areas of
critical care, monitoring, respiratory therapy and newborn care. Equipment
acquisitions may be made to expand our pool of existing equipment or to add new
equipment technologies to our existing rental pool. We consider 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, we have established a
product evaluation committee to consider new technologies or new vendors, 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, we consider a variety of factors including
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.
We seek to maximize the useful life of our equipment by renting our 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.
We own over 72,000 pieces of equipment available for use by our customers.
The cost of each category of equipment in our rental pool relative to the
entire pool as of December 31, 1998 was: critical care, 65%; monitoring, 19%;
respiratory therapy, 14%; and newborn care, 2%. The following is a list of the
principal types of medical equipment available to our customers by category:
Critical Care Monitoring Respitory Therapy
Adult Monitors BiPAP
Adult/Pediatric Volumetric PumpsAnesthetic Agent Monitors Nebulizers
Alternating Pressure/Flotation Devices
Apnea Monitors Oximeters
Ambulatory Infusion Pumps Blood Pressure Monitors Oxygen
Anesthesia Machines Defibrillators Concentrators
Bazooka Specialty Beds Electrocardiographs Ventilators
Blood/Fluid Warmers End Tidal CO(2) Monitors Aerosol Tents
Cold Therapy Units Fetal Monitors
Cold Therapy Units Newborn Care
Monitoring Systems Incubators
Continuous Passive Motion Devices (CPM) Infant Warmers
Neonatal Monitors
Controllers, Infusion Oximeters Phototherapy
Electrosurgical Generators PO(2)/CO(2) Monitors Devices
Enteral Infusion Pumps Recorders and Printers
Heat Therapy Units Surgical Monitors
Hyper-Hypothermia Units Telemetry Monitors
Foot Pumps Urine Output/temperature Monitors
IV Poles Vital Signs Monitors
Lymphodema Pumps
Patient Controlled Analgesia (PCA)
Minimal Invasive Surgery (MIS)
Sequential Compression Devices (SCD)
Suction Devices
Syringe Pumps
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In 1998, we acquired substantially all of our medical equipment from
approximately 75 manufacturers. Our five largest suppliers of movable medical
equipment, which supplied approximately 57% of our direct movable medical
equipment purchases for 1998, are: Mallinckrodt (Nellcor Puritan Bennett,
Inc.), Baxter Healthcare Corporation, The Kendall Company, Abbott Laboratories,
Inc. and Siemens Medical Systems. 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. We believe that alternative
sources of medical equipment are available should they be needed.
We seek to ensure availability of equipment at favorable prices. Although we
do not generally enter into long-term fixed price contracts with our suppliers,
we may receive price discounts related to purchase volumes. In order to receive
strong vendor support throughout the geographic areas in which we do business,
we seek to structure our 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. We track the history of each piece of equipment in
our inventory on an IBM AS/400 centralized computer system located at our
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 our district offices and regional service centers.
Data on length of placement, transfers, modifications, repairs, maintenance and
inspections is 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. We also track utilization for each piece
of equipment which helps us to maximize utilization of all our proof of
equipment.
Information as to a customer's rental equipment is also provided to the
customer through our Rental Equipment Documentation System ("REDS") and our
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 us maximize the
utilization of all equipment in our inventory. We also offer 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 our customers fully, we sell to hospitals disposable
medical supplies used in conjunction with the medical equipment we rent.
Examples of such disposable items include tubing and cassettes for infusion
devices. In addition, we sell disposable medical supplies in the alternate care
market both in connection with rental equipment and on a stand-alone basis. We
believe that customers purchase disposables from us due to the convenience of
obtaining equipment and related supplies from one source and, particularly in
the alternate care market, the anticipated cost-savings resulting from
acquiring disposables only on an as-needed basis. We currently acquire
substantially all of our rental-related medical disposables from approximately
85 suppliers. Our five largest current suppliers of disposables, accounting for
over 50% of our disposable purchases for 1998, are: The Kendall Company; Sims
Deltec, Inc.; Alaris Medical Systems, Inc.; Gaymar Industries; and Ross Labs.
We believe that alternative purchasing sources of most disposable medical
supplies are available, if necessary.
Maintenance
We provide all necessary repairs and maintenance of our equipment and
maintain control over the functional testing and safety of all equipment
through our technical staff. Prior to placing equipment with a customer, we
apply testing standards designed to ensure the safety of all such equipment. We
conduct regular inspections of the equipment either at one of our district
offices or regional service centers, or on-site at the customer. To assist
customers in meeting their equipment documentation needs for purposes of
applicable
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standards or regulations, we maintain a complete record of all inspections,
maintenance and repairs on our REDS computer program. See "Operations--
Information Technology" and "-- Regulation of Medical Equipment."
Our 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 we employ manufacturer-trained personnel for the
technical support of our equipment, a significant portion of repair and
maintenance of our equipment is conducted by our employees.
Marketing
We market our rental and equipment management programs primarily through our
direct sales force, which consisted of 94 promotional sales representatives as
of December 31, 1998. In our marketing efforts, we primarily target 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. We also promote our programs
and services to hospital and alternate care provider groups and associations.
We develop and provide our direct sales force with a variety of materials
designed to support our promotional efforts. We also uses direct mail
advertising, as well as targeted trade journal advertising, to supplement this
activity.
From time to time, we have 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."
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District Offices Network District Offices Network
We currently operate through 53 district offices, serving customers in 47
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
Bismarck, ND 1973
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
New Orleans, LA 1990
Charlotte, NC 1990
Detroit, MI 1990
</TABLE>
<TABLE>
<CAPTION>
Office Year Opened
------ -----------
<S> <C>
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
Columbus, OH 1998
Louisville, KY 1998
Columbia, SC 1998
Oklahoma City, OK 1998
Little Rock, AR 1999
Salt Lake City, UT 1999
Nashville, TN 1999
</TABLE>
45
<PAGE>
Regulation of Medical Equipment
Our 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. Our REDS and OEIS programs are specifically designed to help
customers meet their documentation and reporting needs under such standards and
laws. We also monitor 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 our 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. We believe
that all medical equipment we rent 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. We
work with our customers to assist them in meeting their reporting obligations
under the SMDA. Although we do not believe that we are subject to the SMDA or
our reporting requirements, it is possible that we 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.
We are also required under the SMDA 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. Our
medical tracking systems have been reviewed by the FDA and found to be in
substantial compliance with these regulations.
Third Party Reimbursement
Our business may be significantly affected by, and the success of our growth
strategies depends on, the availability and nature of reimbursements to
hospitals and other health care providers for their medical equipment costs
under federal programs such as Medicare, and by other third party payors. Under
its prospective payment system adopted in 1983 and later modified in 1991, the
Health Care Financing Administration ("HCFA"), which determines Medicare
reimbursement levels, reimburses hospitals for medical treatment at fixed rates
according to diagnostic related groups without regard to the individual
hospital's actual cost. This rate includes any equipment needed to treat the
patient. 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 level of Medicare 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. We believe that
hospitals will continue to feel pressure to increase cost-containment and cost-
efficiency measures, such as converting existing fixed equipment costs to
variable costs through rental and equipment management programs.
In July 1998, the HCFA changed the way it reimburses nursing homes to a
prospective payment system similar to the payment system for hospitals. Under
this system, each patient is assessed based on their health status. This
assessment determines the amount which Medicare will reimburse the facility,
regardless of the actual cost to treat the patient. Each patient will be
periodically reassessed to update their health status code and, therefore, the
reimbursement allowed by Medicare. Under this more complicated system, nursing
homes will be under even more pressure to control costs. We believe that one
way nursing homes can address these cost containment measures is by 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
46
<PAGE>
organizations and managed fee-for-service plans, as these organizations attempt
to reduce the cost and utilization of health care services. We believe 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. We believe 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 our Pay-Per-
Use rental and AMP programs.
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 HCFA issues regulations
implementing this legislation, we cannot reliably predict the timing of or the
exact effect which these initiatives could have on the pricing and
profitability of, or demand for, our products. We also believe 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 our business, financial condition or
results of operations.
Liability and Insurance
Although we do not manufacture any medical equipment, our business entails
the risk of claims related to the rental and sale of medical equipment. In
addition, our servicing and repair activity with respect to our rental
equipment and our instruction of hospital employees with respect to the
equipment's use are additional sources of potential claims. We have not
suffered a material loss due to a claim; however, any such claim, if made,
could have a material adverse effect on our business, financial condition or
results of operations. We maintain general liability coverage, including
product liability insurance and excess liability coverage. Both policies are
subject to annual renewal. We believe that our current insurance coverage is
adequate. There is no assurance, however, that claims exceeding such coverage
will not be made or that we will be able to continue to obtain liability
insurance at acceptable levels of cost and coverage.
Competition
We believe that the strongest competition to our 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 we believe that we can demonstrate
the cost-effectiveness of renting medical equipment on a long-term per-use
basis, we believe that many health care providers will continue to purchase a
substantial portion of their movable medical equipment.
We have 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. We believe that we can effectively compete with any of these entities in
the geographic regions in which both UHS and these entities operate.
47
<PAGE>
Service Marks and Trade Names
We use the "UHS" and "Universal Hospital Services" names as trade names and
as service marks in connection with our rental of medical equipment. We have
registered these and other marks as service marks with the United States Patent
and Trademark Office.
Employees
We had 462 employees as of December 31, 1998, including 419 full-time and 43
part-time employees. Of such employees, 94 are promotional sales
representatives, 58 are technical support personnel, 70 are employed in the
areas of corporate and marketing and 240 are company district office support
personnel.
None of our employees is covered by a collective bargaining agreement, and we
have experienced no work stoppages to date. We believe that our relations with
our employees are good.
48
<PAGE>
MANAGEMENT AND DIRECTORS
Executive Officers and Directors Executive Officers and Directors
Set forth below are the names, ages and positions of the persons who serve as
our directors and executive officers.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
David E. Dovenberg 54 Director, President and Chief Executive Officer
Jerry D. Horn 61 Director
Samuel B. Humphries 56 Director
Steven G. Segal 38 Director
Edward D. Yun 32 Director
Andrew R. Amicon 38 Vice President, Alternate Care--East
Gerald L. Brandt 49 Vice President, Finance and Chief Financial
Officer Robert H.
Braun 47 Vice President, Customer Service and Sales--
West Randy C. Engen 42 Vice President, Business Development
Michael R. Johnson 40 Vice President, Administrative Services
Gary L. Preston 56 Vice President, Customer Service and Sales--
East Jeffrey L.
Singer 37 Vice President, Alternate Care--West
</TABLE>
----------------
David E. Dovenberg joined UHS in 1988 as Vice President, Finance and Chief
Financial Officer. Prior to joining UHS, 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. 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 Central Tractor Farm & Country, Inc., a director of
Chevys, Inc. and Pan Am International Flight Academy Holdings, Inc. and a
Managing Director of Childs Associates.
Samuel B. Humphries is the President and Chief Executive Officer of American
Medical Systems. He has served in this capacity since September 1998 and prior
to that was the President and Chief Executive Officer of Optical Sensors
Incorporated from 1991 to 1998. He is a director of American Medical Systems,
Optical Sensors Incorporated and the Health Industry Manufacturers Association.
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 also a director of Central Tractor Farm & Country,
Inc., Jillian's Entertainment Holdings, International DiverseFoods, Inc.,
National Nephrology Associates, Inc., Big V Supermarkets, Inc., and Fitz and
Floyd, Inc. and is Chairman of the Board of Empire Kosher Poultry, 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 also a director of Jillian's
Entertainment Holdings, Inc., International DiverseFoods, Inc., Pan Am
International Flight Academy Holdings, Inc. and National Nephrology Associates,
Inc.
49
<PAGE>
Andrew R. Amicon joined UHS in 1998 as Vice President, Alternate Care East.
Prior to joining UHS, Mr. Amicon was founder and CEO of Patient's Choice
Healthcare, Inc. from 1990 to 1998.
Gerald L. Brandt, C.P.A. joined UHS in 1978 as Manager of Accounting, and was
promoted to Director of Finance and Accounting in 1994. Prior to joining UHS,
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.
Robert H. Braun joined UHS in 1975. He has held many positions within UHS,
culminating in a promotion to Director of Rental and Sales, West, in 1996. Mr.
Braun is responsible for three rental and sales divisions encompassing twenty-
two district offices in the western half of the United States.
Randy C. Engen joined UHS in 1979. Since then he has held multiple sales
management roles including Account, District and Divisional Manager positions.
Throughout his tenure with UHS, Mr. Engen has managed UHS's Madison, Wisconsin
district office, UHS's second largest.
Michael R. Johnson joined UHS 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 Development Department, followed by a promotion
to Training Manager in 1984 and to Human Resources Manager in 1989.
Gary L. Preston joined UHS 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 UHS, including serving for
thirteen years as District Manager for UHS's largest district office.
Jeffrey L. Singer joined UHS in 1998 as Vice President, Alternate Care West.
Prior to joining UHS, Mr. Singer was CEO of Home Care Instruments, Inc. from
1991 to 1998, and held various other positions at HCI from 1986 to 1991.
Limitation of Liability
Our Restated Articles of Incorporation limit the liability of our directors,
in their capacities as directors, to us or our shareholders to the full extent
permitted by Minnesota law. Minnesota law provides that a director shall not be
liable to us or our shareholders for monetary damages for breach of fiduciary
duty as a director, except for
. any breach of the director's duty of loyalty to us or our shareholders,
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
. dividends, stock repurchases and other distributions made in violation
of Minnesota law or for violations of the Minnesota securities laws,
. any transaction from which the director derived an improper personal
benefit or
. any act or omission occurring prior to the effective date of the
provision in our Restated Articles of Incorporation limiting such
liability.
These provisions do not affect the availability of equitable remedies, such
as an action to enjoin or rescind a transaction involving a breach of fiduciary
duty, although, as a practical matter, equitable relief may not be available.
The above provisions also do not limit liability of the directors for
violations of, or relieve them from the necessity of complying with, the
federal securities law.
50
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the cash and noncash compensation for each of
the last three fiscal years awarded to or earned by the two people who serviced
as Chief Executive Officer in 1998 and our next five highest paid executive
officers whose salary and bonus earned in 1998 exceeded $100,000.
<TABLE>
<CAPTION>
Annual Compensation LongTerm Compensation
---------------------- ------------------------------------
Awards
Stock Payouts
Name and Principal Options LTIP All Other
Position Year Salary Bonus(1) Shares(2) Payouts(3) Compensation(4)
- ------------------ ---- -------- -------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
David E. Dovenberg...... 1998 $205,516 $163,579 383,758 $ 32,955 $ 36,039
Chief Executive Officer 1997 188,246 163,579 -- 22,304 4,537
and President 1996 170,279 5,904 10,740 23,306 4,500
Thomas A Minner(5)...... 1998 74,815 16,447 -- 103,623 1,169,531
Former Chairman, 1997 251,591 49,530 -- 71,413 4,800
Chief Executive Officer
and President 1996 268,248 14,177 21,480 72,548 4,500
Gerald L. Brandt........ 1998 125,612 86,612 191,909 -- 3,544
Vice President of
Finance,
Chief Financial Officer
and Treasurer
Michael R. Johnson...... 1998 124,683 71,612 191,909 -- 3,541
Vice President of
Administrative Services
Gary L Preston.......... 1998 110,445 61,612 191,909 -- 3,600
Vice President of
Customer Services
and Sales-East
Randy C. Engen.......... 1998 109,259 61,612 191,909 -- 3,720
Vice President of
Business
Development
</TABLE>
- --------
(1) The amounts shown in this column represent annual bonuses earned for the
fiscal year indicated. Such bonuses are paid shortly after the end of such
fiscal year. The amounts also reflect a non-recurring bonus payment made to
Mr. Dovenberg, Mr. Brandt, and Mr. Johnson upon the completion of our
recapitalization.
(2) The stock options shown in this column for 1996 were all granted under the
1992 Long Term Incentive and Stock Option Plan, and as amended in 1995,
which was terminated upon our recapitalization. The stock options shown in
this column for 1998 were all granted under the 1998 Stock Option Plan. For
a discussion of the material terms of option grants under the 1998 Stock
Option Plan, See "--Stock Option Plans" and footnotes 1, 2 and 3 to the
table below entitled "Option Grants During the Year Ended December 31,
1998".
(3) For 1998, the amounts include regular payments under the Long Term
Incentive Plan ("LTIP") and payments resulting from the early termination
of the LTIP as of the date of our recapitalization. The amount of the
payments made in connection with the early termination of the LTIP were
$10,630 for Mr. Dovenberg and $32,144 for Mr. Minner.
(4) The amounts shown in this column represent contributions by UHS for the
named executive officers to the UHS Employees' Thrift and Savings Plan for
the fiscal year indicated. In addition for Mr. Dovenberg, $31,239 of the
amount represents payments made upon termination of the Supplemental
Executive Retirement Plan ("SERP") in connection with our recapitalization.
In addition for Mr. Minner, $850,686 of the amount represents severance
payment, $26,351 of the amount represents unused vacation reimbursement,
and $290,933 of the amount represents payments made upon termination of
SERP, each in connection with our recapitalization.
(5) In connection with our recapitalization, Mr. Minner resigned from his
position with UHS.
51
<PAGE>
Stock Options
The following tables summarize option grants during the year ended December
31, 1998 to the Chief Executive Officer, and the executive officers named in
the "Summary Compensation Table" above, and the values of the options held by
such persons at December 31, 1998.
Option Grants During Year Ended December 31, 1998
<TABLE>
<CAPTION>
Potential
Realizable Value
at Annual Rates
of Stock Price
Appreciation for
Option Term(5)
-----------------
% of
Total
Options
Granted
to Exercise
Employees or Base
Options in Fiscal Price Expiration
Name Granted(1) Year 1998 ($/Sh)(4) Date 5% 10%
- ------------------------ --------- --------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
David E. Dovenberg...... 224,800(2) 10.87 $1.705 03/17/08 $241,045 $610,856
158,958(3) 7.69 1.550 03/17/08 154,950 392,674
Gerald L. Brandt........ 112,430(2) 5.44 1.550 03/17/08 109,595 277,735
79,479(3) 3.84 1.550 03/17/08 77,475 196,337
Michael R. Johnson...... 112,430(2) 5.44 1.550 03/17/08 109,595 277,735
79,479(3) 3.84 1.550 03/17/08 77,475 196,337
Robert H. Braun......... 112,430(2) 5.44 1.550 03/17/08 109,595 277,735
79,479(3) 3.84 1.550 03/17/08 77,475 196,337
Gary L. Preston......... 112,430(2) 5.44 1.550 03/17/08 109,595 277,735
79,479(3) 3.84 1.550 03/17/08 77,475 196,337
Randy C. Engen.......... 112,430(2) 5.44 1.550 03/17/08 109,595 277,735
79,479(3) 3.84 1.550 03/17/08 77,475 196,337
Thomas A. Minner........ -- -- -- -- -- --
</TABLE>
- --------
(1) Each option represents the right to purchase one share of common stock. The
stock option grants shown in this column were all made on March 17, 1998
under our 1998 Stock Option Plan.
(2) With such incentive stock options, up to 20% of the shares under such
options vest on April 1 of each of the years 1999 through 2003. The amount
of shares exercisable on each annual vesting date is based on UHS's
achievement of certain EBITDA targets for the previous fiscal year, but in
no event will more than 20% of the shares become exercisable in a single
year.
(3) With such non-incentive stock options, the shares under such options vest
on the earlier of (i) the date of a change of control in UHS, (ii) the date
on which the original investors following our recapitalization achieve
certain realized values in their original investment, or (iii) eight years
following the date of grant of such options.
(4) The exercise price is equal to the fair market value on the date of grant
with respect to each option as determined by UHS's Board of Directors,
except for Mr. Dovenberg's options which have an exercise price of $1.705,
which is 110% of the fair market value under the requirements of the
Internal Revenue Code of 1986, as amended. The exercise price may be paid
in cash, in shares of common stock with a market value as of the date of
exercise equal to the option price or a combination of cash and shares of
common stock.
(5) The compounding assumes a ten year exercise period for all option grants.
These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, or stock option exercises are dependent on the future
performance of the underlying common stock. The amounts reflected in this
table may not necessarily be achieved. If the price of the common stock at
the date of grant ($1.55) were to appreciate at 5% and 10%, respectively,
compounded annually for ten years (the term of the option), then the common
stock would have a value on March 17, 2008 of approximately $2.52 and $4.02
per share, respectively (assuming no change in the number of outstanding
shares of common stock).
52
<PAGE>
<TABLE>
<CAPTION>
Aggregated Option Exercised During Year Ended December 31, 1998
and Value of Options at December 31, 1998
--------------------------------------------------------------------
Number of Unexercised Value of Unexercised In
Options at the Money Options
December 31, 1998 December 31, 1998(1)
------------------------- ------------------------
Shares
Acquired
on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexerisable
---- -------- -------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
David E. Dovenberg...... -- -- 494,400 224,800 $1,004,439 $243,908
-- 158,958 -- 197,108
Gerald L. Brandt........ -- -- 176,300 191,909 366,903 237,967
Michael R. Johnson...... -- -- 62,540 191,909 125,734 237,967
Robert H. Braun (2)..... 10,887 $ 90,369 -- 191,909 -- 237,967
Gary L. Preston......... -- -- 58,870 191,909 118,369 237,967
Randy C. Engen.......... -- -- 58,870 191,909 118,369 237,967
Thomas A. Minner (2).... 88,380 712,015 -- -- -- --
</TABLE>
- --------
(1) Based on the fair market value of Common Stock, as of December 31, 1998, of
$2.79 as determined by our Board of Directors.
(2) In connection with our recapitalization, Mr. Minner and Mr. Braun each
received payment for options held by them.
Long Term Incentive Plan
The Long Term Incentive Plan was terminated on February 25, 1998 in
connection with our recapitalization. During 1998, two payouts were completed
for this plan. The first was the normal plan payout and the second resulted
from the early termination of the plan. The normal plan payouts for Mr.
Dovernberg and Mr. Minner were $22,325 and $71,479, respectively. The early
termination payouts for Mr. Dovenberg and Mr. Minner were $10,630 and $32,144,
respectively.
Retirement Plan
The following table sets forth various estimated maximum annual pension
benefits under our qualified noncontributory defined benefit pension plan on a
straight life annuity basis, based upon social security benefits now available,
assuming retirement at age 65 at various levels of compensation and specified
remuneration and years of credited service. Amounts shown are subject to social
security offset.
<TABLE>
<CAPTION>
Compensation Years of Credited Services
------------ ------------------------------
5 10 20 30
------ ------- ------- -------
<S> <C> <C> <C> <C>
$100,000................................... $6,500 $13,000 $26,000 $32,000
125,000................................... 8,500 17,000 34,000 42,000
150,000................................... 10,500 21,000 42,000 52,000
200,000................................... 11,000 22,000 45,000 56,000
300,000................................... 11,000 22,000 45,000 56,000
</TABLE>
A participant's remuneration covered by the Pension Plans is his or her
average salary (as reported in the "Summary Compensation Table" above) for the
five consecutive plan years in which the employee received his or her highest
average compensation, subject to a $160,000 cap in 1998. As of December 31,
1998, Messrs. Dovenberg, Brandt, Johnson, Braun, Preston, and Engen had 10.7,
20.7, 19.7, 23.4, 30.9 and 19.6 years of credited service, respectively, under
the Pension Plans.
53
<PAGE>
Compensation Committee Interlocks and Insider Participation
Our Board of Directors has a Compensation Committee consisting of directors
of UHS. The current members of the Compensation Committee are Steven G. Segal
and Samuel B. Humphries. Mr. Segal has entered into the stockholders' agreement
with UHS and is an affiliate of Childs, which has entered into the
stockholders' agreement and the management agreement with UHS. For a
description of such arrangements, see "Certain Relationships and Related
Transactions."
Prior to our recapitalization, the members of the Compensation Committee were
Karen A. Bohn and Mr. Humphries.
While serving on the Compensation Committeee, Ms. Bohn, was a Managing
Director of Piper Jaffray, Inc. ("Piper Jaffray"), and Chief Administrative
Officer of Piper Jaffray Companies, Inc., the parent of Piper Jaffray, until
February 1998. Piper Jaffray has provided from time to time financial advisory
services for UHS. In November 1996, we engaged Piper Jaffray to assist in
analyzing our strategic alternatives to enhance shareholder value. In February
1997, Piper Jaffray, under an engagement letter dated January 3, 1997, provided
us with a financial opinion as to the fairness, from a financial point of view,
to the shareholders of the proposed MEDIQ merger (the "Piper Jaffray Opinion").
Ms. Bohn was not and is not directly involved in the provision of any such
services.
For acting as financial advisor, we paid Piper Jaffray (i) a fee of $125,000
due under the initial engagement letter dated November 7, 1996; (ii) $275,000
in cash upon Piper Jaffray rendering the Piper Jaffray Opinion; (iii) $25,000
in cash upon Piper Jaffray rendering an update to the Piper Jaffray Opinion at
the time of mailing of a proxy statement relating to the merger to the our
shareholders; and (iv) a success fee payable in cash equal to 1.8% of the
consideration paid for the equity of UHS as part of our recpaitalization,
including options, less the fees paid under (i), (ii) and (iii) above. We also
reimbursed Piper Jaffray for its reasonable out-of-pocket expenses and
indemnified it against certain liabilities relating to or arising out of
services performed by Piper Jaffray as financial advisor to us.
Employment Agreements
Under a letter agreement dated November 25, 1997, David E. Dovenberg, our
Chief Financial Officer, agreed to serve as our President and Chief Executive
Officer for a term of three years from the consummation of our
recapitalization, subject to earlier termination under the terms of the
agreement. Mr. Dovenberg's 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. Mr. Dovenberg's
employment agreement provides that during its initial three year term, he will
be a member of our Board of Directors, 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. Under his employment agreement, if Mr. Dovenberg's employment is
terminated by us without cause or because of death or disability, or by Mr.
Dovenberg because we have materially breached his 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, we 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 Mr. Dovenberg's 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, Mr.
Dovenberg's employment agreement contains certain confidentiality and
noncompetition provisions.
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We have entered into employment agreements with each of Messrs. Amicon,
Brandt, Braun, Engen, Johnson, Preston and Singer (each, an "Executive," and
collectively, the "Executives"). The Executive's 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. Under the employment
agreements, from and after the consummation of our 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
employment agreements also provide that the Executives are entitled to receive
stock options under one or more stock option plans. Under each employment
agreement, if an Executive's employment is terminated by us by reason of death
or disability, we 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 us
for other than cause or by the Executive for good reason (i.e., a breach by us
of the employment agreement, certain reductions in salary or duties, required
relocation or other specified events), then we 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 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 his employment agreement, would cease. In addition, the
Executive's employment agreements contain certain confidentiality and
noncompetition provisions. Finally, the employment agreements provide that the
Executives will enter into the stockholders' agreement with our other equity
investors governing certain aspects of the relationship among such equity
investors and us.
Stock Option Plans
On March 17, 1998, we adopted a stock option plan under which selected
employees may generally be granted nonqualified and incentive stock options.
Our Board of Directors has authorized 5,000,000 shares of our common stock
available to be issued pursuant to options granted under the stock option plan.
As of March 31, 1998, options to purchase an aggregate of 3,079,911 shares of
common stock have been granted under the stock option plan. Currently, we have
outstanding incentive stock options to certain members of management to
purchase an aggregate of 1,508,338 shares of our common stock. The incentive
stock options may vest in whole or in part within five years after the closing
of our recapitalization based on the achievement of certain EBITDA targets and
any unvested portion of such options will vest eight years following the date
of grant, provided that the optionee has been continuously employed by us
through such date. In addition, rollover options to purchase an aggregate of
1,015,220 shares of our common stock were rolled over and are outstanding under
the stock option plan. The rollover options are fully vested. Finally,
management investors were granted management nonqualified stock options to
purchase an aggregate of 556,353 shares of our common stock. The management
options will vest if within five years after the closing of our
recapitalization, the original common stock investors to our recapitalization
achieve a certain prescribed realized value on their original investment.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Stockholders' Agreement
Each executive officer and director who owns shares of our common stock (the
"Management Holders") and Childs (with which Mr. Segal, Mr. Horn and Mr. Yun
are affiliated) (together, the "Stockholders") are parties to a stockholders'
agreement with UHS governing certain aspects of the relationship among the
Stockholders and UHS. 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 UHS, 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 for any reason; (iii) gives each Management Holder
certain rights, subject to certain limitations imposed by our credit agreement,
to require UHS to purchase shares of such common stock held by him, in the
event of the termination of his employment with UHS, other than any such
termination by UHS 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
We are a party to management agreement with J. W. Childs Associates, L.P.
(with which Mr. Segal, Mr. Horn and Mr. Yun are affiliates) ("Childs
Associates") under which: (i) we pay Childs Associates 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) we are
obligated to pay Childs Associates 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 our 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.
Issuances of Preferred Stock
On August 17, 1998, we issued 6,000 shares of its Series A Preferred Stock to
an affiliate of Childs. The Series A Preferred Stock was redeemed in full, plus
accrued dividends, with the proceeds of our issuance of the Series B Preferred
and a warrant to purchase 350,000 shares of Common Stock.
On December 18, 1998, we issued 6,246 shares of its Series B Preferred Stock
and a warrant to purchase 350,000 shares of our common stock to ReliaStar
Financial Corp. ("ReliaStar"), for an aggregate purchase price of $6,246,000
under a Preferred Stock and Warrant Purchase Agreement dated as of December 18,
1998 (the "Purchase Agreement"). All shares of the Series B Preferred Stock are
subject to mandatory redemption by us on the earlier to occur of (i) the first
date after a change in control on which all of the Notes are repaid, retired or
redeemed and we are permitted to redeem the Series B Preferred Stock in
conformance with the terms of other agreements or instruments with respect to
our capital stock or indebtedness or (ii) August 17, 2008. We may redeem the
Series B Preferred Stock at any time in an amount equal to any accrued and
unpaid dividends on such Series B Preferred Stock plus a per share redemption
price set forth in the Certificate of Designation of Series B 13% Cumulative
Accruing Pay-In-Kind Preferred Stock of UHS.
The warrant may be exercised at any time, in whole or in part, from December
18, 1998 until August 17, 2008 at an exercise price of $.01 per share. The
number of shares issuable under the warrant is subject to certain antidilution
adjustments in the event that (i) we declare a dividend or other distribution
on any class of capital stock payable in our common stock, (ii) we issue
options, rights or warrants to all holders of our common stock, (iii) a stock
split or reclassification of our common stock, (iv) a consolidation of UHS or
sale of all or substantially all of the assets of UHS or (v) we repurchase any
of our common stock from Childs.
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PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding the beneficial ownership
of our common stock as of March 31, 1999 by each beneficial owner of more than
five percent of the Common Stock, each person who will be serving is a
director, each named executive officer and all persons serving as directors and
executive officers 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 of our executive officers is in care of UHS.
<TABLE>
<CAPTION>
Post-Recapitalization
-----------------------
Shares
Beneficially Percentage
Beneficial Owner Owned(1) Owned
---------------- ------------ ----------
<S> <C> <C>
David E. Dovenberg(2)............................... 2,231,809 13.5%
Robert H. Braun(3).................................. 59,453 0.4%
Gary L. Preston(4).................................. 117,513 0.7%
Randy C. Engen(4)................................... 94,363 0.6%
Gerald L. Brandt(5)................................. 257,173 1.6%
Michael R. Johnson(6)............................... 116,033 0.7%
Jeffrey L. Singer................................... 256,272 1.6%
Andrew R. Amicon.................................... 71,684 0.4%
Samuel B. Humphries................................. 16,129 0.1%
J.W. Childs Equity Partners, L.P.................... 12,466,931 77.8%
Steven G. Segal(7).................................. 12,622,131 78.7%
J.W. Childs Equity Partners, L.P.
One Federal Street
Boston, Massachusetts
Jerry D. Horn(7).................................... 12,500,905 78.0%
J.W. Childs Equity Partners, L.P.
One Federal Street
Boston, Massachusetts
Edward D. Yun(7).................................... 12,481,149 77.9%
J.W. Childs Equity Partners, L.P.
One Federal Street
Boston, Massachusetts
All Officers & Directors as a group (twelve
persons)(8)........................................ 15,890,751 93.6%
</TABLE>
- --------
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission, and includes generally voting power
and/or investment power with respect to securities. Shares of our common
stock subject to options currently exercisable or exercisable within 60
days of March 31, 1999
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<PAGE>
are deemed outstanding for computing the beneficial ownership percentage of
the person holding such options but are not deemed outstanding for computing
the beneficial ownership percentage of any other person. Except as indicated
by footnote, the persons named in the table above have the sole voting and
investment power with respect to all shares of our common stock shown as
beneficially owned by them.
(2) Includes 523,939 shares of our common stock subject to options exercisable
within 60 days after March 31, 1999, 626,530 shares of our common stock
owned by Mr. Dovenberg's wife and 34,780 shares of our common stock owned
by Mr. Dovenberg's children.
(3) Includes 14,773 shares of our common stock subject to option exercisable
within 60 days after March 31, 1999.
(4) Includes 73,643 shares of our common stock subject to options exercisable
within 60 days after March 31, 1999.
(5) Includes 191,073 shares of our common stock subject to options exercisable
within 60 days after March 31, 1999.
(6) Includes 77,313 shares of our common stock subject to options exercisable
within 60 days after March 31, 1999.
(7) Includes 12,466,931 shares of our common stock held by Childs Associates
which the shareholder may be deemed to beneficially own by virtue of his
position with Childs Associates.
(8) Includes 954,385 shares of our common stock exercisable within 60 days
after March 31, 1999.
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<PAGE>
DESCRIPTION OF THE REVOLVING CREDIT FACILITY
Credit Agreement
We have a credit agreement, dated as of February 25, 1998, with three lenders
and Bankers Trust Company, as agent for the lenders. Under our credit
agreement, the lenders have provided to us a $50.0 million senior secured
revolving credit facility, of which up to $5.0 million is available as a letter
of credit sub-facility. Amounts available to us under our revolving credit
facility are subject to satisfaction of certain requirements, including a
borrowing base test which limits the amount of loans outstanding to percentages
of eligible receivables and eligible equipment of UHS and its subsidiaries. As
of December 31, 1998, the outstanding debt under our revolving credit facility
was $48.6 million.
Borrowings under our revolving credit facility have been used to provide
working capital, to finance certain equipment purchases, for acquisitions and
for other general corporate purposes. Borrowings under our revolving credit
facility were also used to consummate our recapitalization, to make certain
severance and pension related payments in connection with our recapitalization,
and to pay certain fees and expenses related to our recapitalization.
We have secured our obligations under our revolving credit facility with:
. an exclusive first priority perfected security interest in substantially
all of our assets, including accounts receivable, inventory, rental
equipment and intangibles, and
. by an exclusive first priority perfected pledge of all capital stock and
notes owned by us and our subsidiaries. We do not have any subsidiaries
at this time. The New Notes are effectively subordinated to the
obligations under our revolving credit facility to the extent of the
value of the assets securing our revolving credit facility.
Interest on loans outstanding under our credit agreement is payable at an
annual rate equal to, at our option:
. a base rate which is the higher of the base rate of Bankers Trust or the
federal funds rate plus 0.5%, plus, in either case, an applicable margin
(depending upon our cash flow leverage ratio), or
. eurodollar rate plus an applicable margin (depending upon our cash flow
leverage ratio)
We also pay a commitment fee of 0.50% per year on the unutilized amount of
our 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
are payable as have been separately agreed to by UHS.
We also pay interest in any overdue installments of principal and interest at
a rate equal to the higher of (i) 2% in excess of base rate of Bankers Trust
plus the applicable margin or (ii) 2% in excess of the rate then borne by such
borrowings.
Interest on borrowings bearing interest at the base rate of Bankers Trust
will be payable quarterly. Interest on borrowings bearing interest at the
eurodollar rate will be payable at the end of the interest period pertaining to
the borrowings, unless the interest period is longer than three months, in
which case the interest will be payable quarterly.
Our 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, we are required to maintain compliance with
certain
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<PAGE>
financial covenants such as a maximum leverage ratio, a maximum fixed charge
test and an interest coverage test. We are also prohibited from prepaying the
Notes.
On February 25, 2003, our revolving credit facility will terminate and
outstanding revolving credit loans will be payable. In addition, the
outstanding revolving credit loans may become due upon an event of default.
Events of default under our credit agreement include, among other things:
. failure to pay principal, interest, fees or other amounts when due;
. violation of covenants;
. failure of any representation or warranty to be true in all material
respects when made
. cross payment default or non-payment default permitting acceleration
with respect to or acceleration of certain indebtedness
. change of ownership or control;
. certain events of bankruptcy and judgment defaults; and
. certain ERISA events.
Under the terms of the related security agreement, upon an event of default,
Bankers Trust can:
. take immediate possession of the collateral securing the revolving
credit loans;
. sell, assign or otherwise liquidate part or all of the collateral
securing the revolving credit loans;
. withdraw all moneys, securities and other instruments in certain
accounts related to the collateral securing the revolving credit loans;
and
. license or sublicense any service marks, patents or copyrights included
in the collateral securing the revolving credit loans.
In addition, under the terms of the related pledge agreement, upon an event
of default, Bankers Trust can:
. receive all dividends and distributions otherwise payable to UHS with
respect to the pledged collateral,
. transfer all or any part of the pledged collateral into its name or the
name of its nominee;
. accelerate any note included in the pledged collateral which may be
accelerated in accordance with its terms;
. 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
. sell, assign and deliver, or grant options to purchase all or any part
of the pledged collateral.
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DESCRIPTION OF NOTES
You can find the definitions of certain capitalized terms used in this
description below under the heading "Certain Definitions."
We issued the Old Notes and will issue the New Notes, under the Indenture,
which was entered into by UHS and U.S. Bank Trust National Association, as
trustee (the "Trustee"). The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (the "Trust Indenture Act").
The following description is a summary of the material provisions of the
Indenture. It does not restate the Indenture in its entirety. We urge you to
read the Indenture, because it, and not this description, defines your rights
as holders of the Notes. We have filed a copy of the Indenture as an exhibit to
the registration statement filed with the Securities and Exchange Commission
which includes this prospectus.
Brief Description of the Notes
The Notes are:
. general obligations of UHS;
. unsecured; and
. on equal rank in right of payment with all other senior unsecured
obligations of UHS.
As of December 31, 1998, on a pro forma basis giving effect to the sale of
the Old Notes, we would have senior debt of approximately $155.4 million.
The Notes will be issued in fully registered form only, without coupons, in
denominations of $1,000 and integral multiples thereof. 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. we
will pay principal (and premium, if any) on the Notes at the Trustee's
corporate office in New York, New York. At our option, interest may be paid at
the Trustee's corporate trust office or by check mailed to the registered
address of Holders. Any Old Notes that remain outstanding after the completion
of this 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. The registered Holder of a Note will be treated as the owner of
it for all purposes.
Paying Agent and Registrar for the Notes
The Trustee will initially act as Paying Agent and Registrar. We may change
the Paying Agent or Registrar without prior notice to the holders of the Notes,
and we or any of our subsidiaries may act as Paying Agent or Registrar.
Principal, Maturity and Interest
On January 26, 1999, we issued the Old Notes with an aggregate principal
amount of $35.0 million. UHS previously issued the Outstanding Notes with an
aggregate principal amount of $100.0 million on February 25, 1998. The Notes
are limited to $180.0 million aggregate principal amount. The New Notes and the
Outstanding Notes are considered collectively as a single class for all
purposes under the Indenture, including, without limitation, waivers,
amendments, redemptions and offers to purchase, as described below. However,
since the Old Notes were issued with original issue discount, even after the
New Notes are registered under the Securities Act, the New Notes will not trade
interchangeably with the Outstanding Notes in the secondary market. All of the
Notes mature on March 1, 2008.
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<PAGE>
Interest on the Notes will accrue at an annual rate of 10 1/4% and will be
payable semiannually in cash on each March 1 and September 1 commencing on
March 1, 1999. We will make payment 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. Interest will be computed
on the basis of a 360-day year comprised of twelve 30-day months.
The Notes will not be entitled to the benefit of any mandatory sinking fund.
Redemption
Optional Redemption. We may redeem the Notes, at our 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) 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>
Optional Redemption upon Equity Offerings. At any time, or from time to time,
on or prior to March 1, 2001, we may, at our option, use the net cash proceeds
of one or more Equity Offerings of our capital stock to redeem up to 35% of the
aggregate principal amount of Notes originally issued at a redemption price
equal to 110 1/4% of the principal amount plus accrued and unpaid interest, 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, we must make such
redemption not more than 120 days after the consummation of the applicable
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, we may redeem the Notes, at
our option, 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'
notice to each holder to be redeemed, in principal amounts of $1,000 or
integral multiples of $1,000, at a redemption price equal to the sum of (i) the
principal amount plus (ii) accrued and unpaid interest, if any, to the
redemption date plus (iii) the Applicable Premium.
Selection and Notice of Redemption
In the event that we redeem less than all of the Notes 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
the Notes are listed or, if the 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 that:
. no Notes of a principal amount of $1,000 or less are redeemed in part;
and
. if a partial redemption is made with the proceeds of an Equity Offering
(as described above) , selection of the Notes or portions thereof for
redemption are 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 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 to be
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<PAGE>
redeemed. A new Note in a principal amount equal to the unredeemed portion will
be issued in the name of the same holder upon cancellation of the original
Note. On and after the redemption date, interest will cease to accrue on Notes
or portions of Notes called for redemption as long as we have deposited with
the Paying Agent funds in satisfaction of the applicable redemption price.
Change of Control
Upon the occurrence of a Change of Control, each holder has the right to
require that we purchase all or a portion of such holder's Notes under the
terms of a change of control offer described below. In the event that holders
require redemption, the purchase price will be equal to 101% of the principal
amount plus accrued interest to the date of purchase.
Not later than the 30th day following a Change of Control, we must send, by
first class mail, a notice to each holder, with a copy to the Trustee. The
notice will state the terms of the Change of Control offer including, among
other things, the purchase date. The purchase date must be no earlier than 30
days nor later than 45 days from the date that the notice is mailed, other than
as may be required by law. Holders electing to have a Note purchased under a
change of control offer will be required complete the form entitled "Option of
Holder to Elect Purchase" and to surrender the Note 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 purchase date.
If we make a change of control offer, there can be no assurance that we will
have available funds sufficient to pay the applicable purchase price for all
the Notes that might be delivered by holders seeking to accept the change of
control offer. In the event we are required to purchase the Notes under a
Change of Control Offer and we do not have enough available funds to meet our
purchase obligations, we expects that we would seek third party financing to
meet our purchase obligations. However, there can be no assurance that we would
be able to obtain financing at that time.
Neither the Board of Directors of UHS nor the Trustee may waive the covenant
relating to a holder's right to redemption upon a Change of Control.
Restrictions in the Indenture on our ability, and the ability of our Restricted
Subsidiaries, to incur additional Indebtedness, to grant liens on our property,
to make Restricted Payments and to make Asset Sales may also make it more
difficult or discourage a takeover of UHS, whether favored or opposed by us.
Consummation of any such transaction in certain circumstances may require
redemption or repurchase of the Notes, and there can be no assurance that we 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 UHS by the management of UHS. 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 protection in all circumstances from the adverse aspects of a highly
leveraged transaction, reorganization, restructuring, merger or similar
transaction.
We will comply with the requirements of Rule 14e-1 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and any other securities
laws and regulations to the extent such laws and regulations are applicable in
connection with the repurchase of Notes under 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, we shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached our obligations under the "Change of Control" provisions of the
Indenture by virtue of noncompliance.
Certain Covenants
We are restricted by covenants contained in the Indenture, including, the
following:
Limitation on Incurrence of Additional Indebtedness. We will not, and will
not permit any of our Restricted Subsidiaries to, directly or indirectly,
create, incur, assume, guarantee, acquire, become liable,
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<PAGE>
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, we may incur Indebtedness (including,
without limitation, Acquired Indebtedness) and our Subsidiaries 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 UHS 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
under this covenant, we shall, in our 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 under only one of such
clauses or under the first paragraph of this section. Accrual of interest and
the accretion of accreted value will not be deemed to be an incurrence of
Indebtedness for purposes of this covenant.
We will not nor will any Guarantor 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 UHS or such Guarantor, as the
case may be, unless such Indebtedness is also by its terms made expressly
subordinate in right of payment to the Notes or the Guarantee (as defined
below) under subordination provisions that are substantively identical to the
subordination provisions of such Indebtedness (or such agreement) that are most
favorable to the holders of any other Indebtedness of UHS or such Guarantor, as
the case may be.
Limitation on Restricted Payments. We will not, and will not cause or permit
any of our Restricted Subsidiaries to, directly or indirectly, do any of the
following, which are referred to herein as "Restricted Payments":
. declare or pay any dividend or make any distribution (other than
dividends or distributions payable in Qualified Capital Stock of UHS) on
or in respect of shares of our capital stock to holders of such capital
stock;
. purchase, redeem or otherwise acquire or retire for value (except from
UHS or a Restricted Subsidiary) any shares of our Capital Stock of UHS
or any warrants, rights or options to purchase or acquire shares of any
class of our Capital Stock;
. 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 UHS 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
. make any Investment (other than Permitted Investments).
if, at the time of and after giving effect to such Restricted Payment:
. a Default or an Event of Default shall have occurred and be continuing;
. We are 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 described above; or
. the proposed Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by UHS and its subsidiaries after
February 25, 1998 exceed the sum of:
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(i) 50% of the cumulative Consolidated Net Income (or if cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss)
of UHS 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
(ii) 100% of the aggregate net cash proceeds received by UHS from any
Person (other than a Subsidiary of UHS) from the issuance and sale
subsequent to the Issue Date and on or prior to the Reference Date
of Qualified Capital Stock of UHS; plus
(iii) without duplication of any amounts included in clause (i) above,
100% of the aggregate net cash proceeds of any equity
contribution received by UHS from a holder of UHS's Capital
Stock (excluding, in the case of clauses (i) and (ii), 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 UHS from any Person (other than a Subsidiary of UHS) for
debt securities that have been converted or exchanged into or for
Qualified Capital Stock of UHS (to the extent such debt securities
were originally sold for cash) plus the aggregate amount of cash
received by UHS (other than from a Subsidiary of UHS) 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 UHS'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.
The limitation on Restricted Payments does not prohibit:
. 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;
. if no Default or Event of Default shall have occurred and be continuing,
the acquisition of any shares of Capital Stock of UHS, either (i) solely
in exchange for shares of Qualified Capital Stock of UHS or (ii) through
the application of net proceeds of a substantially concurrent sale for
cash (other than to a subsidiary of UHS) of shares of Qualified Capital
Stock of UHS;
. 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 UHS that is subordinate or
junior in right of payment to the Notes either (i) solely in exchange
for shares of Qualified Capital Stock of UHS, or (ii) through the
application of net proceeds of a substantially concurrent sale for cash
(other than to a subsidiary of UHS) of shares of Qualified Capital Stock
of UHS or Refinancing Indebtedness;
. so long as no Default or Event of Default shall have occurred and be
continuing, repurchases by us of our common stock of UHS or stock
appreciation rights or similar interests in UHS from directors, officers
or employees of UHS 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;
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. Investments in securities not constituting cash or Cash Equivalents and
received in connection with an Asset Sale made under the provisions of
the covenant described under "-- Limitation on Asset Sales" below; and
. payments made in connection with the application of the net proceeds of
our recapitalization.
In determining the aggregate amount of Restricted Payments made subsequent to
February 25, 1998 in accordance with clauses (i), (ii) and (iii) of the
immediately preceding paragraph, amounts expended under the first, second and
fourth bullets immediately above shall be included in such calculation.
Not later than the date of making any Restricted Payment, we are required to
deliver to the Trustee a certificate of an officer of UHS 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 UHS's latest available internal quarterly
financial statements.
Limitation on Asset Sales. We will not, and will not permit any of our
Restricted Subsidiaries to, consummate an Asset Sale unless:
. We or the applicable Restricted Subsidiary, as the case may be, receive
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 our Board of Directors),
. at least 75% of the consideration received by UHS or the applicable
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
. upon the consummation of an Asset Sale, we 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 our Revolving Credit Facility) 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
UHS and our 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 UHS or of the applicable Restricted Subsidiary determines
not to apply the Net Cash Proceeds relating to such Asset Sale as set forth in
clauses (A), (B) and (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 (A), (B) and (C) of the next preceding sentence (each a "Net Proceeds
Offer Amount") shall be applied by UHS 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 UHS or any Restricted
Subsidiary, 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. We may
defer any Net Proceeds Offer until there is an aggregate unutilized Net
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
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excess of $5.0 million, shall be applied as required under 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 UHS and our 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 UHS and our 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 UHS or our
Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash
Proceeds for purposes of this covenant.
Notwithstanding the two preceding paragraphs, we and our Restricted
Subsidiaries will be permitted to consummate an Asset Sale without complying
with such paragraphs to the extent:
. at least 75% of the consideration for such Asset Sale constitutes
Replacement Assets, and
. the Asset Sale is for fair market value; provided, that any
consideration not constituting Replacement Assets received by us and our
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.
We 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 under
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, we
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 of the compliance.
Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries.
We will not, and will not cause or permit any of our 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 UHS to
. pay dividends or make any other distributions on or in respect of our
capital stock;
. make loans or advances or to pay any Indebtedness or other obligation
owed to UHS or any other Restricted Subsidiary of UHS; or
. transfer any of its property or assets to UHS or any other Restricted
Subsidiary of UHS, 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 UHS;
(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
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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) our credit agreement;
(8) an agreement governing Indebtedness incurred to Refinance the
Indebtedness issued, assumed or incurred under an agreement 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 UHS in
any material respect as determined by the Board of Directors of UHS
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 our good faith judgment, 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. We will not permit
any of our Restricted Subsidiaries to issue any preferred stock (other than to
UHS or to a wholly owned Restricted Subsidiary) or permit any Person (other
than or to a wholly owned Restricted Subsidiary) to own any preferred stock of
any Restricted Subsidiary. 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 UHS, (B)
such Person merges with or into a Restricted Subsidiary of UHS or (C) a
Restricted Subsidiary of UHS 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. We will not, and will not cause or permit any of our
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
permit or suffer to exist any Liens of any kind against or upon any of our
property or assets or any of our Restricted Subsidiaries whether owned on the
Issue Date or acquired after the Issue Date, or any proceeds from such
property or assets, or assign or otherwise convey any right to receive income
or profits from such property or assets unless:
. 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
. in all other cases, the Notes are equally and ratably secured, except
for
(i) Liens existing as of the Issue Date to the extent and in the manner
such Liens are in effect on the Issue Date;
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(ii) Liens securing obligations under our credit agreement;
(iii) Liens securing the Notes;
(iv) Liens of UHS or a Restricted Subsidiary of UHS on assets of any
Subsidiary of UHS;
(v) 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 UHS or any
of our Restricted Subsidiaries not securing the Indebtedness so
Refinanced; and
(vi) Permitted Liens.
Merger, Consolidation and Sale of Assets. We 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 UHS to sell, assign,
transfer, lease, convey or otherwise dispose of) all or substantially all of
our assets (determined on a consolidated basis for UHS and UHS's Restricted
Subsidiaries) whether as an entirety or substantially as an entirety to any
Person unless all of the following are true:
. either (1) UHS shall be the surviving or continuing corporation or (2)
the surviving entity (if other than UHS) formed by such consolidation or
into which UHS is merged or the surviving entity which acquires by sale,
assignment, transfer, lease, conveyance or other disposition the
properties and assets of UHS and of our Restricted Subsidiaries
substantially as an entirety:
(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 assume, by supplemental indenture, 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 and the
Indenture on the part of UHS to be performed or observed;
. immediately after giving effect to such transaction and the assumption
contemplated by clause (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), UHS or
the surviving entity shall be able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the "--Limitation
on Incurrence of Additional Indebtedness" covenant;
. immediately before and immediately after giving effect to such
transaction and the assumption contemplated by clause (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
. UHS 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
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Subsidiaries of UHS the capital stock of which constitutes all or substantially
all of the properties and assets of UHS, shall be deemed to be the transfer of
all or substantially all of the properties and assets of UHS.
Notwithstanding the foregoing restrictions, (i) any Restricted Subsidiary may
consolidate with, merge into or transfer all or part of its properties and
assets to UHS or another Restricted Subsidiary of UHS and (ii) UHS may merge
with an affiliate of UHS incorporated solely for the purpose of reincorporating
UHS 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 UHS in accordance
with the foregoing covenant, in which UHS is not the surviving corporation, the
successor entity formed by such consolidation or into which UHS 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, UHS under the
Indenture and the Notes with the same effect as if such surviving entity had
been named as UHS.
Limitations on Transactions with Affiliates.
We will not, and will not permit any of our 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 the next paragraph 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 an entity that is not an Affiliate of UHS 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 UHS or such Restricted
Subsidiary, as the case may be, such approval to be evidenced by a board
resolution stating that the applicable Board of Directors has determined that
such transaction complies with the foregoing provisions. If UHS or any
Restricted Subsidiary of UHS 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, UHS 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 UHS 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.
The restrictions set forth in the preceding paragraph do not apply to any of
the following:
. reasonable fees and compensation paid to and indemnity provided on
behalf of, officers, directors, employees or consultants of UHS or any
of our Restricted Subsidiaries as determined in good faith by our Board
of Directors or senior management;
. transactions exclusively between or among UHS and any of our Restricted
Subsidiaries or exclusively between or among such Restricted
Subsidiaries, provided such transactions are not otherwise prohibited by
the Indenture;
. Restricted Payments permitted by the Indenture;
. payments made under the Management Agreement, See "Certain Relationships
and Related Transactions.";
. loans and advances (or guarantees of third party loans) to officers or
employees of UHS or any of our Restricted Subsidiaries in the ordinary
course of business not to exceed $750,000 at any time outstanding;
. any employment agreement, collective bargaining agreement, employee
benefit plan, related trust agreement, indemnification agreement,
benefit plan or similar plan (including arrangements made
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with respect to bonuses) for the benefit of directors, officers or
employees of UHS or any of our Restricted Subsidiaries entered into in
the ordinary course of business; or
. the transactions and payments contemplated by any agreement as in effect
as of the Issue Date .
Limitation of Guarantees by Restricted Subsidiaries. We will not permit any
of our 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 UHS 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 under the
preceding paragraph; or (ii) any sale or other disposition (by merger or
otherwise) to any Person which is not a Restricted Subsidiary of UHS of all of
our 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. We and our Restricted Subsidiaries will not engage in
any businesses which are not the same, similar, reasonably related, ancillary
or complementary to the businesses in which we and our Restricted Subsidiaries
are engaged on the Issue Date.
Reports to Holders. Whether or not we are required to file annual and
quarterly reports with the Securities and Exchange Commission pursuant to the
Exchange Act, we will file with the Securities and Exchange Commission, and
deliver to the Trustee and holders after the filing, copies of the quarterly
and annual reports and information, documents and reports, required to be file
with the Securities and Exchange Commission pursuant to the Exchange Act. We
will also comply with the other provisions of Trust Indenture Act.
Events of Default
Each of the following events are "Events of Default":
. 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;
. the failure to pay the principal on any Notes, when such principal
becomes due and payable, at maturity, upon redemption or otherwise;
. 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 UHS 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);
. 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 UHS or any Restricted Subsidiary of UHS 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
UHS or such Restricted Subsidiary of notice of any such acceleration) if
the
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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;
. one or more judgments in an aggregate amount in excess of $5.0 million
shall have been rendered against UHS 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
. certain events of bankruptcy affecting UHS or any of its Significant
Subsidiaries.
If an Event of Default (other than an event of bankruptcy with respect to
UHS) 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 UHS 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 because of an event
of bankruptcy with respect to UHS occurs and is continuing, then all unpaid
principal of, and premium, if any, and accrued and unpaid interest on all of
the Notes shall become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any holder.
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:
. if the rescission would not conflict with any judgment or decree,
. 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,
. 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,
. if we have paid the Trustee its reasonable compensation and reimbursed
the Trustee for its expenses, disbursements and advances and
. in the event of the cure or waiver of an Event of Default because of an
event of bankruptcy, 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, 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 Trust Indenture Act. 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 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, we are 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
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occurred and, if applicable, describe such Default or Event of Default and the
status of the Default or Event of Default.
Legal Defeasance and Covenant Defeasance
We may, at our option and at any time, elect to have our obligations
discharged with respect to the outstanding Notes ("Legal Defeasance"), except
for:
. 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,
. Our 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,
. the rights, powers, trust, duties and immunities of the Trustee and the
UHS's obligations in connection therewith and
. the Legal Defeasance provisions of the Indenture.
In addition, we may, at our option and at any time, elect to have our
obligations 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 and Outstanding Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
. We 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;
. in the case of Legal Defeasance, we must deliver to the Trustee an
opinion of counsel in the United States reasonably acceptable to the
Trustee confirming that
(i) We have received from, or there has been published by, the Internal
Revenue Service a ruling or
(ii) 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;
. in the case of Covenant Defeasance, we must deliver 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;
. 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);
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. 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 we or any of our
Subsidiaries is a party or by which we or any of its Subsidiaries is
bound;
. we must deliver to the Trustee an officers' certificate stating that the
deposit was not made by UHS with the intent of preferring the holders
over any other creditors of UHS or with the intent of defeating,
hindering, delaying or defrauding any other creditors of UHS or others;
. we 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;
. we 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 subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; and
. certain other customary conditions precedent are satisfied.
Notwithstanding the foregoing, the opinion of counsel required 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 our expense.
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect as to
all outstanding Notes when:
. either (a) all the Notes theretofore authenticated and delivered 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 we have 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 UHS directing the Trustee to apply such funds to the
payment thereof at maturity or redemption, as the case may be;
. we have paid all other sums payable under the Indenture by UHS; and
. we have 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, we and the Trustee, without the consent of the holders,
may amend the Indenture for certain specified purposes, including evidencing
the succession of another entity to UHS or any Guarantor and the assumption by
any such successor of the covenants of UHS or any Guarantor in the Indenture
and in the Notes, qualifying or maintaining the qualification of the Indenture
under the Trust Indenture Act, 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 (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:
. reduce the amount of Notes whose holders must consent to an amendment;
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. reduce the rate of or change or have the effect of changing the time for
payment of interest, including defaulted interest, on any Notes;
. 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;
. make any Notes payable in money other than that stated in the Notes;
. 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;
. amend, change or modify in any material respect our obligation 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
. 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.
Governing Law
The Notes are 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
Except during the continuance of an Event of Default, the Trustee performs
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 person would exercise or use under the
circumstances in the conduct of such person's own affairs.
The Indenture and the provisions of the Trust Indenture Act contain certain
limitations on the rights of the Trustee, should it become a creditor of UHS,
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
Trust Indenture Act, the Trustee will be permitted to engage in other
transactions; provided that if the Trustee acquires any conflicting interest as
described in the Trust Indenture Act, 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 UHS or at the time it merges or consolidates with UHS or any of our
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 UHS 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
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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 UHS or any Restricted
Subsidiary of UHS in any other Person under which such Person shall become a
Restricted Subsidiary of UHS or any Restricted Subsidiary of UHS, or shall be
merged with or into UHS or any Restricted Subsidiary of UHS, or (b) the
acquisition by UHS or any Restricted Subsidiary of UHS of the assets of any
Person (other than a Restricted Subsidiary of UHS) 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 UHS or any of
our Restricted Subsidiaries (including any Sale and Leaseback Transaction) to
any Person other than UHS or a Restricted Subsidiary of UHS of (a) any Capital
Stock of any Restricted Subsidiary of UHS; or (b) any other property or assets
of UHS or any Restricted Subsidiary of UHS 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 UHS or our 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 UHS 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
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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 $250.0
million; (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
UHS 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 UHS
of any plan or proposal for the liquidation or dissolution of UHS (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 UHS; or (iv) the replacement of a majority of the
Board of Directors of UHS over a two-year period from the directors who
constituted the Board of Directors of UHS 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 UHS 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.
"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 our 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 our 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 our 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 under working
capital facilities, occurring during the
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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 our 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 our 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 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 our 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 our 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 our 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
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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 our Restricted Subsidiaries reducing Consolidated Net Income of
such Person and our 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).
"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, under 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.
"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 UHS acting reasonably
and in good faith and shall be evidenced by a Board Resolution of the Board of
Directors of UHS 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 UHS'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
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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 under 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 UHS and (ii) which, in the judgment of the Board
of Directors of UHS, 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 under 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
UHS and our Restricted Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of UHS 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 UHS or any of our 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 UHS or any Restricted Subsidiary of UHS sells or otherwise
disposes of any Common Stock of any direct or indirect Restricted Subsidiary of
UHS such that, after giving effect to any such sale or disposition, such
Subsidiary is no longer a Restricted Subsidiary, UHS 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 February 25, 1998, as to the Outstanding Notes and January
26, 1999 as to the New 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 UHS and
J.W. Childs Associates, L.P., as in effect on the Issue Date.
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"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 UHS or any of our 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 UHS 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 UHS 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.
"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 Outstanding Notes and the Indenture up to
$100.0 million at any time outstanding;
(ii) Indebtedness incurred under 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 under 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 UHS and our 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 UHS covering Indebtedness of UHS or any
of our Restricted Subsidiaries; provided, however, that such Interest
Swap Obligations are entered into to protect UHS and our 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 UHS to UHS or to a
Restricted Subsidiary of UHS for so long as such Indebtedness is held
by UHS or a Restricted Subsidiary of UHS or the lenders or collateral
agent under the Credit Agreement, in each case subject to no Lien held
by a Person other than UHS or a Restricted Subsidiary of UHS or the
lenders or collateral agent under the Credit Agreement; provided that
if as of any date any Person other than UHS or a Restricted Subsidiary
of UHS 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 UHS to a Restricted Subsidiary of UHS for so long as
such Indebtedness is held by a Restricted Subsidiary of UHS or the
lenders or collateral agent under the Credit Agreement, in
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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 UHS to any Restricted Subsidiary of UHS is
unsecured and subordinated, under a written agreement, to UHS's
obligations under the Indenture and the Notes and (b) if as of any
date any Person other than a Restricted Subsidiary of UHS 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 UHS;
(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 UHS or any of our Restricted Subsidiaries
represented by letters of credit for the account of UHS 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;
(x) additional Indebtedness of UHS and our 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 UHS or any
Restricted Subsidiary under 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 UHS 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 UHS or any Restricted Subsidiary of UHS in any Person
that is or will become immediately after such Investment a Restricted
Subsidiary of UHS or that will merge or consolidate into UHS or a
Restricted Subsidiary of UHS;
(ii) Investments in UHS by any Restricted Subsidiary of UHS; provided that
any Indebtedness evidencing such Investment is unsecured and
subordinated, under a written agreement, to UHS's obligations under
the Notes and the Indenture;
(iii) Investments in cash and Cash Equivalents;
(iv) Loans and advances to employees and officers of UHS and our 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 UHS) not in excess of $500,000 at any one time outstanding;
(v) Interest Swap Obligations entered into in the ordinary course of UHS's
or our 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 UHS 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
under any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers;
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(viii) Investments made by UHS or our 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 UHS;
(x) Investments in existence on the Issue Date;
(xi) Guarantees of Indebtedness otherwise permitted under the Indenture;
(xii) Receivables owing to UHS 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 UHS or our Restricted Subsidiaries shall
have set aside on its books such reserves as may be required under
GAAP;
(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 UHS or any of our 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 UHS or any Restricted Subsidiary of UHS; 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 UHS or any Restricted Subsidiary of UHS 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;
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(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of UHS or
any of our 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 UHS or a Restricted Subsidiary of UHS and were not
granted in connection with, or in anticipation of, the incurrence of
such Acquired Indebtedness by UHS or a Restricted Subsidiary of UHS
and (B) such Liens do not extend to or cover any property or assets
of UHS or of any of our Restricted Subsidiaries other than the
property or assets that secured the Acquired Indebtedness prior to
the time such Indebtedness became Acquired Indebtedness of UHS or a
Restricted Subsidiary of UHS and are no more favorable to the
lienholders than those securing the Acquired Indebtedness prior to
the incurrence of such Acquired Indebtedness by UHS or a Restricted
Subsidiary of UHS;
(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 UHS or a Restricted Subsidiary;
(xvi) Liens on property or assets of UHS 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 UHS and our Restricted
Subsidiaries;
(xix) Liens incurred in the ordinary course of business of UHS or any
Restricted Subsidiary of UHS 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 UHS and our 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 UHS or our 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.
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"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 UHS or any Restricted
Subsidiary of UHS of Indebtedness incurred in accordance with the "Limitation
on Incurrence of Additional Indebtedness" covenant (other than under 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 UHS 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 UHS, then such Refinancing
Indebtedness shall be Indebtedness solely of UHS 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 UHS or a Restricted Subsidiary of any property, whether owned by UHS
or any Restricted Subsidiary at the Issue Date or later acquired, which has
been or is to be sold or transferred by UHS or such Restricted Subsidiary to
such Person or 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
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Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or
owns or holds any Lien on any property of, UHS or any other Subsidiary of UHS
that is not a Subsidiary of the Subsidiary to be so designated; provided that
(x) UHS 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 under
which the lender has recourse to any of the assets of UHS or any of our
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, UHS 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
under applicable law) are owned by such Person or any Wholly Owned Restricted
Subsidiary of such Person.
BOOK-ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, the Notes initially will be
represented by one or more permanent global certificates in definitive, fully
registered form, referred to herein as the "Global Notes." The Global Notes
will be deposited with, or on behalf of, The Depository Trust Company, New
York, New York referred to herein as "DTC" and registered in the name of a
nominee of DTC.
The Global Notes. We expect that under procedures established by DTC (i) upon
the issuance of the Global Notes, DTC or its custodian will credit, on its
internal system, the principal amount of Notes of the individual beneficial
interests represented by such Global Notes to the respective accounts of
persons who have accounts with such depositary and (ii) ownership of beneficial
interests in the Global Notes will be shown on, and the transfer of such
ownership will be effected only through, records maintained by DTC or its
nominee (with respect to interests of participants) and the records of
participants (with respect to interests of persons other than participants).
Such accounts initially will be designated by or on behalf of the initial
purchasers of the Old Notes and ownership of beneficial interests in the Global
Notes will be limited to persons who have accounts with DTC ("participants") or
persons who hold interests through participants. Qualified Institutional
Buyers, or QIBs, may hold their interests in the Global Notes directly through
DTC if they are participants in such system, or indirectly through
organizations which are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by such Global Notes for all purposes
under the Indenture. No beneficial owner of an interest in the Global Notes
will be able to transfer that interest except in accordance with DTC's
procedures, in addition to those provided for under the Indenture with respect
to the Notes.
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Payments of the principal of, premium, if any, and interest on the Global
Notes will be made to DTC or its nominee, as the case may be, as the registered
of the Global Notes. None of UHS, the Trustee or any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Notes
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interest.
We expect that DTC, or its nominee, upon receipt of any payment of principal,
premium, if any, and interest on the Global Notes, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of the Global Notes as shown on the records
of DTC or its nominee. We also expect that payments by participants to owners
of beneficial interests in the Global Notes held through such participants will
be governed by standing instructions and customary practice, as is now the case
with securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
participants.
Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same day funds. If a holder requires physical delivery of a
certificated security for any reason, including to sell Notes to persons in
states that require physical delivery of the Notes, or to pledge such
securities, such holder must transfer its interest in the Global Notes, in
accordance with the normal procedures of DTC and with the procedures set forth
in the Indenture.
DTC has advised UHS that it will take any action permitted to be taken by a
holder of Notes (including the presentation of Notes for exchange as described
below) only at the direction of one or more participants to whose account the
DTC interests in the Global Notes are credited and only in respect of such
portion of the aggregate principal amount of Notes as to which such participant
or participants has or have given such direction. However, if there is an Event
of Default under the Indenture, DTC will exchange the Global Notes for
certificated securities, which it will distribute to its participants.
DTC has advised UHS as follows: DTC is a limited-purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code and a "clearing agency" registered under the provisions
of Section 17A of the Exchange Act. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical
movement of certificates. Participants include securities brokers and dealers,
banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Notes among participants of DTC, it is
under no obligation to perform such procedures and such procedures may be
discontinued at any time. Neither UHS nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Notes and a successor depositary is not
appointed by UHS within 90 days, certificated securities will be issued in
exchange for the Global Notes.
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FEDERAL 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 and the ownership and disposition of
the New Notes by holder who acquire the New Notes under this 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 under this 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 under this exchange
offer.
Interest on New Notes
A holder of a New Note will be required to report interest earned on the New
Note as ordinary interest income in accordance with the holder's method of tax
accounting.
Original Issue Discount
Since the Old Notes were issued with original issue discount, the New Notes
issued in exchange for such Old Notes also will be treated as having been
issued with original issue discount. A holder of a New Note will be required to
include original issue discount in gross income as it accrues, regardless of
whether such holder is a cash or accrued basis taxpayer. The adjusted basis of
such New Notes will be increased by the amount of original issue discount
included in the holder's gross income.
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 otherwise of such New Note and the
holder's adjusted basis in the New Note. Subject to the market discount rules
discussed below, such gain or loss will be capital gain or loss and will be
long-term 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
88
<PAGE>
purchase price) will be required to treat any gain recognized on the
redemption, sale or other disposition of the New Note 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 be required to treat any gain
recognized as ordinary income under these rules. Holders should consult their
advisors as to the portion of any gain that would be taxable as ordinary income
under these provisions.
PLAN OF DISTRIBUTION
Each broker-dealer participating in the exchange that receives New Notes for
its own account under the exchange offer must deliver a prospectus in
connection with any resale of those New Notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by the participating
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where those Old Notes were acquired as a result of market-making
activities or other trading activities. UHS has agreed that, for a period of
180 days after the date of this prospectus, it will make this prospectus, as
amended or supplemented, available to any participating broker-dealer for use
in connection with any such resale.
We will not receive any proceeds from any sales of New Notes by broker-
dealers participating in the exchange. New Notes received by participating
broker-dealers for their own account under 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 these methods of resale, at market prices prevailing at the time
of resale, at prices related to those prevailing market prices or at 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 participating broker-dealer and/or the purchasers of any
New Notes sold by them. Any participating broker-dealer that resells the New
Notes that were received by it for its own account under the exchange offer and
any broker or dealer that participates in a distribution of those New Notes may
be deemed to be an "underwriter" within the meaning of the Securities Act, and
any profit on any resale of New Notes and any commissions or concessions
received by any persons making the sales 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
participating broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the expiration date of the exchange offer, we
will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer participating in the
exchange that requests those documents in its letter of transmittal.
LEGAL MATTERS
The validity of the New Notes will be passed upon for UHS by Dorsey & Whitney
LLP, Minneapolis, Minnesota, legal counsel for UHS.
INDEPENDENT ACCOUNTANTS
The balance sheets of UHS as of December 31, 1998 and 1997 and the related
statements of operations, changes in shareholders' (deficiency) equity and cash
flows for each of the three years in the period ended December 31, 1998,
included in 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.
89
<PAGE>
The consolidated balance sheet of HCI Acquisition Corps. and subsidiaries as
of December 31, 1997 and the related consolidated statement of income, retained
earnings and cash flows for the year then ended, included in this prospectus
and registration statement, have been included herein in reliance on the report
of Rubin, Brown, Gornstein & Co. LLP, independent auditors given on the
authority of that firm as experts in accounting and auditing.
The balance sheet of Patient's Choice Healthcare, Inc. as of December 31,
1997 and related statements of income and retained earnings and cash flows for
the year then ended, included in this prospectus and registration statement,
have been included herein in reliance on the report of Crowe, Chizek and
Company LLP, independent accountants given on the authority of that firm as
experts in accounting and auditing. Pursuant to a letter agreement, dated April
23, 1999, UHS has agreed to indemnify Crowe, Chizek and Company LLP for any
legal costs and/or related expenses incurred in successfully defending itself
and any of its partners and/or employees in connection with any legal action or
proceeding that arises as a result of the consent by Crowe, Chizek and Company
LLP to the inclusion of its report in this prospectus and registration
statement; provided however, that such indemnification will voided if, after
final adjudication, Crowe, Chizek and Company LLP is found to be liable for
professional malpractice.
90
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Universal Hospital Services, Inc.
Report of Independent Accountants...................................... F-2
Financial Statements:
Balance Sheets as of December 31, 1998 and 1997...................... F-3
Statements of Operations for the years ended December 31, 1998, 1997
and 1996............................................................ F-4
Statements of Shareholders' (Deficiency) Equity for the years ended
December 31, 1998, 1997 and 1996.................................... F-5
Statements of Cash Flows for the years ended December 31, 1998, 1997
and 1996............................................................ F-7
Notes to Financial Statements........................................ F-8
HCI Acquisition Corp. and Subsidiaries
Independent Auditors' Report........................................... F-23
Consolidated Financial Statements:
Consolidated Balance Sheet........................................... F-24
Consolidated Statements of Income and Retained Earnings.............. F-25
Consolidated Statements of Cash Flows................................ F-26
Notes to Consolidated Financial Statements........................... F-27
Patients' Choice Healthcare, Inc.
Report of Independent Accountants....................................... F-32
Financial Statements:
Balance Sheets........................................................ F-33
Statements of Income and Retained Earnings............................ F-34
Statements of Cash Flows.............................................. F-35
Notes to Financial Statements......................................... F-36
</TABLE>
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
Universal Hospital Services, Inc.:
In our opinion, the accompanying balance sheets and the related statements of
operations, shareholders' (deficiency) equity and cash flows present fairly, in
all material respects, the financial position of Universal Hospital Services,
Inc. (the Company) at December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
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 of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers llp
February 19, 1999, except
as to the last paragraph
of Note 9 for which the
date is March 18, 1999
F-2
<PAGE>
Universal Hospital Services, Inc.
Balance Sheets
as of December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
ASSETS ------------ -----------
<S> <C> <C>
Current assets:
Accounts receivable, less allowance for doubtful
accounts of $964,000 and $775,000 at December 31,
1998 and 1997, respectively......................... $ 17,900,816 $11,500,891
Inventories.......................................... 2,617,019 1,356,828
Deferred income taxes................................ 499,000 455,000
Other current assets................................. 1,669,790 1,233,778
------------ -----------
Total current assets............................... 22,686,625 14,546,497
Property and equipment, net:
Rental equipment, at cost less accumulated
depreciation........................................ 73,057,730 48,946,130
Property and office equipment, at cost less
accumulated depreciation............................ 3,496,370 2,965,509
------------ -----------
Total property and equipment, net.................. 76,554,100 51,911,639
Intangible assets:
Goodwill, less accumulated amortization.............. 37,924,246 14,308,704
Other, primarily deferred financing costs, less
accumulated amortization............................ 7,055,695 419,259
------------ -----------
Total assets....................................... $144,220,666 $81,186,099
============ ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' (DEFICIENCY) EQUITY
<S> <C> <C>
Current liabilities:
Current portion of long-term debt.................... $ 306,093 $ 211,229
Accounts payable..................................... 10,127,962 3,186,964
Accrued compensation and pension..................... 3,139,062 2,213,841
Accrued interest..................................... 3,675,921 233,251
Other accrued expenses............................... 648,500 577,623
Book overdrafts...................................... 2,129,795 717,675
------------ -----------
Total current liabilities.......................... 20,027,333 7,140,583
Long-term debt, less current portion................... 149,809,706 33,733,773
Deferred compensation and pension...................... 1,842,948 2,201,318
Deferred income taxes.................................. 2,966,000 5,110,000
Series B, 13% Cumulative Convertible Preferred Stock,
$0.01 par value; 25,000 shares authorized, 6,246
shares issued and outstanding at December 31, 1998,
net of unamortized discount, including accrued stock
dividends............................................. 5,277,000
Commitments and contingencies (Note 10)
Shareholders' (deficiency) equity:
Common Stock, $0.01 par value; 50,000,000 shares
authorized at December 31, 1998, 100,000,000 shares
authorized at December 31, 1997, 16,028,450 and
54,808,290 shares issued and outstanding at December
31, 1998 and 1997, respectively..................... 160,285 548,083
Additional paid-in capital........................... 2,051,026 15,549,440
(Accumulated deficit) retained earnings.............. (37,864,701) 16,902,902
Stock subscription receivable........................ (48,931)
------------ -----------
Total shareholders' (deficiency) equity............ (35,702,321) 33,000,425
------------ -----------
Total liabilities and shareholders' (deficiency)
equity............................................ $144,220,666 $81,186,099
============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
Universal Hospital Services, Inc.
Statements of Operations
for the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Equipment rentals...................... $61,700,554 $54,488,572 $50,742,774
Sales of supplies and equipment, and
other................................. 7,672,164 5,585,997 6,197,826
----------- ----------- -----------
Total revenues....................... 69,372,718 60,074,569 56,940,600
----------- ----------- -----------
Costs of rentals and sales:
Cost of equipment rentals.............. 16,311,608 13,577,382 13,331,864
Rental equipment depreciation.......... 14,432,414 14,434,891 12,602,442
Cost of supplies and equipment sales... 4,866,604 3,837,508 4,422,441
Loss on disposition of Bazooka Beds.... 2,866,119 -- --
Write-down of DPAP inventories......... -- -- 2,213,045
----------- ----------- -----------
Total costs of rentals and sales..... 38,476,745 31,849,781 32,569,792
----------- ----------- -----------
Gross profit......................... 30,895,973 28,224,788 24,370,808
Selling, general and administrative...... 21,299,536 18,448,092 19,695,301
Recapitalization and transaction costs... 5,099,302 1,719,195 305,804
----------- ----------- -----------
Operating income..................... 4,497,135 8,057,501 4,369,703
Interest expense......................... 11,233,885 3,011,610 2,518,330
----------- ----------- -----------
(Loss) income before income taxes and
extraordinary charge.................... (6,736,750) 5,045,891 1,851,373
----------- ----------- -----------
(Benefit) provision for income taxes:
Current................................ 32,000 1,562,000 329,000
Deferred............................... (1,129,000) 785,000 590,000
----------- ----------- -----------
(1,097,000) 2,347,000 919,000
----------- ----------- -----------
Net (loss) income before extraordinary
charge.................................. (5,639,750) 2,698,891 932,373
Extraordinary charge, net of deferred tax
benefit of $1,300,000................... 1,863,020
----------- ----------- -----------
Net (loss) income........................ $(7,502,770) $ 2,698,891 $ 932,373
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
Universal Hospital Services, Inc.
Statements of Shareholders' (Deficiency) Equity
for the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
(Accumulated Total
Additional Deficit) Stock Shareholders'
Common Paid-in Retained Subscription Equity
Stock Capital Earnings Receivable (Deficiency)
--------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
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
Net income.............. 2,698,891 2,698,891
--------- ------------ ------------ ---- ------------
Balance, December 31,
1997................... 54,808 16,042,715 16,902,902 33,000,425
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
Sale of 1,585 shares of
common stock to
employees under stock
purchase plan.......... 16 20,367 20,383
Issuance of 334,201
shars of common stock
pursuant to exercise of
stock options,
including $1,042,000 of
tax benefit............ 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 cost of
$581,857............... 13,757 20,729,663 20,743,420
</TABLE>
(Table continued on following page)
F-5
<PAGE>
Universal Hospital Services, Inc.
Statements of Shareholders' (Deficiency) Equity, Continued
for the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
(Accumulated Total
Additional Deficit) Stock Shareholders'
Common Paid-in Retained Subscription Equity
Stock Capital Earnings Receivable (Deficiency)
-------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Repurchase and
cancellation of
5,629,839 shares of
common stock pursuant
to the Merger (see
Note 2)................ $(56,298) $(40,358,994) $(46,847,213) $(87,262,505)
Stock subscription
receivable............. $(48,931) (48,931)
Stock split............. 140,620 (140,620)
Sale of 147,714 shares
of common stock to
employees.............. 1,477 338,590 340,067
Issuance of 256,272
shares of common stock
in connection with
acquisition of Home
Care Instruments,
Inc.................... 2,563 712,436 714,999
Issuance of warrant to
purchase 350,000 shares
of common stock in
connection with
issuance of Series B
preferred stock........ 1,000,000 1,000,000
Preferred stock
dividends.............. (277,000) (277,000)
Net loss................ (7,502,770) (7,502,770)
-------- ------------ ------------ -------- ------------
Balance, December 31,
1998................... $160,285 $ 2,051,026 $(37,864,701) $(48,931) $(35,702,321)
======== ============ ============ ======== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
Universal Hospital Services, Inc.
Statements of Cash Flows
for the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income...................... $(7,502,770) $ 2,698,891 $ 932,373
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Depreciation.......................... 15,223,028 15,170,804 13,337,178
Amortization.......................... 2,425,029 899,875 559,408
Provision for doubtful accounts....... 194,512 641,035 317,805
Loss (gain) on sales of equipment..... 3,241,077 (243,990) (229,548)
Write-down of DPAP inventories........ 2,213,045
Extraordinary charge less cash paid... 303,313
Deferred income taxes................. (2,778,000) 785,000 590,000
Changes in operating assets and
liabilities, net of impact of
acquisitions:
Accounts receivable.................. (3,151,844) (208,719) (663,645)
Inventories and other operating
assets.............................. (1,020,897) 228,085 (1,438,516)
Accounts payable and accrued
expenses............................ 2,806,629 29,956 (961,120)
----------- ----------- -----------
Net cash provided by operating
activities........................... 9,740,077 20,000,937 14,656,980
----------- ----------- -----------
Cash flows from investing activities:
Rental equipment purchases............. (27,656,279) (18,933,142) (14,466,057)
Property and office equipment
purchases............................. (927,277) (210,968) (744,110)
Proceeds from disposition of rental
equipment............................. 851,977 740,280 716,110
Acquisitions........................... (34,969,417) (12,074,854)
Other.................................. (194,647) 377,839 (290,216)
----------- ----------- -----------
Net cash used in investing
activities.......................... (62,895,643) (18,025,991) (26,859,127)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds under loan agreements......... 173,287,399 25,124,000 52,158,000
Payments under loan agreements......... (57,141,017) (28,329,330) (38,976,187)
Proceeds from issuance of common stock,
net of offering costs................. 21,054,955 864,501 211,344
Proceeds from issuance of Series B
preferred stock and common stock
warrants.............................. 6,246,000
Proceeds from the issuance of Series A
preferred stock....................... 6,000,000
Redemption of Series A preferred
stock................................. (6,246,000)
Repurchase of common stock............. (84,734,914) (727,375)
Payment of deferred financing costs.... (7,493,802)
Tax benefit of nonqualified stock
options............................... 1,042,000 309,150
Change in book overdraft............... 1,140,945 (140,689) (266,213)
----------- ----------- -----------
Net cash provided by (used in)
financing activities................ 53,155,566 (2,172,368) 12,399,569
----------- ----------- -----------
Net change in cash and cash
equivalents............................ -- (197,422) 197,422
Cash and cash equivalents at beginning
of period.............................. -- 197,422 --
----------- ----------- -----------
Cash and cash equivalents at end of
period................................. $ -- $ -- $ 197,422
=========== =========== ===========
Supplemental cash flow information:
Interest paid.......................... $ 7,791,000 $ 2,987,000 $ 2,329,000
=========== =========== ===========
Income taxes paid...................... $ 601,000 $ 1,778,000 $ 1,388,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
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:
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 purchases
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 $1.55 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 9).
. 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 $.5
million 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) (see Note 9).
. 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 approximately $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 years ended December 31, 1998, 1997, and 1996, the Company
incurred $5,099,302, $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-8
<PAGE>
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 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 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 $4,714,262 and $3,395,127
as of December 31, 1998 and 1997, respectively.
Deferred Financing Costs:
Deferred financing costs associated with issuing the 10.25% Senior Notes
and the new Revolving Credit Facility (see Note 9) are deferred and
amortized to interest expense over the related terms using the straight-
line method, which approximates the effective interest rate method.
Accumulated amortization was $1,291,246 as of December 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-9
<PAGE>
Universal Hospital Services, Inc.
Notes To Financial Statements, Continued
3. Significant Accounting Policies, continued:
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Recent Accounting Pronouncements:
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.
During 1998, the Company adopted Statement of Financial Accounting
Standards No. (SFAS) 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. The effect of adopting SFAS 130 had
no impact on the Company's financial statements as it has no other
comprehensive income in the periods presented.
The Company also adopted SFAS 131, "Disclosure about Segments of an
Enterprise and Related Information" during 1998. SFAS 131 requires
disclosure of segment data in a manner consistent with that used by an
enterprise for internal management reporting and decision making. SFAS 131
establishes requirements to report selected segment information quarterly
and to report entity-wide disclosures about products and services, major
customers and the material countries in which the entity holds assets and
reports revenue. The Company is in one business segment, provider of
moveable medical equipment through equipment rental and outsourcing
programs. Therefore, the adoption of SFAS 131 did not impact the Company's
financial reporting practices.
4. Acquisitions:
Home Care Instruments, Inc.:
On July 30, 1998, the Company acquired HCI Acquisition Corp. (HCI), the
parent company of Home Care Instruments, Inc., pursuant to a Stock Purchase
Agreement among the Company and shareholders of HCI. Under the agreement,
the Company acquired all of the outstanding capital stock of HCI for
approximately $19.3 million, including the repayment of approximately $3.6
million of outstanding indebtedness of HCI. The source of funds was
approximately $18.6 million under the Revolving Credit Facility and of the
issuance of 256,272 shares of the Company's common stock valued at
approximately $.7 million. In connection with the acquisition, the Company
amended its Revolving Credit Facility (see Note 9).
HCI rents medical equipment to the home care and hospital markets in the
Midwestern United States, renting approximately 100 types of equipment,
supplies disposable medical products used in connection with the rental
equipment, and provides a variety of biomedical services.
On September 29, 1998, Home Care Instruments, Inc. was merged with and into
HCI and, on September 30, 1998, HCI was merged with and into the Company.
F-10
<PAGE>
Universal Hospital Services, Inc.
Notes To Financial Statements, Continued
4. Acquisitions, continued:
Patient's Choice Healthcare, Inc.:
On August 17, 1998, the Company acquired all of the outstanding capital
stock of Patient's Choice Healthcare, Inc. (PCH), pursuant to a Stock
Purchase Agreement among the Company and the shareholders of PCH. Under the
agreement, the Company acquired all of the outstanding capital stock of PCH
for approximately $14.6 million, including the repayment of approximately
$2.7 million of outstanding indebtedness of PCH. In connection with the
acquisition, the Company amended its Revolving Credit Facility (see Note
9). The source of funds was approximately $8.6 million from the Revolving
Credit Facility and $6.0 million from proceeds of the issuance of 6,000
shares of Series A 12% Cumulative Convertible Accruing Paid-In-Kind
Preferred Stock of the Company (see Note 13).
PCH is a medical distribution company that rents, sells and leases IV pumps
to home infusion companies, long-term consulting pharmacies, oncology
clinics and hospitals. PCH sells over 4,000 disposable products and rents
over 60 different types of equipment. PCH also provides a variety of
biomedical services.
On September 30, 1998, PCH was merged with and into the Company.
Medical Rentals Stat, Inc.:
On November 5, 1998, the Company acquired Medical Rentals Stat, Inc. (MRS),
pursuant to a Stock Purchase Agreement among the Company and the
shareholders of MRS. Under the agreement, the Company acquired all of the
outstanding capital stock of MRS for approximately $1.8 million, including
the repayment of approximately $.4 million of outstanding indebtedness of
MRS. The source of funds was from the Revolving Credit Facility. In
connection with the acquisition, the Company amended its Revolving Credit
Facility (see Note 9).
MRS rents movable medical equipment to hospitals and home care providers in
Oklahoma. MRS also supplies disposable medical products used in connection
with the rental equipment, and provides a variety of biomedical services.
On November 10, 1998, MRS was merged with and into the Company.
The acquisitions of HCI, PCH and MRS were accounted for using the purchase
method. Accordingly, the respective purchase prices were allocated to
assets and liabilities acquired based on their estimated fair values. This
treatment resulted in approximately $25.3 million of cost in excess of net
tangible assets and liabilities acquired (goodwill) which is being
amortized on a straight-line basis over 15 years. The estimated fair values
of assets and liabilities acquired are as follows (in thousands):
<TABLE>
<CAPTION>
HCI PCH MRS
------- ------- ------
<S> <C> <C> <C>
Accounts receivable............................... $ 1,141 $ 1,826 $ 223
Rental equipment.................................. 4,908 2,834 563
Goodwill.......................................... 14,207 10,081 1,040
Other assets...................................... 549 824 56
Accounts payable and other liabilities............ (939) (972) (67)
Deferred tax liabilities.......................... (590)
------- ------- ------
$19,276 $14,593 $1,815
======= ======= ======
</TABLE>
The operations of the acquired entities have been included in the Company's
results of operations since the respective dates of acquisition.
F-11
<PAGE>
Universal Hospital Services, Inc.
Notes To Financial Statements, Continued
4. Acquisitions, continued:
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 and liabilities acquired (goodwill), which is
being amortized on a straight-line basis over 15 years. The estimated fair
values of assets and liabilities acquired are as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash........................................................... $ 217,000
Accounts receivable............................................ 949,000
Rental equipment............................................... 4,221,000
Goodwill....................................................... 7,349,000
Other assets................................................... 852,000
Accounts payable and other liabilities......................... (1,296,000)
-----------
$12,292,000
===========
</TABLE>
BERS' operations have been included in the Company's results of operations
since the date of acquisition.
----------------
The following summarizes pro-forma results of operations for the years
ended December 31, 1998, 1997 and 1996, assuming the acquisitions of HCI,
PCH, MRS and BERS occurred as of January 1 of the year preceding the year
acquired (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Total revenues..................................... $80,373 $76,705 $60,497
Net (loss) income.................................. (7,801) 2,781 616
</TABLE>
5. Loss on Disposition of Bazooka Beds:
During the third quarter of 1998, the Company recorded a loss of $2.9
million on the disposition of approximately 1,700 excess Bazooka Beds. The
Company retained approximately 750 Bazooka Beds in its rental equipment
pool. The Company had acquired its rental equipment pool of Bazooka Beds
under an exclusive agreement which was terminated by the Company in March
1996. Utilization of Bazooka Beds in the Company's pool had been below the
desired level and had declined steadily during 1997 and the first nine
months of 1998.
6. 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 $1.0 million in the second quarter and a charge of
$1.2 million 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.
F-12
<PAGE>
Universal Hospital Services, Inc.
Notes To Financial Statements, Continued
7. 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.
8. Property and Equipment:
Property and equipment at December 31, consists of the following:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Rental equipment................................. $152,638,043 $122,779,009
Less accumulated depreciation.................... 79,580,313 73,832,879
------------ ------------
Rental equipment, net.......................... $ 73,057,730 $ 48,946,130
============ ============
Land............................................. $ 120,000 $ 120,000
Buildings and leasehold improvements............. 1,670,963 1,418,658
Office equipment................................. 6,432,469 5,566,451
------------ ------------
8,223,432 7,105,109
Less accumulated depreciation.................... 4,727,062 4,139,600
------------ ------------
Property and office equipment, net............. $ 3,496,370 $ 2,965,509
============ ============
Total property and equipment, net.............. $ 76,554,100 $ 51,911,639
============ ============
</TABLE>
Effective July 1, 1998, the Company changed the estimated remaining useful
lives of all of its rental equipment from a range of three to seven years
to seven years. These revised useful lives more closely reflect the
expected remaining lives of the Company's rental equipment. This change
resulted in a reduction of depreciation expense for the year ended December
31, 1998 of approximately $2.4 million.
F-13
<PAGE>
Universal Hospital Services, Inc.
Notes To Financial Statements, Continued
9. Long-Term Debt:
Long-term debt at December 31, consists of the following:
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
10.25% senior notes............................ $100,000,000
Revolving credit facility...................... 48,600,000
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
7.47% senior note payable, due in quarterly
installments of $350,000, with the remaining
balance due in 2002, uncollateralized......... 7,100,000
8.29% Series B notes, payable in varying
quarterly installments beginning June 1, 2007,
with the remaining balance due in 2009,
uncollateralized.............................. 4,000,000
9.60% senior note payable, due in quarterly
installments of $375,000 beginning March 1,
2003, uncollateralized........................ 3,000,000
Revolving credit agreement, uncollateralized... 9,554,000
Capital lease obligations...................... 1,515,799 641,002
------------ -----------
150,115,799 33,945,002
Less current portion of long-term debt......... (306,093) (211,229)
------------ -----------
Total long-term debt......................... $149,809,706 $33,733,773
============ ===========
</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, 1998, would be approximately $159,600,000.
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. In connection with the
repayment of the long-term debt, the Company incurred an extraordinary
charge of $1,863,020 net of deferred tax benefit of $1,300,000, for early
termination fees and write-off of the related deferred financing costs.
The 10.25% Senior Notes (Senior Notes) mature on March 1, 2008. Interest on
the Senior Notes accrues at the rate of 10.25% per annum and is payable
semiannually on each March 1 and September 1. 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.
On January 21, 1999, the Company issued additional Senior Notes with an
aggregate face value of $35.0 million and received proceeds of $29.7
million after original issue discount. Proceeds from the Senior Notes were
used to reduce amounts outstanding under the Revolving Credit Facility.
F-14
<PAGE>
Universal Hospital Services, Inc.
Notes To Financial Statements, Continued
9. Long-Term Debt, continued:
The Company has entered into a Revolving Credit Facility with three
financial institutions. The Credit Facility, as amended, consists of a
$50.0 million senior secured revolving credit facility which will terminate
on February 23, 2003. As of December 31, 1998, $48.6 million was drawn down
on the Revolving Credit Facility.
Borrowings under the Revolving Credit Facility is secured by substantially
all the assets of the Company.
Interest on outstanding borrowings under the Revolving Credit Facility are
payable at a rate per annum, selected at the option of the Company, equal
to the Base Rate Margin (the Banks Base Rate plus 1%) or the adjusted
Eurodollar Rate Margin (2.25% over the adjusted Eurodollar Rate).
Commencing September 30, 1998, the Banks Base Rate and the Eurodollar Rate
used to calculate such interest rates may be adjusted if the Company
satisfies certain leverage ratios. At December 31, 1998, the Bank's Base
Rate was 8.75% and the Eurodollar Rate was 5.125%. Interest on borrowings
at the Base Rate shall be paid quarterly. Interest on borrowings at the
Eurodollar Rate shall be paid at the end of the corresponding Eurodollar
loan. In addition, a commitment fee of 0.50% per annum is payable on the
unused amount of the Revolving Credit Facility.
The Revolving Credit Facility contains certain covenants including
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 Senior Notes. The Company was in
technical violation of certain covenants in 1998. In March 1999, the
Revolving Credit Facility was amended to cure the violations.
10. Commitments and Contingencies:
Rental expenses were approximately $3,300,000, $3,100,000 and $3,500,000
for the years ended December 31, 1998, 1997 and 1996, 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, 1998:
<TABLE>
<CAPTION>
<S> <C>
1999........................................................... $3,352,866
2000........................................................... 2,836,684
2001........................................................... 1,466,749
2002........................................................... 1,235,398
2003........................................................... 736,894
Thereafter..................................................... 269,822
----------
Total.......................................................... $9,898,413
==========
</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.
F-15
<PAGE>
Universal Hospital Services, Inc.
Notes To Financial Statements, Continued
11. 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.
Effective December 31, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 132, "Employers' Disclosures About Pension
and Other Postretirement Benefits." This standard does not change the
measurement or recognition of pension or postretirement plans; however, it
standardizes the disclosure requirements to the extent practicable.
Change in Benefit Obligation:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Benefit obligation at beginning of year.......... $ 9,459 $ 7,902 $ 7,959
Service cost..................................... 334 320 348
Interest cost.................................... 678 634 598
Actuarial gain (loss)............................ 662 898 (766)
Benefits paid.................................... (263) (295) (237)
------- ------- -------
Benefit obligation at end of year................ $10,870 $ 9,459 $ 7,902
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Fair value of plan assets at beginning of
year......................................... $ 8,177 $ 7,661 $ 6,466
Employer contributions........................ 568
Actual return on plan assets.................. 1,791 811 864
Benefits paid................................. (263) (295) (237)
------- ------- -------
Fair value of plan assets at end of year...... $ 9,705 $ 8,177 $ 7,661
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Funded status.................................. $(1,165) $(1,281) $ (241)
Unrecognized net actuarial (loss) gain......... (479) 20 (786)
Accrued benefit liability...................... (199) (226) (254)
------- ------- -------
Accrued benefit liability included in the
balance sheet................................. $(1,843) $(1,487) $(1,281)
</TABLE>
Components of net periodic benefit cost are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Service cost..................................... $ 334 $ 320 $ 348
Interest cost.................................... 678 634 598
Expected return on plan assets................... (630) (583) (510)
Amortization of prior service cost............... (27) (27) (27)
Recognized net actuarial loss.................... 21
------- ------- -------
Net periodic benefit cost........................ $ 355 $ 344 $ 430
======= ======= =======
</TABLE>
F-16
<PAGE>
Universal Hospital Services, Inc.
Notes To Financial Statements, Continued
11. Employee Benefit Plans, continued:
Weighted average assumptions as of December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Discount rate............................................. 6.75% 7.25% 7.75%
Expected return on plan assets............................ 8.50% 8.50% 8.50%
Rate of compensation increase............................. 4.50% 4.50% 4.50%
</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. 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. The unfunded accumulated benefit obligation under the
plan at December 31, 1997 was $388,000. The projected benefit obligation
under the plan at December 31, 1997 was $1,064,000. 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. The pension expense for the years ended
December 31, 1998, 1997 and 1996 related to this plan, excluding the
curtailment gain, was $12,500, $208,000 and $154,000, respectively.
The Company also sponsors a defined contribution plan, which qualifies
under Section 401(a) of the Internal Revenue Code and covers substantially
all of the Company's employees. Employees 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 years ended December
31, 1998, 1997 and 1996, approximately $241,000, $246,000 and $279,000,
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.
12. Income Taxes:
The (benefit) provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- --------
<S> <C> <C> <C>
Currently payable:
Federal.................................. $1,194,000 $228,000
State.................................... $ 32,000 368,000 101,000
----------- ---------- --------
32,000 1,562,000 329,000
----------- ---------- --------
Deferred:
Federal.................................. (981,000) 677,000 445,000
State.................................... (148,000) 108,000 145,000
----------- ---------- --------
(1,129,000) 785,000 590,000
----------- ---------- --------
$(1,097,000) $2,347,000 $919,000
=========== ========== ========
</TABLE>
F-17
<PAGE>
Universal Hospital Services, Inc.
Notes To Financial Statements, Continued
12. Income Taxes , continued:
Reconciliations between the Company's effective income tax rate and the
U.S. statutory rate follow:
<TABLE>
<CAPTION>
1998 1997 1996
----- ---- ----
<S> <C> <C> <C>
Statutory U.S. Federal income tax rate................ (34.0)% 34.0% 34.0%
State income taxes, net of U.S. Federal income tax
benefit.............................................. (3.3) 6.4 8.7
Recapitalization and transaction costs................ 14.1 3.4
Goodwill amortization................................. 4.1 2.0 4.6
Other................................................. 2.8 .7 2.3
----- ---- ----
Effective income tax rate........................... (16.3)% 46.5% 49.6%
===== ==== ====
</TABLE>
The components of the Company's overall net deferred tax liability at
December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable............................... $ 64,000
Accrued and deferred compensation and pension..... 1,024,000 $1,118,000
Inventories....................................... 109,000 95,000
Other assets...................................... 47,000 48,000
Net operating loss carryforward................... 4,475,000
---------- ----------
Total deferred tax assets....................... 5,719,000 1,261,000
---------- ----------
Deferred tax liabilities:
Accelerated depreciation.......................... 8,157,000 5,899,000
Other............................................. 29,000 17,000
---------- ----------
Total deferred tax liabilities.................. 8,186,000 5,916,000
---------- ----------
Net deferred tax liability...................... $2,467,000 $4,655,000
========== ==========
</TABLE>
The operating loss carryforward expires in 2018.
13. Preferred Stock:
On August 7, 1998, the Company amended its Articles of Incorporation to
authorize the issuance of up to 10,000,000 shares of preferred stock, $0.01
par value, with such designations rights and preferences as the Board of
Directors of the Company may determine.
On August 17, 1998, the Board of Directors of the Company authorized the
issuance of 25,000 shares of preferred stock. These shares, designated as
Series A 12% Cumulative Convertible Accruing Pay-In-Kind Preferred Stock
(Series A Preferred Stock), are entitled to one vote per share on all
matters which common stockholders are entitled to vote and accrue pay-in-
kind dividends at the rate of 12% per annum. The Series A Preferred Stock
has a mandatory redemption date of August 17, 2008 at a redemption price of
$1,000 per share plus an amount in cash equal to all dividends outstanding
per share. The Series A Preferred Stock may be redeemed by the Company at
any time at a per share redemption price of $1,060 plus an amount in cash
equal to all dividends outstanding per share (calculated on the basis of
$1,060 per dividend share). The Series A Preferred Stock is convertible, at
the option of the holder, into common stock at the conversion price of
$2.79 per common share, adjusted for any subsequent changes in number of
common stock shares outstanding.
F-18
<PAGE>
Universal Hospital Services, Inc.
Notes To Financial Statements, Continued
On August 17, 1998, the Company issued 6,000 shares of its Series A
Preferred Stock to an affiliate of J.W. Childs, L.P., the holders of
approximately 78% of the Company's common stock.
13. Preferred Stock, continued:
On December 18, 1998, the Company redeemed 6,246 shares, including a stock
dividend of 246 shares, of its Series A Preferred Stock at the redemption
price of $1,000. Concurrent with the redemption, the Company issued 6,246
shares of Series B 13% Cumulative Accruing Pay-In-Kind Preferred Stock
(Series B Preferred Stock). The holder of Series B Preferred Stock have no
voting rights, and accrue pay-in-kind dividends at the rate of 13% per
annum. The Series B Preferred Stock has a mandatory redemption date of the
earlier of a change in control as defined, or August 17, 2008 at a
redemption price of $1,000 per share plus an amount in cash equal to all
dividends outstanding per share. The Series B Preferred Stock may be
redeemed by the Company at any time at redemption price of $1,025 to $1,050
as defined in the Agreement, plus an amount in cash equal to all dividends
outstanding per share. In addition, purchasers of the Series B Preferred
Stock received a warrant to purchase 350,000 shares of the Company's common
stock for $.01 per share. The warrant is exercisable immediately and
expires on August 17, 2008.
The estimated fair value of the warrant of $1,000,000 has increased
additional paid-in capital and has been reflected as a discount to the
carrying value of the Series B Preferred Stock. The discount is being
amortized as an additional dividend using the effective interest method
over the term of the Series B Preferred Stock.
14. Shareholders' Equity:
On August 7, 1998, the Company amended its Articles of Incorporation to
increase the number of shares of common stock it is authorized to issue
from 25,000,000 to 50,000,000.
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'
(Deficiency) Equity, 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, which was
increased to 50,000,000 on August 7, 1998.
Stockholders' Agreement:
On February 25, 1998, in conjunction with the merger, certain management
shareholders (as defined) and Childs entered into a stockholders' agreement
(the Stockholders' Agreement) with the Company. The Stockholders'
Agreement, among other things: (i) restricts the ability of certain
shareholders of the Company to transfer their shares of the Company's
common stock; (ii) gives the Company, Childs and certain management
shareholders 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 Revolving Credit Facility, to
require the Company to purchase shares of such common stock held by the
management shareholders, 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) at a purchase price based on an
EBITDA formula, as defined; and (iv) provides the parties thereto with
certain "tag-along," "drag-along," and "piggyback" registration rights, as
defined. As of December 31, there was no redemption value on the common
stock owned by certain management shareholders.
F-19
<PAGE>
Universal Hospital Services, Inc.
Notes To Financial Statements, Continued
14. Shareholders' Equity, continued:
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.
15. 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.
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.
F-20
<PAGE>
Universal Hospital Services, Inc.
Notes To Financial Statements, Continued
15. Stock Option and Stock Purchase Plans, continued:
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 December 31
December 31, ----------------------------------- --------------------------
Shares 1998 1998 1997 1996 1998 1997 1996
------ ------------ ----------- ---------- ---------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Granted................. 2,096,691 1,136,500 75,000
Rollover................ 1,015,220 (1,015,220)
Exercised............... (3,052,010) (937,000) (49,830) (290,000) (80,000)
Terminated.............. (30,000) (42,440) (3,000)
--------- ----------- ---------- ---------- -------- ------- -------
December 31:
Outstanding............ 3,081,911 -- 4,067,230 5,046,670 -- 290,000 370,000
========= =========== ========== ========== ======== ======= =======
Exercisable............ 1,015,220 -- 2,973,960 2,786,400 -- 290,000 370,000
Weighted Average Exercise
Price Per Share:
Granted................. $ 1.68 $ 0.91 $ 0.88
Rollover................ $ 0.77 $ 0.77
Exercised............... $ 0.76 $ 0.76 $ 0.66 $ 0.80
Terminated.............. $ 1.55 $ 0.84 $ 0.80
December 31:
Outstanding............ $ 1.68 $ 0.76 $ 0.76 $ 0.79 $ 0.79
Exercisable............ $ 0.77 $ 0.73 $ 0.79
</TABLE>
Options outstanding and exercisable at December 31, 1998 for the 1998 Plan
are as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------- ----------------------
Remaining
Weighted Weighted Weighted
Average Average Average
Range of Contractual Exercise Exercise
Exercise Prices Shares Life (Years) Price Shares Price
--------------- --------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.54--$0.93 1,015,220 7.5 $0.77 1,015,220 $ 0.77
$1.55--$2.79 2,066,691 10 $1.68 -- --
</TABLE>
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 years ended December 31, 1998 and 1997, respectively, 105,455
and 117,380 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 1998 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.
F-21
<PAGE>
Universal Hospital Services, Inc.
Notes To Financial Statements, Continued
15. Stock Option and Stock Purchase Plans, continued:
Had the Company used the fair value-based method of accounting for its 1998
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, 1998 and 1997
would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
Pro Forma
-----------------------
1998 1997
----------- ----------
<S> <C> <C>
Net (loss) income................................... $(7,829,799) $2,315,983
</TABLE>
The pro forma information above includes stock options granted in 1996
through 1998. Compensation expense under the fair value-based method of
accounting has increased beginning in 1998 due to the 2,096,691 stock
options granted during the year ended December 31, 1998. However, this
increase in pro forma compensation expense is 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 1998 and 1997 was
$0.40 and $0.31, 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>
1998 1997
-------------- --------------
<S> <C> <C>
Risk-free interest rates...................... 4.40% to 5.66% 5.44% to 5.61%
Expected life................................. 0.5 years 0.5 years
Expected volatility........................... 0.00% 44.41%
Expected dividends............................ None None
</TABLE>
16. Noncash Investing and Financing Transactions:
. In connection with the Company's acquisition of HCI (see Note 4), the
Company issued 256,272 shares of common stock valued at $714,999 in
partial consideration.
. Rental equipment purchases included in accounts payable at December 31,
1998, 1997 and 1996 was $8,405,458, $1,829,581 and $1,438,837,
respectively.
. During 1998, the Company issued preferred stock dividends totaling
$277,000.
F-22
<PAGE>
Independent Auditors' Report
Board of Directors
HCI Acquisition Corp. and Subsidiaries
St. Louis, Missouri
We have audited the accompanying consolidated balance sheet of HCI Acquisition
Corp. and subsidiaries as of December 31, 1997 and the related consolidated
statements of income, retained earnings and cash flows for the year then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of HCI Acquisition
Corp. and subsidiaries as of December 31, 1997 and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Rubin, Brown Gornstein & Co.
LLP
February 6, 1998
F-23
<PAGE>
HCI Acquisition Corp. and Subsidiaries
Consolidated Balance Sheet
<TABLE>
<CAPTION>
---
December 31,
1997
ASSETS ------------
<S> <C> <C>
Revenue Producing Equipment (Notes 4 And 7)................... $5,206,767
Other Assets:
Cash........................................................ 31,678
Accounts receivable (less allowance for doubtful accounts of
$25,400 in 1997)........................................... 1,473,419
Inventory (Note 7).......................................... 285,985
Prepaid and refundable income taxes......................... 2,699
Prepaid expenses and miscellaneous receivables.............. 11,436
Equipment and leasehold improvements (Notes 5 and 7)........ 438,257
Other assets (Note 6)....................................... 716,408
----------
Total Other Assets...................................... 2,959,882
----------
$8,166,649
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable (Note 7)...................................... $4,261,757
Accounts payable and accrued expenses....................... 1,279,324
Income taxes payable........................................ --
Deferred income tax liability (Note 9)...................... 660,000
----------
Total Liabilities....................................... 6,201,081
----------
Stockholders' Equity:
Common Stock:
Authorized 1,000 shares of $1 par value; issued and
outstanding 1,000 shares................................. 1,000
Additional paid-in capital.................................. 447,762
Retained earnings........................................... 1,516,806
----------
Total Stockholders' Equity 1,965,568
----------
$8,166,649
==========
</TABLE>
See the accompanying notes to consolidated financial statements.
F-24
<PAGE>
HCI Acquisition Corp. and Subsidiaries
Consolidated Statements of Income
and Retained Earnings
for the year ended December 31, 1997.
Consolidated Statement of Income
<TABLE>
<CAPTION>
1997
---------------
Amount
-----------
<S> <C> <C>
Net sales....................................................... $ 8,335,290
Cost of sales................................................... 3,168,924
-----------
Gross profit.................................................... 5,166,366
Operating expenses.............................................. 3,340,351
-----------
Income from operations.......................................... 1,826,015
Other expenses (note 8)......................................... 416,255
-----------
Income before provision for income taxes........................ 1,409,760
Provision for income taxes (note 9)............................. 524,279
-----------
Net income...................................................... $ 885,481
===========
</TABLE>
Consolidated Statement of Retained Earnings
<TABLE>
<S> <C>
Balance--beginning of year.......................................... $ 631,325
----------
Net income.......................................................... 885,481
----------
Balance--end of year................................................ $1,516,806
==========
</TABLE>
See the accompanying notes to consolidated financial statements.
F-25
<PAGE>
HCI Acquisition Corp. and Subsidiaries
Consolidated Statement of Cash Flows
for the year ended December 31, 1997
<TABLE>
<CAPTION>
1997
----------
<S> <C>
Cash flows from operating activities:
Net income........................................................ $ 885,481
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................... 1,615,070
Net (gain) loss on sale of revenue producing equipment.......... 89,258
Change in assets and liabilities:
Increase in accounts receivable............................... (1,777)
Decrease in inventory......................................... (55,179)
Decrease in prepaid and refundable income taxes............... (2,699)
Decrease in prepaid expenses and miscellaneous receivables.... (5,177)
Increase in accounts payable and accrued expenses............. 19,450
Decrease in income taxes payable.............................. (146,638)
Decrease in deferred income tax liability..................... (10,000)
----------
Net cash provided by operating activities......................... 2,387,789
----------
Cash flows from investing activities:
Proceeds from sale of revenue producing equipment............... 285,396
Payments for revenue producing equipment........................ (2,143,040)
Payments for equipment and leasehold improvements............... (312,158)
Payments for deposits........................................... (13,022)
Additional payment for goodwill related to look-back
agreement...................................................... (250,000)
----------
Net cash used in investing activities............................. (2,432,824)
----------
Net cash provided by financing activities:
Net advances on notes payable................................... 69,871
----------
Net increase in cash.............................................. 24,836
Cash--Beginning of year........................................... 6,842
----------
Cash--End of year................................................. $ 31,678
==========
Supplemental disclosure of cash flow information
Interest paid................................................... $ 326,454
Income taxes paid............................................... 683,616
----------
Noncash investing and financing activities (Note 10)
</TABLE>
See the accompanying notes to consolidated financial statements.
F-26
<PAGE>
HCI Acquisition Corp. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1997
1.Summary of Significant Accounting Policies
Consolidation
The accompanying consolidated financial statements include the accounts of
HCI Acquisition Corp. and its wholly-owned subsidiaries, Home Care
Instruments, Inc. and ADM Acquisition Company. Consolidated operations
relate primarily to the activities of the wholly-owned subsidiaries. All
intercompany account balances have been eliminated in consolidation.
Estimates and Assumptions
Management uses estimates and assumptions in preparing consolidated
financial statements. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses.
Revenue Producing Equipment
Revenue producing equipment is carried at cost, less accumulated
depreciation computed using straight-line and accelerated methods over
eight years.
Inventory
Inventory is stated at the lower of cost or market, valued principally on
the first-in, first-out basis.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are carried at cost, less accumulated
depreciation and amortization computed using straight-line and accelerated
methods over periods ranging from three to seven years, including lease
terms.
Deferred Merger Costs
Deferred merger costs consist of merger and financing costs incurred in
connection with the merger which are being amortized over sixty months.
Goodwill
Goodwill represents the excess cost of purchased companies over the fair
value of the net assets at the date of acquisition and payments to former
shareholders for waiver of certain shareholder rights under a look back
agreement. It is being amortized on the straight-line method over 15 years.
Income Taxes:
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred
income taxes related primarily to the difference between the basis of
revenue producing equipment for financial and income tax reporting. The
deferred income tax liability represents the future tax return consequences
of those differences which will be taxable when the assets are recovered.
F-27
<PAGE>
HCI Acquisition Corp. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
1. Operations:
On February 15, 1995, the Company President and two other individuals
executed a management buy-out and corporate restructuring of Home Care
Instruments, Inc. ("Home Care") whereby all outstanding shares of Class A
common stock were redeemed for $2,430,000. As part of the restructuring,
Home Care merged with HCI Acquisition, Inc. ("HCI") and became the
surviving corporation. In addition, HCI Acquisition Corp. ("HCIAC") was
formed. The President contributed all of the outstanding shares of Class B
common stock of Home Care to HCIAC and Home Care became a wholly-owned
subsidiary of HCIAC.
The business combination was accounted for as a purchase and the results of
operations of HCI are included in the accompanying financial statements
since the date of the merger.
On May 31, 1996, the Company formed ADM Acquisition Company ("ADMAC") which
acquired the net assets of Advanced Durable Medical, Inc. ("ADM") in a
business combination accounted for as a purchase. ADM is primarily engaged
in the rental of continuous passive motion equipment to individuals for
post-surgery rehabilitation while in their homes. The total cost of the
acquisition was $178,305 which exceeded the fair value of the net assets of
ADM by $50,450. The excess is being amortized on the straight-line method
over 15 years.
The Company rents and sells medical equipment and sells medical supplies to
hospitals and home care providers. Sales offices are maintained in St.
Louis, Missouri; Chicago, IL; Cedar Rapids, IA; Indianapolis, IN; Omaha,
NE; Dallas, Texas; Lenexa, KS; Columbia, South Carolina and Detroit,
Michigan. The Company grants credit to customers located primarily in the
Midwestern United States.
2.Revenue Producing Equipment:
Revenue producing equipment consists of:
<TABLE>
<CAPTION>
1997
----------
<S> <C>
Revenue producing equipment..................................... $7,361,070
Less: Accumulated depreciation.................................. 2,154,303
----------
<CAPTION>
$5,206,767
<S> <C>
==========
</TABLE>
Depreciation, gains and losses on revenue producing equipment charged
against income amounted to $1,484,266 in 1997 and is included in cost
sales.
3.Equipment and Leasehold Improvements:
Equipment and leasehold improvements consist of:
<TABLE>
<CAPTION>
1997
--------
<S> <C>
Vehicle........................................................... $405,231
Furniture and fixtures............................................ 220,553
Leasehold improvements............................................ 87,856
--------
713,640
Less: Accumulated depreciation and amortization................... 275,383
--------
$438,257
========
</TABLE>
F-28
<PAGE>
HCI Acquistion Corp. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
3.Equipment and Leasehold Improvements, continued:
Depreciation and amortization on equipment and leasehold improvements
charged against income amounted to $171,063 in 1997 and is included in
operating expenses.
4. Other Assets:
Other assets consist of:
<TABLE>
<CAPTION>
1997
--------
<S> <C>
Deferred merger costs, net of amortization........................ $ 34,465
Goodwill, net of amortization..................................... 657,653
Deposits.......................................................... 24,290
--------
$716,408
========
</TABLE>
Amortization of deferred merger costs and goodwill charged against income
amounted to $48,999 in 1997 (Note 8).
5. Notes Payable:
Notes payable consist of the following:
<TABLE>
<CAPTION>
1997
----------
<S> <C>
Note payable--bank, secured by accounts receivable, inventory,
equipment, and personal guarantees of the shareholders, payable
in monthly principal installments of $38,889 plus interest at
7.91%, with a final balloon payment due June 30, 2001.......... $2,138,889
Note payable--bank (revolving line of credit), secured by
accounts receivable, inventory, equipment and personal
guarantees of the shareholders, bears interest at the prime
rate plus 0.75%, due June 30, 2001............................. 1,805,000
Notes payable--bank, secured by vehicles, payable in monthly
installments of $10,229 including principal and interest
between 4.8%-10.75%, due at various dates through October
2001........................................................... 167,868
Note payable--shareholders, unsecured, bearing interest at 9%,
paid off subsequent to year end................................ 150,000
----------
$4,261,757
==========
</TABLE>
The scheduled maturities of notes payable at December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
Year Amount
---- ----------
<S> <C>
1998............................................................. $ 704,948
1999............................................................. 517,868
2000............................................................. 490,772
2001............................................................. 2,548,169
----------
$4,261,757
==========
</TABLE>
Interest expense amounted to $367,256 in 1997 (Note 8).
F-29
<PAGE>
HCI Acquistion Corp. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
5. Notes Payable, continued:
An agreement with the bank provides that the Company comply with certain
loan covenants and maintain certain net worth and debt service coverage
ratios. In addition, certain restrictions relating to, among other things,
mergers or consolidations, payment of dividends, pledging or assigning any
assets of the Company, the creation of additional indebtedness, and
becoming a guarantor in another company also apply.
The Company was in compliance with all loan covenants as of December 31,
1997.
In February 1998, the Company refinanced its revolving line of credit with
a bank into a $2,000,000 term loan to be amortized over a six year period
with a five year maturity date. The term loan is secured by accounts
receivable, inventory, equipment and personal guarantees of the
shareholders and bears interest at 9.25%.
The Company also obtained a new $1,000,000 revolving line of credit with a
two year maturity. This line of credit is secured by accounts receivable,
inventory, equipment and personal guarantees of the shareholders and bears
interest at the prime rate plus 0.75%.
6.Other Expenses
Other expenses consist of:
<TABLE>
<CAPTION>
1997
--------
<S> <C>
Interest expense (Note 7)......................................... $367,256
Amortization of deferred merger costs (Note 6).................... 48,999
--------
$416,255
========
</TABLE>
7. Income Taxes:
The provision for income taxes consists of:
<TABLE>
<CAPTION>
1997
--------
<S> <C>
Current federal and state income taxes computed at
statutory rates in effect........................................ $534,279
Deferred income tax credit........................................ (10,000)
--------
$524,279
========
</TABLE>
8. Supplemental Cash Flow Information:
The Company had the following noncash investing and financing activities
during 1997:
On February 1, 1997, the Company acquired the rental equipment of Omni
Medical Supply and the rental income stream derived from those assets in a
business combination accounted for as a purchase. The total cost of the
acquisition was $600,000 which exceeded the fair value of the rental
equipment by $395,000. The Company funded the acquisition through
shareholder debt infusion of $150,000 and borrowings on the step-down
revolving note.
F-30
<PAGE>
HCI Acquisition Corp. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
9.Commitments:
On February 15, 1997, the Company entered into a lease agreement at a new
location in St. Louis which provides for annual base rentals of $64,200
throughout the terms of the lease, which expires April 30, 2000.
The Company is also obligated under additional leases for its sales
offices. The leases expire at various dates through 2000.
Rent expense charged to operations amounted to $118,557 in 1997.
The minimal annual lease payments for the remaining terms of the leases are
as follows:
<TABLE>
<CAPTION>
Year Amount
---- --------
<S> <C>
1998............................................................... $128,000
1999............................................................... 124,000
2000............................................................... 60,000
--------
$312,000
========
</TABLE>
10.Subsequent Events:
On February 28, 1998, the shareholders of HCI Acquisition Corp. and
subsidiaries purchased the stock of ADM Acquisition Company for $200,000.
F-31
<PAGE>
Patient's Choice Healthcare, Inc.
Report of Independent Accountants
Board of Directors
Patient's Choice Healthcare, Inc.
Columbus, Ohio
We have audited the accompanying balance sheet of Patient's Choice Healthcare,
Inc. as of December 31, 1997, and related statements of income and retained
earnings and cash flows for the year then ended. 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 audit.
We conducted our audit 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 amounts and disclosures in the financial statements. An audit also
includes assessing accounting principles used and significant estimates made by
management, as well as evaluating overall financial statement presentation. We
believe our audit provides 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 Patient's Choice Healthcare,
Inc. as of December 31, 1997 and its results of operation and cash flows for
the year then ended in conformity with generally accepted accounting
principles.
Crowe, Chizek and Company LLP
Columbus, Ohio
January 30, 1998
F-32
<PAGE>
Patient's Choice Healthcare, Inc.
Balance Sheet
December 31, 1997
<TABLE>
<S> <C>
ASSETS
Current assets
Cash.............................................................. $ 275,868
Accounts receivable (less allowance of $12,500)................... 1,314,304
Net investment in sales-type leases, current portion (Note 2)..... 148,487
Inventories....................................................... 419,485
Prepaid expenses.................................................. 3,860
----------
Total current assets............................................ 2,162,004
Property and equipment
Equipment......................................................... 5,222,331
Furniture and fixtures............................................ 105,023
Building improvements............................................. 18,541
Autos and trucks.................................................. 28,314
----------
5,374,209
Accumulated depreciation.......................................... 2,499,099
----------
2,875,110
Other assets
Net investment in sales-type leases, noncurrent portion
(Note 2)......................................................... 210,861
Deposits.......................................................... 22,800
----------
233,661
----------
$5,270,775
==========
LIABILITIES
Current liabilities
Short-term borrowings (Note 3).................................... $ 139,343
Current maturities of long-term debt (Note 3)..................... 891,429
Accounts payable.................................................. 417,051
Accrued payroll taxes payable..................................... 401,397
Other liabilities................................................. 89,141
Due to shareholders............................................... 24,092
Accrued interest.................................................. 16,972
----------
Total current liabilities....................................... 1,979,425
Long-term debt less current maturities (Note 3)..................... 1,337,143
Shareholders' equity
Common shares $1.00 par value; authorized 500 shares; issued and
outstanding...................................................... 500
Paid-in-capital................................................... 2,500
Retained earnings................................................. 1,951,207
----------
1,954,207
----------
$5,270,775
==========
</TABLE>
See accompanying notes to financial statements
F-33
<PAGE>
Patient's Choice Healthcare, Inc.
Statement of Income and Retained Earnings
for the year ended December 31, 1997
<TABLE>
<S> <C>
Net sales........................................................... $8,463,118
Cost of sales
Material.......................................................... 3,750,926
Depreciation...................................................... 1,418,475
----------
5,169,401
----------
Gross Profit........................................................ 3,293,717
General and administrative expenses ................................ 1,938,675
----------
Operating income.................................................... 1,355,042
Other income (expense)
Interest expense.................................................. (226,095)
Interest income .................................................. 44,834
Other, net ....................................................... 108,789
----------
(72,472)
----------
Net income.......................................................... 1,282,570
Retained earnings, beginning of year................................ 1,194,042
Dividends........................................................... (525,405)
----------
Retained earnings, end of year...................................... $1,951,207
==========
</TABLE>
See accompanying notes to financial statements
F-34
<PAGE>
Patient's Choice Healthcare, Inc.
Statement of Cash Flows
for the year ended December 31, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income....................................................... $1,282,570
Adjustments to reconcile net income to net cash from operating
activities
Depreciation................................................... 1,418,475
Provision for doubtful accounts................................ 28,557
Changes in assets and liabilities
Accounts receivable.......................................... (253,023)
Notes receivable............................................. (267,145)
Inventories.................................................. (175,273)
Other assets................................................. 8,158
Accounts payable............................................. (315,449)
Other liabilities............................................ 174,062
----------
Net cash from operating activities......................... 1,900,932
Cash flows from investing activities:
Expenditures for property and equipment.......................... (1,413,327)
----------
Net cash from investing activities......................... (1,413,327)
Cash flows from financing activities:
Short-term borrowings, net....................................... 139,343
Principal payments on long-term borrowings....................... (3,092,125)
Proceeds from long-term borrowings............................... 2,600,000
Proceeds from shareholder advances............................... 4,609
Dividends paid................................................... (525,405)
----------
Net cash from financing activities......................... (873,578)
----------
Net change in cash................................................. (385,973)
Cash balance, beginning of year.................................... 661,841
----------
Cash balance, end of year.......................................... $ 275,868
==========
Supplemental disclosures of cash flow information
Cash paid during the year for interest..................... $ 214,896
</TABLE>
See accompanying notes to financial statements
F-35
<PAGE>
Patient's Choice Healthcare, Inc.
Notes to Consolidated Financial Statements
1.Accounting and Reporting Policies:
Purpose:
The Company is engaged in sales and rental of medical equipment and
supplies principally throughout the United States east of the Mississippi
River.
Revenue Recognition:
The Company recognizes revenue on rentals of IV pumps based on daily or
monthly charges.
Inventories:
Inventories consist primarily of disposable medical supplies and are valued
at the lower of cost or market on the first-in, first-out method.
Property and Equipment:
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed over the estimated useful lives of assets using
accelerated methods.
Income Taxes:
The Company has elected to be taxed as an S-Corporation under the Internal
Revenue Code. Therefore, the Company does not pay corporate income taxes on
its taxable income. Instead, shareholders are liable for individual income
taxes on their respective shares of the Company's taxable income.
Use of Estimates:
In preparing financial statements, management must make estimates and
assumptions. These estimates and assumptions affect the amount reported for
assets, liabilities, revenue and expenses, as well as disclosures provided.
Future results could differ from current estimates.
2.Net Investment in Sales-Type Leases
The Company, as lessor, has entered various sales-type leases of its
equipment. The components of net investment in sales-type leases as of
December 31, 1997 are as follows:
<TABLE>
<S> <C>
Total minimum lease payments to be received....................... $423,485
Deferred revenue.................................................. 64,137
--------
$359,348
========
</TABLE>
Future annual minimum lease payment receivables, net of deferred revenue,
are as follows:
<TABLE>
<S> <C>
1998............................................................... $148,487
1999............................................................... 147,315
2000............................................................... 63,546
--------
$359,348
========
</TABLE>
F-36
<PAGE>
Patient's Choice Healthcare, Inc.
Notes to Financial Statements, Continued
3.Long-Term Debt
The Company has the following borrowing arrangement at December 31, 1997:
<TABLE>
<S> <C>
Note payable in monthly installments of $74,286 plus interest at
the prime rate; secured by receivables and other assets; final
installment due on June 1, 2000................................ $2,228,572
Current maturities.............................................. 891,429
----------
Long-term debt, less current maturities......................... $1,337,143
==========
</TABLE>
Annual long-term debt maturities payable after December 31, 1997 are:
<TABLE>
<S> <C>
1998............................................................... $891,429
1999............................................................... 891,429
2000............................................................... 445,714
</TABLE>
The prime interest rate was 8.5% at December 31, 1997. The borrowing
arrangement at December 31, 1997, contains loan covenants with respect to
tangible net worth and liabilities to tangible net worth. The Company
complies with these covenants.
At December 31, 1997, the Company has a $2,500,000 bank line-of-credit,
payable on May 1, 1998, interest was at a daily variable rate equal to the
30-day libor rate plus 225 basis points and this was collateralized by
receivables and other assets. The Company has an outstanding balance of
$139,343 at December 31, 1997.
4.Leasing Arrangements
The Company leases office and warehouse space and medical equipment under
operating leases expiring at various dates through 2005. Minimum annual
future rental payments under these leases are as follows:
<TABLE>
<S> <C>
1998............................................................... $ 95,697
1999............................................................... 90,240
2000............................................................... 89,342
2001............................................................... 92,154
2002............................................................... 93,564
Thereafter......................................................... 181,094
</TABLE>
Rental expense was $38,155 for the year ended December 31, 1997.
5.Profit Sharing and 401(k) Plan
The Company has a qualified profit sharing retirement plan with a 401(k)
deferred-compensation provision for all eligible employees of the Company.
Under the plan, employees may elect to defer up to 10% of their salary,
subject to the Internal Revenue Service limits. The Company contributes, on
the 401(k) portion of the plan, 25% of amounts contributed by employees.
Such matching contributions vest to participants over five years and were
$13,617 for the year ended December 31, 1997.
6.Related Party Transactions
The Company had a 30-month lease agreement with its principal shareholder.
The lease, related to the rental of medical equipment with a monthly
obligation of $500, was effective from September 1, 1994 through February
28, 1997.
The Company has a shareholders agreement that, among other provisions,
restricts the sale of the shareholders stock and provides for an agreed-
upon value under certain conditions.
F-37
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Article 4 of UHS's Restated Articles of Incorporation provides that a
director shall not be personally liable to UHS 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 UHS or its shareholders,
(ii) for act 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 a
director derived an improper personal benefit or (v) for any act or omission
occurring prior to the sate when such Article 4 became effective.
The Bylaws of UHS provide that officers and directors and certain others
shall be indemnified substantially to the same extent required 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, fined,
settlements and reasonable expenses, including attorney's fees and
disbursements, incurred by such person in conjunction with the proceeding of
certain statutory standards are met. "Proceeding" means 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 mad thereto for a complete statement of such indemnification
rights.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
No. Description
--- -----------
<S> <C>
2.1 Stock Purchase and Sale Agreement, dated as of July 30, 1998, by and among
Jeffrey L. Singer, Todd B. Siwak, Roger I. Siwak, the Michael Singer Family
Trust, Center of Contemporary Arts, the Jewish Federation of St. Louis and
the Company. (Incorporated by reference to Exhibit 2 to the Form 8-K filed
August 13, 1998.)
2.2 Stock Purchase Agreement, dated as of August 7, 1998, by and among the
Company and the shareholders of Patient's Choice Healthcare, Inc.
(Incorporated by reference to Exhibit 2.1 to the Form 8-K filed September
1, 1998.)
3.1 Amended and Restated Articles of Incorporation of the Company (Incorporated
by reference to Exhibit 3.1 to the Form 10-K filed March 31, 1999)
3.2 Amended and Restated Bylaws of the Company (Incorporated by reference to
Exhibit 3.2 to the Form 10-K filed March 31, 1999)
3.3 Amendment to Articles of Incorporation of the Company (Incorporated by
reference to Exhibit 3.3 to the Form 10-K filed March 31, 1999)
3.4 Certificate of Designation of Series A 12% Cumulative Convertible Accruing
Pay-In-Kind Preferred Stock (Incorporated by reference to Exhibit 3.4 to
the Form 10-K filed March 31, 1999)
3.5 Certificate of Designation of Series B 13% Cumulative Accruing Pay-In-Kind
Preferred Stock (Incorporated by reference to Exhibit 3.5 to the Form 10-K
filed March 31, 1999)
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"))
5.1 Opinion of Dorsey & Whitney, LLP
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
No. Description
--- -----------
<S> <C>
10.1 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)
10.2 Form of Stock Subscription Agreement dated as of February 25, 1998, by and
between the Company and certain Managment 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 (Incorporated by reference to
Exhibit 10.5 to the Form S-1 filed July 6, 1998)
10.6 Universal Hospital Services, Inc. 1998 Stock Option Plan (Incorporated by
reference to Exhibit 10.6 to the Form S-1 filed July 6, 1998)
10.7 Amended and Restated Employment Agreement between the Company and Andrew R.
Amicon, dated November 12, 1998. (Incorporated by reference to Exhibit 10.7
to the Form 10-K filed March 31, 1999)
10.8 Employment Agreement between the Company and Jeffrey Singer, dated July 30,
1998. (Incorporated by reference to Exhibit 10.8 to the Form 10-K filed
March 31, 1999)
10.9 Amendment No. 1 to the Credit Agreement dated as of May 6, 1998, by and
between the Company and Bankers Trust Company (Incorporated by reference to
Exhibit 4.3(a) to the Form 10-Q/A filed September 1, 1998)
10.10 Amendment No. 2 to the Credit Agreement dated as of July 30, 1998, by and
between the Company and Bankers Trust Company (Incorporated by reference to
Exhibit 4.3(b) to the Form 10-Q/A filed September 1, 1998)
10.11 Amendment No. 3 to the Credit Agreement dated as of August 17, 1998, by and
between the Company and Bankers Trust Company (Incorporated by reference to
Exhibit 4.3(c) to the Form 10-Q/A filed September 1, 1998)
10.12 Amendment No. 4 to the Credit Agreement dated as of August 20, 1998, by and
between the Company and Bankers Trust Company (Incorporated by reference to
Exhibit 4.3(d) to the Form 10-Q/A filed September 1, 1998)
10.13 Amendment No. 5 to the Credit Agreement dated as of November 5, 1998, by
and between the Company and Bankers Trust Company (Incorporated by
reference to Exhibit 4.3(e) to the Form 10-Q filed November 13, 1998)
10.14 Amendment No. 6 to the Credit Agreement dated as of December 18, 1998, by
and between the Company and Bankers Trust Company (Incorporated by
reference to Exhibit 3.1 to the Form 10-K filed March 31, 1999)
10.15 Amendment No. 7 to the Credit Agreement dated as of January 22, 1999, by
and between the Company and Bankers Trust Company (Incorporated by
reference to Exhibit 10.15 to the Form 10-K filed March 31, 1999)
10.16 Amendment No. 8 to the Credit Agreement dated as of March 18,1999, by and
between the Company and Bankers Trust Company (Incorporated by reference to
Exhibit 10.16 to the Form 10-K filed March 31, 1999)
10.17 Form of Incentive Stock Option Agreement dated as of March 17, 1998,
between the Company and certain officers of the Company. (Incorporated by
reference to Exhibit 10.17 to the Form 10-K filed March 31, 1999)
10.18 Form of Non-Incentive Stock Option Agreement dated as of March 17, 1998,
between the Company and certain directors of the Company (Incorporated by
reference to Exhibit 10.18 to the Form 10-K filed March 31, 1999)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
No. Description
--- -----------
<S> <C>
*10.19 Registration Rights Agreement, dated as of January 26, 1999, between the
Company and BT. Alex. Brown Incorporated and Donaldson, Lufkin & Jenrette
Securities Corporation, as Initial Purchasers
*12.1 Statement regarding the computation of ratio of earnings to fixed charges
for the Company
*23.1 Consent of PricewaterhouseCoopers LLP
*23.2 Consent of Dorsey & Whitney LLP, counsel to the Company (included in
Exhibit 5.1)
*23.3 Consent of Rubin, Brown, Gornstein & Co. LLP
*23.4 Consent of Crowe, Chizek and Company LLP
*25.1 Statement of Eligibility and Qualification on Form T-1 of U.S. Bank Trust
National Association, as Trustee under the Indenture relating to the
Company's 103% Senior Exchange Notes due 2008.
*27.1 Financial Data Schedule
*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.
(b) Financial Schedules
Schedule II--Valuation and Qualifying Account and Reserves
Item 22. 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 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 statement; and
(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 at that time shall be deemed to be the initial bona
fide offering thereof.
II-3
<PAGE>
(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 mater has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Minneapolis, State of Minnesota on April 23, 1999.
UNIVERSAL HOSPITAL SERVICES, INC.
By /s/ David E. Dovenberg
----------------------------------
David E. Dovenberg President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated below.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
President, Chief Executive Offi- April 23, 1999
/s/ David E. Dovenberg cer and Director
- ---------------------------------
David E. Dovenberg (Principal Executive Officer)
Chief Financial Officer April 23, 1999
/s/ Gerald L. Brandt (Principal Financial and
- ---------------------------------
Gerald L. Brandt Accounting Officer)
/s/ Samuel B. Humphries Director April 23, 1999
- ---------------------------------
Samuel B. Humphries
/s/ Jerry D. Horn Director April 23, 1999
- ---------------------------------
Jerry D. Horn
/s/ Steven G. Segal Director April 23, 1999
- ---------------------------------
Steven G. Segal
/s/ Edward D. Yun Director April 23, 1999
- ---------------------------------
Edward D. Yun
</TABLE>
II-5
<PAGE>
Report of Independent Accountants on Financial Statement Schedule
Our audits of the financial statements referred to in our report dated February
19, 1999, except as to the last paragraph of Note 9 for which the date is March
18, 1999, appearing on page F-2 of this Registration Statement on Form S-4 also
included an audit of the financial statement schedule listed in item 21(b) of
this Form S-4. In our opinion, this financial statement schedule presents
fairly, in all material respects, the information set forth therein when read
in conjunction with the related financial statements.
PricewaterhouseCoopers llp
February 19, 1999
<PAGE>
UNIVERSAL HOSPITAL SERVICES, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
------ ---------- --------------------- ---------- ----------
Additions
---------------------
Balance at Charged to Charged to Deductions Balance at
beginning costs and other from end of
Description of period expense accounts reserves period
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Reserve for doubtful ac-
counts:
Year ended December
31, 1998............. 775,000 194,512 494,287 499,639 964,160
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
Reserve for inventory
obsolescence:
Year ended December
31, 1998............. 209,333 119,393 -- 85,100 243,626
Year ended December
31, 1997............. 204,560 205,640 -- 200,867 209,333
Year ended December
31, 1996............. 162,664 2,322,121 -- 2,280,225 204,560
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
2.1 Stock Purchase and Sale Agreement, dated as of July 30, 1998, by and
among Jeffrey L. Singer, Todd B. Siwak, Roger I. Siwak, the Michael
Singer Family Trust, Center of Contemporary Arts, the Jewish
Federation of St. Louis and the Company. (Incorporated by reference to
Exhibit 2 to the Form 8-K filed August 13, 1998.)
2.2 Stock Purchase Agreement, dated as of August 7, 1998, by and among the
Company and the shareholders of Patient's Choice Healthcare, Inc.
(Incorporated by reference to Exhibit 2.1 to the Form 8-K filed
September 1, 1998.)
3.1 Amended and Restated Articles of Incorporation of the Company
(Incorporated by reference to Exhibit 3.1 to the Form 10-K filed March
31, 1999)
3.2 Amended and Restated Bylaws of the Company (Incorporated by reference
to Exhibit 3.2 to the Form 10-K filed March 31, 1999)
3.3 Amendment to Articles of Incorporation of the Company (Incorporated by
reference to Exhibit 3.3 to the Form 10-K filed March 31, 1999)
3.4 Certificate of Designation of Series A 12% Cumulative Convertible
Accruing Pay-In-Kind Preferred Stock (Incorporated by reference to
Exhibit 3.4 to the Form 10-K filed March 31, 1999)
3.5 Certificate of Designation of Series B 13% Cumulative Accruing Pay-In-
Kind Preferred Stock (Incorporated by reference to Exhibit 3.5 to the
Form 10-K filed March 31, 1999)
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"))
*5.1 Opinion of Dorsey & Whitney, LLP
10.1 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)
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 (Incorporated by reference to
Exhibit 10.5 to the Form S-1 filed July 6, 1998)
10.6 Universal Hospital Services, Inc. 1998 Stock Option Plan (Incorporated
by reference to Exhibit 10.6 to the Form S-1 filed July 6, 1998)
10.7 Amended and Restated Employment Agreement between the Company and
Andrew R. Amicon, dated November 12, 1998. (Incorporated by reference
to Exhibit 10.7 to the Form 10-K filed March 31, 1999)
10.8 Employment Agreement between the Company and Jeffrey Singer, dated
July 30, 1998. (Incorporated by reference to Exhibit 10.8 to the Form
10-K filed March 31, 1999)
10.9 Amendment No. 1 to the Credit Agreement dated as of May 6, 1998, by
and between the Company and Bankers Trust Company (Incorporated by
reference to Exhibit 4.3(a) to the Form 10-Q/A filed September 1,
1998)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.10 Amendment No. 2 to the Credit Agreement dated as of July 30, 1998, by
and between the Company and Bankers Trust Company (Incorporated by
reference to Exhibit 4.3(b) to the Form 10-Q/A filed September 1,
1998)
10.11 Amendment No. 3 to the Credit Agreement dated as of August 17, 1998,
by and between the Company and Bankers Trust Company (Incorporated by
reference to Exhibit 4.3(c) to the Form 10-Q/A filed September 1,
1998)
10.12 Amendment No. 4 to the Credit Agreement dated as of August 20, 1998,
by and between the Company and Bankers Trust Company (Incorporated by
reference to Exhibit 4.3(d) to the Form 10-Q/A filed September 1,
1998)
10.13 Amendment No. 5 to the Credit Agreement dated as of November 5, 1998,
by and between the Company and Bankers Trust Company (Incorporated by
reference to Exhibit 4.3(e) to the Form 10-Q filed November 13, 1998)
10.14 Amendment No. 6 to the Credit Agreement dated as of December 18, 1998,
by and between the Company and Bankers Trust Company (Incorporated by
reference to Exhibit 3.1 to the Form 10-K filed March 31, 1999)
10.15 Amendment No. 7 to the Credit Agreement dated as of January 22, 1999,
by and between the Company and Bankers Trust Company (Incorporated by
reference to Exhibit 10.15 to the Form 10-K filed March 31, 1999)
10.16 Amendment No. 8 to the Credit Agreement dated as of March 18,1999, by
and between the Company and Bankers Trust Company (Incorporated by
reference to Exhibit 10.16 to the Form 10-K filed March 31, 1999)
10.17 Form of Incentive Stock Option Agreement dated as of March 17, 1998,
between the Company and certain officers of the Company. (Incorporated
by reference to Exhibit 10.17 to the Form 10-K filed March 31, 1999)
10.18 Form of Non-Incentive Stock Option Agreement dated as of March 17,
1998, between the Company and certain directors of the Company
(Incorporated by reference to Exhibit 10.18 to the Form 10-K filed
March 31, 1999)
*10.19 Registration Rights Agreement, dated as of January 26, 1999, between
the Company and BT. Alex. Brown Incorporated and Donaldson, Lufkin &
Jenrette Securities Corporation, as Initial Purchasers
*12.1 Statement regarding the computation of ratio of earnings to fixed
charges for the Company
*23.1 Consent of PricewaterhouseCoopers LLP
*23.2 Consent of Dorsey & Whitney LLP, counsel to the Company (included in
Exhibit 5.1)
*23.3 Consent of Rubin, Brown, Gornstein & Co., LLP
*23.4 Consent of Crowe, Chizek and Company LLP
*25.1 Statement of Eligibility and Qualification on Form T-1 of U.S. Bank
Trust National Association, as Trustee under the Indenture relating to
the Company's 103% Senior Exchange Notes due 2008.
*27.1 Financial Data Schedule
*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.
<PAGE>
Exhibit 5.1
The Board of Directors
Universal Hospital Services, Inc.
1250 Northland Plaza
3800 West 80th Street
Bloomington, Minnesota 55431
Re: Registration Statement on Form S-4
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-4 (the "Registration Statement") relating to the proposed
issuance by the Company of $35,000,000 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
$35,000,000 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 February 25, 1998 (the "Indenture") between the Company
and U.S. Bank 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 February 25, 1998
and January 14, 1999 (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>
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 (S) 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: April 26, 1999
Very truly yours,
/s/ Dorsey & Whitney LLP
<PAGE>
EXHIBIT 10.19
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of January 26, 1999
Between
UNIVERSAL HOSPITAL SERVICES, INC.
and
BT ALEX. BROWN INCORPORATED and
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
as Initial Purchasers
================================================================================
$35,000,000
10 1/4% SENIOR NOTES DUE 2008
<PAGE>
TABLE OF CONTENTS
Page
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1. Definitions............................................................ 1
2. Exchange Offer......................................................... 5
3. Shelf Registration..................................................... 9
Shelf Registration................................................ 9
Subsequent Shelf Registrations....................................10
Supplements and Amendments........................................10
4. Additional Interest....................................................10
5. Registration Procedures................................................13
6. Registration Expenses..................................................24
7. Indemnification........................................................25
8. Rule 144 and 144A......................................................28
9. Underwritten Registrations.............................................29
10. Miscellaneous..........................................................29
No Inconsistent Agreements........................................29
Adjustments Affecting Registrable Notes...........................29
Amendments and Waivers............................................30
Notices 30
Successors and Assigns............................................31
Counterparts .....................................................32
Headings .........................................................32
Governing Law.....................................................32
Severability .....................................................32
Securities Held by the Company or Its Affiliates..................32
Third Party Beneficiaries.........................................32
Entire Agreement..................................................33
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REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is dated as of January
26, 1999 between Universal Hospital Services, Inc., a Minnesota corporation (the
"Company"), and BT Alex. Brown Incorporated and Donaldson, Lufkin & Jenrette
Securities Corporation, as initial purchasers (the "Initial Purchasers").
This Agreement is entered into in connection with the Purchase Agreement,
dated as of January 21, 1999, between the Company and the Initial Purchasers
(the "Purchase Agreement"), which provides for the sale by the Company to the
Initial Purchasers of $35,000,000 aggregate principal amount of the Company's 10
1/4% Senior Notes due 2008 (the "Notes"). In order to induce the Initial
Purchasers to enter into the Purchase Agreement, the Company has agreed to
provide the registration rights set forth in this Agreement for the benefit of
the Initial Purchasers and their direct and indirect transferees and assigns.
The execution and delivery of this Agreement is a condition to the Initial
Purchasers' obligation to purchase the Notes under the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the following
meanings:
Additional Interest: See Section 4(a) hereof.
Advice: See the last paragraph of Section 5 hereof.
Agreement: See the first introductory paragraph hereto.
Applicable Period: See Section 2(b) hereof.
Closing Date: The Closing Date as defined in the Purchase Agreement.
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Company: See the first introductory paragraph hereto.
Effectiveness Date: The date that is 180 days after the Issue Date;
provided, however, that with respect to any Shelf Registration, the
Effectiveness Date shall be the Shelf Effectiveness Date.
Effectiveness Period: See Section 3(a) hereof.
Event Date: See Section 4(b) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
rules and regulations of the SEC promulgated thereunder.
Exchange Notes: See Section 2(a) hereof.
Exchange Offer: See Section 2(a) hereof.
Exchange Registration Statement: See Section 2(a) hereof.
Filing Date: If no Exchange Registration Statement has been filed by the
Company pursuant to this Agreement, the 90th day after the Issue Date.
Holder: Any holder of a Registrable Note or Registrable Notes.
Indemnified Person: See Section 7(c) hereof.
Indemnifying Person: See Section 7(c) hereof.
Indenture: The Indenture, dated as of February 25, 1998 by and between the
Company and First Trust National Association, as Trustee, pursuant to which the
Notes are being issued, as amended or supplemented from time to time in
accordance with the terms thereof.
Initial Purchasers: See the first introductory paragraph hereto.
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Initial Shelf Registration: See Section 3(a) hereof.
Inspectors: See Section 5(o) hereof.
Issue Date: The date on which the Notes were sold to the Initial Purchasers
pursuant to the Purchase Agreement.
NASD: See Section 5(t) hereof.
Notes: See the second introductory paragraph hereto.
Participant: See Section 7(a) hereof.
Participating Broker-Dealer: See Section 2(b) hereof.
Person: An individual, trustee, corporation, partnership, limited liability
company, joint stock company, trust, unincorporated association, union, business
association, firm or other legal entity.
Private Exchange: See Section 2(b) hereof.
Private Exchange Notes: See Section 2(b) hereof.
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, any prospectus subject to completion and a
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, and all other amendments and supplements to the
Prospectus, with respect to the terms of the offering of any portion of the
Registrable Notes covered by such Registration Statement including
post-effective amendments, and all material incorporated by reference or deemed
to be incorporated by reference in such Prospectus.
Purchase Agreement: See the second introductory paragraph hereto.
Records: See Section 5(o) hereof.
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Registrable Notes: Each Note upon original issuance of the Notes and at all
times subsequent thereto, each Exchange Note as to which Section 2(c)(v) hereof
is applicable upon original issuance and at all times subsequent thereto and
each Private Exchange Note upon original issuance thereof and at all times
subsequent thereto, until in the case of any such Note, Exchange Note or Private
Exchange Note, as the case may be, the earliest to occur of (i) a Registration
Statement (other than, with respect to any Exchange Note as to which Section
2(c)(v) hereof is applicable, the Exchange Registration Statement) covering such
Note, Exchange Note or Private Exchange Note, as the case may be, has been
declared effective by the SEC and such Note, Exchange Note or Private Exchange
Note, as the case may be, has been disposed of in accordance with such effective
Registration Statement, (ii) such Note, Exchange Note or Private Exchange Note,
as the case may be, is sold in compliance with Rule 144, (iii) such Note has
been exchanged for an Exchange Note or Exchange Notes pursuant to an Exchange
Offer and is entitled to be resold without complying with the prospectus
delivery requirements of the Securities Act or (iv) such Note, Exchange Note or
Private Exchange Note, as the case may be, ceases to be outstanding for purposes
of the Indenture.
Registration Statement: Any registration statement of the Company,
including, but not limited to, the Exchange Registration Statement and any
registration statement filed in connection with a Shelf Registration, filed with
the SEC pursuant to the provisions of this Agreement, including the Prospectus,
amendments and supplements to such registration statement, including
post-effective amendments, all exhibits and all material incorporated by
reference or deemed to be incorporated by reference in such registration
statement.
Rule 144: Rule 144 promulgated under the Securities Act, as such Rule may
be amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the SEC providing for offers and sales of
securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
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Rule 144A: Rule 144A promulgated under the Securities Act, as such Rule may
be amended from time to time, or any similar rule (other than Rule 144) or
regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated under the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and the rules and
regulations of the SEC promulgated thereunder.
Shelf Effectiveness Date: With respect to any Shelf Registration, the 150th
day after the Shelf Filing Date.
Shelf Filing Date: The later of (i) the Filing Date or (ii) the 30th day
after the delivery of a Shelf Notice.
Shelf Notice: See Section 2(c) hereof.
Shelf Registration: See Section 3(b) hereof.
Subsequent Shelf Registration: See Section 3(b) hereof.
TIA: The Trust Indenture Act of 1939, as amended.
Trustee: The trustee under the Indenture and, if existent, the trustee
under any indenture governing the Exchange Notes and Private Exchange Notes (if
any).
Underwritten registration or underwritten offering: A registration in which
securities of one or more of the Issuers are sold to an underwriter for
reoffering to the public.
2. Exchange Offer
(a) The Company shall file with the SEC no later than the Filing Date an
offer to exchange (the "Exchange
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Offer") any and all of the Registrable Notes (other than the Private Exchange
Notes, if any) for a like aggregate principal amount of debt securities of the
Company that are identical in all material respects to the Notes (the "Exchange
Notes") (and that are entitled to the benefits of the Indenture or a trust
indenture that is identical in all material respects to the Indenture (other
than such changes to the Indenture or any such identical trust indenture as are
necessary to comply with any requirements of the SEC to effect or maintain the
qualification thereof under the TIA) and that, in either case, has been
qualified under the TIA), except that the Exchange Notes (other than Private
Exchange Notes, if any) shall have been registered pursuant to an effective
Registration Statement under the Securities Act and shall contain no restrictive
legend thereon. The Exchange Offer shall be registered under the Securities Act
on the appropriate form (the "Exchange Registration Statement") and shall comply
with all applicable tender offer rules and regulations under the Exchange Act.
The Company agrees to use its best efforts to (x) cause the Exchange
Registration Statement to be declared effective under the Securities Act on or
before the Effectiveness Date; (y) keep the Exchange Offer open for at least 20
business days (or longer if required by applicable law) after the date that
notice of the Exchange Offer is mailed to Holders; and (z) consummate the
Exchange Offer on or prior to the 210th day following the Issue Date. If after
such Exchange Registration Statement is declared effective by the SEC, the
Exchange Offer or the issuance of the Exchange Notes thereunder is interfered
with by any stop order, injunction or other order or requirement of the SEC or
any other governmental agency or court, such Exchange Registration Statement
shall be deemed not to have been effective for purposes of this Agreement during
the period of such interference, until the Exchange Offer or issuance of
Exchange Notes, as the case may be, may legally resume. Each Holder who
participates in the Exchange Offer will be required, as a condition to its
participation in the Exchange Offer, to represent in writing (which may be
contained in the applicable letter of transmittal) that any Exchange Notes
received by it will be acquired in the ordinary course of its business, that at
the time of the consummation of the Exchange Offer such Holder will have no
arrangement or understanding with any
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Person to participate in the distribution (within the meaning of the Securities
Act) of the Exchange Notes in violation of the provisions of the Securities Act
and that such Holder is not an affiliate of the Company within the meaning of
the Securities Act and is not acting on behalf of any persons or entities who
could not truthfully make the foregoing representations. Upon consummation of
the Exchange Offer in accordance with this Section 2, the provisions of this
Agreement shall continue to apply, mutatis mutandis, solely with respect to
Registrable Notes that are Private Exchange Notes and Exchange Notes held by
Participating Broker-Dealers, and the Company shall have no further obligation
to register Registrable Notes (other than Private Exchange Notes and other than
in respect of any Exchange Notes as to which clause 2(c)(v) hereof applies)
pursuant to Section 3 hereof. No securities other than the Exchange Notes shall
be included in the Exchange Registration Statement.
(b) The Company shall include within the Prospectus contained in the
Exchange Registration Statement a section entitled "Plan of Distribution,"
reasonably acceptable to the Initial Purchasers, that shall contain a summary
statement of the positions taken or policies made by the Staff of the SEC with
respect to the potential "underwriter" status of any broker-dealer that is the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange
Notes received by such broker-dealer in the Exchange Offer (a "Participating
Broker-Dealer"), which have been publicly disseminated by the Staff of the SEC.
Such "Plan of Distribution" section shall also expressly permit, to the extent
permitted by applicable policies and regulations of the SEC, the use of the
Prospectus by all Persons subject to the prospectus delivery requirements of the
Securities Act, including all Participating Broker-Dealers, and include a
statement describing the means by which Participating Broker-Dealers may resell
the Exchange Notes.
The Company shall use its best efforts to keep the Exchange Registration
Statement effective and to amend and supplement the Prospectus contained therein
in order to permit such Prospectus to be lawfully delivered by all Persons
subject to the prospectus delivery requirements of the Securities Act
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for such period of time as is necessary to comply with applicable law in
connection with any resale of the Exchange Notes; provided, however, that such
period shall not exceed 180 days after the consummation of the Exchange Offer
(or such longer period if extended pursuant to the last paragraph of Section 5
hereof) (the "Applicable Period").
Subject to applicable SEC policies and regulations, prior to consummation
of the Exchange Offer, in the event that the Initial Purchasers hold any Notes
acquired by either of them and having, or that are reasonably likely to be
determined to have, the status of an unsold allotment in the initial
distribution and solely upon the request of the Initial Purchasers which request
is made prior to the delivery of the Exchange Notes in the Exchange Offer, the
Company shall issue and deliver to the Initial Purchasers in exchange (the
"Private Exchange") for such Notes held by the Initial Purchasers simultaneously
with the delivery of the Exchange Notes in the Exchange Offer a like principal
amount of debt securities of the Company that are identical in all material
respects to the Exchange Notes (the "Private Exchange Notes") (and that are
issued pursuant to the same indenture as the Exchange Notes), except for the
placement of a restrictive legend on such Private Exchange Notes. The Private
Exchange Notes shall bear the same CUSIP number as the Exchange Notes.
Interest on the Exchange Notes and the Private Exchange Notes will accrue
(A) from the later of (i) the last interest payment date on which interest was
paid on the Notes surrendered in exchange therefor, or (ii) if the Note is
surrendered for exchange on a date in a period which includes the record date
for an interest payment date to occur on or after the date of such exchange and
as to which interest will be paid, the date of such interest payment date or (B)
if no interest has been paid on the Notes, from the Issue Date.
In connection with the Exchange Offer, the Company shall:
(1) mail, or cause to be mailed, to each Holder entitled to
participate in the Exchange Offer a copy of the Prospectus forming part of
the Exchange Registration
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Statement, together with an appropriate letter of transmittal and related
documents;
(2) utilize the services of a depositary for the Exchange Offer with
an address in the Borough of Manhattan, The City of New York;
(3) permit Holders to withdraw tendered Notes at any time prior to the
close of business, New York time, on the last business day on which the
Exchange Offer shall remain open; and
(4) otherwise comply in all material respects with all applicable
laws, rules and regulations.
As soon as practicable after the close of the Exchange Offer or the Private
Exchange, as the case may be, the Company shall:
(1) accept for exchange all Notes properly tendered and not validly
withdrawn pursuant to the Exchange Offer or the Private Exchange;
(2) deliver to the Trustee for cancellation all Notes so accepted for
exchange; and
(3) cause the Trustee to authenticate and deliver promptly to each
Holder of Notes, Exchange Notes or Private Exchange Notes, as the case may
be, equal in principal amount to the Notes of such Holder so accepted for
exchange.
The Exchange Notes and the Private Exchange Notes may be issued under (i)
the Indenture or (ii) an indenture identical in all material respects to the
Indenture, which in either event shall provide that (1) the Exchange Notes shall
not be subject to the transfer restrictions set forth in the Indenture and (2)
the Private Exchange Notes shall be subject to the transfer restrictions set
forth in the Indenture. The Indenture or such indenture shall provide that the
Exchange Notes, the Private Exchange Notes and the Notes shall vote and consent
together on all matters as one class and that neither the
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Exchange Notes, the Private Exchange Notes or the Notes will have the right to
vote or consent as a separate class on any matter.
(c) If, (i) because of any change in law or in currently prevailing
interpretations of the Staff of the SEC, the Company is not permitted to effect
an Exchange Offer, (ii) the Exchange Offer is not consummated within 210 days of
the Issue Date, (iii) the holder of Private Exchange Notes so requests at any
time after the consummation of the Private Exchange, (iv) the Holders of not
less than a majority in aggregate principal amount of the Registrable Notes
reasonably determine that the interests of the Holders would be materially
adversely affected by consummation of the Exchange Offer or (v) in the case of
any Holder that properly tenders Registrable Notes in the Exchange Offer, such
Holder does not receive Exchange Notes on the date of the exchange that may be
sold without restriction under state and federal securities laws (other than due
solely to the status of such Holder as an affiliate of the Company within the
meaning of the Securities Act), then the Company shall promptly deliver written
notice thereof (the "Shelf Notice") to the Trustee and in the case of clauses
(i), (ii) and (iv), all Holders, in the case of clause (iii), the Holders of the
Private Exchange Notes and in the case of clause (v), the affected Holder, and
shall file a Shelf Registration pursuant to Section 3 hereof.
3. Shelf Registration
If a Shelf Notice is delivered as contemplated by Section 2(c) hereof,
then:
(a) Shelf Registration. No later than the Shelf Filing Date, the Company
shall file with the SEC a Registration Statement for an offering to be made on a
continuous basis pursuant to Rule 415 covering all of the Registrable Notes not
exchanged in the Exchange Offer and Exchange Notes as to which Section 2(c)(v)
is applicable (the "Initial Shelf Registration"). The Initial Shelf Registration
shall be on Form S-1 or another appropriate form permitting registration of such
Registrable Notes for resale by Holders in the manner or manners designated by
them (including, without limitation, one
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or more underwritten offerings). The Company shall not permit any securities
other than the Registrable Notes to be included in the Initial Shelf
Registration.
The Company shall use its best efforts to cause the Initial Shelf
Registration to be declared effective under the Securities Act on or prior to
the Effectiveness Date and to keep the Initial Shelf Registration continuously
effective under the Securities Act until the date which is two years from the
Issue Date (the "Effectiveness Period"), or such shorter period ending when (i)
all Registrable Notes covered by the Initial Shelf Registration have been sold
in the manner set forth and as contemplated in such Initial Shelf Registration
or (ii) a Subsequent Shelf Registration covering all of the Registrable Notes
covered by and not sold under the Initial Shelf Registration or an earlier
Subsequent Shelf Registration has been declared effective under the Securities
Act; provided, however, that the Effectiveness Period in respect of the Initial
Shelf Registration shall be extended to the extent required to permit dealers to
comply with the applicable prospectus delivery requirements of Rule 174 and as
otherwise provided herein.
(b) Subsequent Shelf Registrations. If the Initial Shelf Registration or
any Subsequent Shelf Registration ceases to be effective for any reason at any
time during the Effectiveness Period (other than because of the sale of all of
the securities registered thereunder), the Company shall use its best efforts to
obtain the prompt withdrawal of any order suspending the effectiveness thereof,
and in any event shall within 30 days of such cessation of effectiveness amend
the Initial Shelf Registration in a manner to obtain the withdrawal of the order
suspending the effectiveness thereof, or file an additional "shelf" Registration
Statement pursuant to Rule 415 covering all of the Registrable Notes covered by
and not sold under the Initial Shelf Registration or an earlier Subsequent Shelf
Registration (each, a "Subsequent Shelf Registration"). If a Subsequent Shelf
Registration is filed, the Company shall use its best efforts to cause the
Subsequent Shelf Registration to be declared effective under the Securities Act
as soon as practicable after such filing and to keep such Subsequent Shelf
Registrations continuously effective for a period equal to the
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number of days in the Effectiveness Period less the aggregate number of days
during which the Initial Shelf Registration was previously continuously
effective. As used herein the term "Shelf Registration" means the Initial Shelf
Registration and any Subsequent Shelf Registration.
(c) Supplements and Amendments. The Company shall promptly supplement and
amend the Shelf Registration if required by the rules, regulations or
instructions applicable to the registration form used for such Shelf
Registration, if required by the Securities Act, or if reasonably requested by
the Holders of a majority in aggregate principal amount of the Registrable Notes
covered by such Registration Statement or by any underwriter of such Registrable
Notes.
4. Additional Interest
(a) The Company and the Initial Purchasers agree that the Holders of
Registrable Notes will suffer damages if the Company fails to fulfill its
obligations under Section 2 or Section 3 hereof and that it would not be
feasible to ascertain the extent of such damages with precision. Accordingly,
the Company agrees to pay, as liquidated damages, additional interest on the
Notes ("Additional Interest") under the circumstances and to the extent set
forth below (without duplication):
(i) if (A) neither the Exchange Registration Statement nor the Shelf
Registration Statement is filed with the SEC on or prior to the Filing Date
or (B) notwithstanding that the Company has consummated or will consummate
an Exchange Offer, the Company is required to file a Shelf Registration and
such Shelf Registration is not filed on or prior to the Shelf Filing Date,
then commencing on the day after (x) the Filing Date, in the case of clause
(A) above, or (y) the Shelf Filing Date, in the case of clause (B) above,
Additional Interest shall accrue on the principal amount of the Notes so
affected at a rate of 0.50% per annum for the first 90 days immediately
following,(x) the Filing Date, in the case of clause (A) above, or (y) the
Shelf Filing Date, in the case of clause (B) above, and such Additional
Interest rate shall
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increase by an additional 0.50% per annum at the beginning of each
subsequent 90-day period; or
(ii) if (A) neither the Exchange Registration Statement nor a Shelf
Registration Statement is declared effective by the SEC or (B)
notwithstanding that the Company has consummated or will consummate the
Exchange Offer, the Company is required to file a Shelf Registration and
such Shelf Registration is not declared effective by the SEC on or prior to
the Shelf Effectiveness Date, then, commencing on the day after (x) the
Effectiveness Date, in the case of clause (A) above, or (y) the Shelf
Effectiveness Date, in the case of clause (B) above, Additional Interest
shall accrue on the principal amount of the Notes so affected at a rate of
0.50% per annum for the first 90 days immediately following (x) the
Effectiveness Date, in the case of clause (A) above, or (y) the Shelf
Effectiveness Date, in the case of clause (B) above, with such Additional
Interest rate increasing by an additional 0.50% per annum at the beginning
of each subsequent 90-day period; or
(iii) if (A) the Company has not exchanged Exchange Notes for all
Notes validly tendered in accordance with the terms of the Exchange Offer
on or prior to the 45th day after the date on which the Exchange
Registration Statement was declared effective or (B) if applicable, a Shelf
Registration has been declared effective and such Shelf Registration ceases
to be effective at any time prior to the second anniversary of the Issue
Date (other than after such time as all Notes have been disposed of
thereunder), then Additional Interest shall accrue on the principal amount
of the Notes so affected at a rate of 0.50% per annum for the first 90 days
commencing on (x) the 46th day after such effective date, in the case of
(A) above, or (y) the day such Shelf Registration ceases to be effective in
the case of (B) above, such Additional Interest rate increasing by an
additional 0.50% per annum at the beginning of each subsequent 90-day
period;
provided, however, that the Additional Interest rate on any affected Note may
not exceed at any one time in the aggregate
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1.0% per annum; provided, further, however, that (1) upon the filing of the
Exchange Registration Statement or a Shelf Registration (in the case of clause
(i) of this Section 4(a)), (2) upon the effectiveness of the Exchange
Registration Statement or a Shelf Registration (in the case of clause (ii) of
this Section 4(a)), or (3) upon the exchange of Exchange Notes for all Notes
tendered (in the case of clause (iii)(A) of this Section 4(a)), or upon the
effectiveness of the Shelf Registration that had ceased to remain effective (in
the case of (iii)(B) of this Section 4(a)), Additional Interest on the Notes as
a result of such clause (or the relevant subclause thereof), as the case may be,
shall cease to accrue.
(b) The Company shall notify the Trustee within one business day after each
and every date on which an event occurs in respect of which Additional Interest
is required to be paid (an "Event Date"). Any amounts of Additional Interest due
pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section 4 will be payable in
cash semi-annually on each March 1 and September 1 (to the holders of record on
the February 15 and August 15 immediately preceding such dates), commencing with
the first such date occurring after any such Additional Interest commences to
accrue. The amount of Additional Interest will be determined by multiplying the
applicable Additional Interest rate by the principal amount of the Registrable
Notes, multiplied by a fraction, the numerator of which is the number of days
such Additional Interest rate was applicable during such period (determined on
the basis of a 360-day year consisting of twelve 30-day months) and the
denominator of which is 360.
5. Registration Procedures
In connection with the filing of any Registration Statement pursuant to
Section 2 or 3 hereof, the Company shall effect such registrations to permit the
sale of the securities covered thereby in accordance with the intended method or
methods of disposition thereof, and pursuant thereto and in connection with any
Registration Statement filed by the Company hereunder, the Company shall:
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(a) Prepare and file with the SEC on or prior to the Filing Date, a
Registration Statement or Registration Statements as prescribed by Sections
2 or 3 hereof, and use its best efforts to cause each such Registration
Statement to become effective and remain effective as provided herein;
provided, however, that, if (1) such filing is pursuant to Section 3 hereof
or (2) a Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period and who has notified the
Company in writing that it is such a Participating Broker-Dealer (a
"Notifying Broker-Dealer"), before filing any Registration Statement or
Prospectus or any amendments or supplements thereto, the Company shall
furnish to and afford the Holders of the Registrable Notes covered by such
Registration Statement or each such Notifying Broker-Dealer, as the case
may be, a reasonable opportunity to review copies of all such documents
(including copies of any documents to be incorporated by reference therein
and all exhibits thereto) proposed to be filed (in each case at least five
business days prior to such filing, or such later date as is reasonable
under the circumstances). The Company shall not file any Registration
Statement or Prospectus or any amendments or supplements thereto if the
Holders of a majority in aggregate principal amount of the Registrable
Notes covered by such Registration Statement, or any such Notifying
Broker-Dealer, as the case may be, shall reasonably object.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Shelf Registration or Exchange Registration Statement,
as the case may be, as may be necessary to keep such Registration Statement
continuously effective for the Effectiveness Period or the Applicable
Period, as the case may be; cause the related Prospectus to be supplemented
by any prospectus supplement required by applicable law, and as so
supplemented to be filed pursuant to Rule 424 (or any similar
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provisions then in force) promulgated under the Securities Act; and comply
with the provisions of the Securities Act and the Exchange Act applicable
to it with respect to the disposition of all securities covered by such
Registration Statement as so amended or in such Prospectus as so
supplemented and with respect to the subsequent resale of any securities
being sold by a Notifying Broker-Dealer covered by any such Prospectus.
(c) If (1) a Shelf Registration is filed pursuant to Section 3 hereof
or (2) a Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Notifying Broker-Dealer, notify the selling Holders
of Registrable Notes, or each such Notifying Broker-Dealer, as the case may
be, within two business days and confirm such notice in writing, (i) when a
Prospectus or any Prospectus supplement or post-effective amendment has
been filed, and, with respect to a Registration Statement or any
post-effective amendment, when the same has become effective under the
Securities Act (including in such notice a written statement that any
Holder may, upon request, obtain, at the sole expense of the Company, one
conformed copy of such Registration Statement or post-effective amendment
including financial statements and schedules, and, if specifically
requested, documents incorporated or deemed to be incorporated by reference
and exhibits), (ii) of the issuance by the SEC of any stop order suspending
the effectiveness of a Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus or the initiation of any
proceedings for that purpose, (iii) if at any time when a prospectus is
required by the Securities Act to be delivered in connection with sales of
the Registrable Notes or resales of Exchange Notes by Participating
Broker-Dealers the representations and warranties of the Company contained
in any agreement (including any underwriting agreement) contemplated by
Section 5(n) hereof cease to be true and correct, (iv) of the receipt by
the Company of any notification with respect to the suspension of the
qualification or exemption from qualification of a Registration Statement
or
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any of the Registrable Notes or the Exchange Notes to be sold by any
Participating Broker-Dealer for offer or sale in any jurisdiction, or the
initiation or written threat of any proceeding for such purpose, (v) of the
happening of any event, the existence of any condition or any information
becoming known that makes any statement made in such Registration Statement
or related Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires the making of any changes in or amendments or supplements to such
Registration Statement, Prospectus or documents so that, in the case of the
Registration Statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and
that in the case of the Prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading and (vi) of
the Company's determination that a post-effective amendment to a
Registration Statement would be appropriate.
(d) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
or (2) a Prospectus contained in the Exchange Offer Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, use its best efforts to
prevent the issuance of any order suspending the effectiveness of a
Registration Statement or of any order preventing or suspending the use of
a Prospectus or suspending the qualification (or exemption from
qualification) of any of the Registrable Notes or the Exchange Notes for
sale in any jurisdiction and, if any such order is issued, to use its best
efforts to obtain the withdrawal of any such order at the earliest possible
moment.
(e) If a Shelf Registration is filed pursuant to Section 3 and if
requested by the managing underwriter or
<PAGE>
-18-
underwriters, if any, or the Holders of a majority in aggregate principal
amount of the Registrable Notes being sold in connection with an
underwritten offering, (i) promptly incorporate in a prospectus supplement
or post-effective amendment such information as the managing underwriter or
underwriters, if any, such Holders or counsel for any of them determine is
reasonably necessary to be included therein and (ii) make all required
filings of such prospectus supplement or such post-effective amendment as
soon as practicable after the Company has received notification of the
matters to be incorporated in such prospectus supplement or post-effective
amendment.
(f) If (1) a Shelf Registration is filed pursuant to Section 3 hereof
or (2) a Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Notifying Broker-Dealer, furnish to each selling
Holder of Registrable Notes and to each such Notifying Broker-Dealer who so
requests, at the sole expense of the Company, one conformed copy of the
Registration Statement or Registration Statements and each post-effective
amendment thereto, including financial statements and schedules and, if
requested, all documents incorporated or deemed to be incorporated therein
by reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section 3 hereof
or (2) a Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Notifying Broker-Dealer, deliver to each selling
Holder of Registrable Notes, or each such Notifying Broker-Dealer, as the
case may be, at the sole expense of the Company, as many copies of the
Prospectus or Prospectuses (including each form of preliminary prospectus)
and each amendment or supplement thereto and any documents incorporated by
reference therein as such Persons may reasonably request; and, subject to
the last paragraph of this Section 5, the Company hereby consents to the
use of such Prospectus and each amendment or supplement thereto by each of
the selling Holders of Registrable Notes or
<PAGE>
-19-
each such Participating Broker-Dealer, as the case may be, in connection
with the offering and sale of the Registrable Notes covered by, or the sale
by Participating Broker-Dealers of the Exchange Notes pursuant to, such
Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Notes or Exchange
Notes or any delivery of a Prospectus contained in the Exchange
Registration Statement by any Notifying Broker-Dealer, to use its best
efforts to register or qualify and to cooperate with the selling Holders of
Registrable Notes or each such Notifying Broker-Dealer, as the case may be,
and their respective counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of
such Registrable Notes for offer and sale under the securities or Blue Sky
laws of such jurisdictions within the United States as any selling Holder
or Notifying Broker-Dealer reasonably request in writing; provided,
however, that where Exchange Notes held by Participating Broker-Dealers or
Registrable Notes are offered other than through an underwritten offering,
the Company agrees to cause its counsel to perform Blue Sky investigations
and file registrations and qualifications required to be filed pursuant to
this Section 5(h); keep each such registration or qualification (or
exemption therefrom) effective during the period such Registration
Statement is required to be kept effective and do any and all other acts or
things necessary or advisable to enable the disposition in such
jurisdictions of the Exchange Notes held by Participating Broker-Dealers or
the Registrable Notes covered by the applicable Registration Statement;
provided, however, that the Company shall not be required to (A) qualify
generally to do business in any jurisdiction where it is not then so
qualified, (B) take any action that would subject it to general service of
process in any such jurisdiction where it is not then so subject or (C)
subject itself to taxation in any such jurisdiction where it is not then so
subject.
<PAGE>
-20-
(i) If a Shelf Registration is filed pursuant to Section 3 hereof,
cooperate with the selling Holders of Registrable Notes and the managing
underwriter or underwriters, if any, to facilitate the timely preparation
and delivery of certificates representing Registrable Notes to be sold,
which certificates shall not bear any restrictive legends and shall be in a
form eligible for deposit with The Depository Trust Company; and enable
such Registrable Notes to be in such denominations and registered in such
names as the managing underwriter or underwriters, if any, or Holders may
request.
(j) Use its best efforts to cause the Registrable Notes covered by the
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the
Holders thereof or the underwriter or underwriters, if any, to consummate
the disposition of such Registrable Notes, except as may be required solely
as a consequence of the nature of such selling Holder's business, in which
case the Company will cooperate in all reasonable respects with the filing
of such Registration Statement and the granting of such approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section 3 hereof
or (2) a Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Notifying Broker-Dealer, upon the occurrence of any
event contemplated by paragraph 5(c)(v) or 5(c)(vi), hereof, as promptly as
practicable prepare and (subject to Section 5(a) hereof) file with the SEC,
at the Company's sole expense, a supplement or post-effective amendment to
the Registration Statement or a supplement to the related Prospectus or any
document incorporated or deemed to be incorporated therein by reference, or
file any other required document so that, as thereafter delivered to the
purchasers of the Registrable Notes being sold thereunder or to the
purchasers of the Exchange Notes to whom such Prospectus will be delivered
by a Notifying Broker-Dealer, any such Prospectus will not contain an
untrue statement of a material fact or omit to state a material fact
<PAGE>
-21-
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading. Notwithstanding the foregoing, the Company shall not be
required to amend or supplement a Registration Statement, any related
Prospectus or any document incorporated therein by reference, in the event
that, and for a period not to exceed an aggregate of 60 days in any
calendar year if, (i) an event occurs and is continuing as a result of
which the Shelf Registration would, in the Company's good faith judgment,
contain an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (ii) (a) the
Company determines in its good faith judgment that the disclosure of such
event at such time would have a material adverse effect on the business
operations or prospects of the Company or (b) the disclosure otherwise
relates to a pending material business transaction that has not yet been
publicly disclosed.
(l) Use its best efforts to cause the Registrable Notes covered by a
Registration Statement or the Exchange Notes, as the case may be, to be
rated with the appropriate rating agencies, if so requested by the Holders
of a majority in aggregate principal amount of Registrable Notes covered by
such Registration Statement or the Exchange Notes, as the case may be, or
the managing underwriter or underwriters, if any.
(m) Prior to the effective date of the first Registration Statement
relating to the Registrable Notes, (i) provide the Trustee with
certificates for the Registrable Notes or Exchange Notes, as the case may
be, in a form eligible for deposit with The Depository Trust Company and
(ii) provide a CUSIP number for the Registrable Notes or Exchange Notes, as
the case may be.
(n) In connection with any underwritten offering of Registrable Notes
pursuant to a Shelf Registration, enter into an underwriting agreement as
is customary in
<PAGE>
-22-
underwritten offerings of debt securities similar to the Notes and take all
such other actions as are reasonably requested by the managing underwriter
or underwriters in order to expedite or facilitate the registration or the
disposition of such Registrable Notes and, in such connection, (i) make
such representations and warranties to, and covenants with, the
underwriters with respect to the business of the Company and its
subsidiaries (including any acquired business, properties or entity, if
applicable) and the Registration Statement, Prospectus and documents, if
any, incorporated or deemed to be incorporated by reference therein, in
each case, as are customarily made by issuers to underwriters in
underwritten offerings of debt securities similar to the Notes, and confirm
the same in writing if and when requested; (ii) obtain the written opinion
of counsel to the Company and written updates thereof in form, scope and
substance reasonably satisfactory to the managing underwriter or
underwriters, addressed to the underwriters covering the matters
customarily covered in opinions requested in underwritten offerings of debt
similar to the Notes and such other matters as may be reasonably requested
by the managing underwriter or underwriters; (iii) obtain "cold comfort"
letters and updates thereof in form, scope and substance reasonably
satisfactory to the managing underwriter or underwriters from the
independent certified public accountants of the Company (and, if necessary,
any other independent certified public accountants of any subsidiary of the
Company or of any business acquired by the Company for which financial
statements and financial data are, or are required to be, included or
incorporated by reference in the Registration Statement), addressed to each
of the underwriters, such letters to be in customary form and covering
matters of the type customarily covered in "cold comfort" letters in
connection with underwritten offerings of debt securities similar to the
Notes and such other matters as reasonably requested by the managing
underwriter or underwriters in accordance with Statement on Auditing
Standards No. 72; and (iv) if an underwriting agreement is entered into,
the same shall contain indemnification provisions and procedures no less
favorable than those set forth in
<PAGE>
-23-
Section 7 hereof (or such other provisions and procedures acceptable to
Holders of a majority in aggregate principal amount of Registrable Notes
covered by such Registration Statement and the managing underwriter or
underwriters or agents) with respect to all parties to be indemnified
pursuant to said Section. The above shall be done at each closing under
such underwriting agreement, or as and to the extent required thereunder.
The Company shall not be required to enter into more than one such
underwriting agreement or to take such actions as are specified in this
Section 5(n) and Section 5(o) with respect to more than one underwritten
offering.
(o) If (1) a Shelf Registration is filed pursuant to Section 3 hereof
or (2) a Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Notifying Broker-Dealer, make available for
inspection by any selling Holder of such Registrable Notes being sold, or
each such Notifying Broker-Dealer, as the case may be, any underwriter
participating in any such disposition of Registrable Notes, if any, and any
attorney, accountant or other agent retained by any such selling Holder or
each such Notifying Broker-Dealer, as the case may be, or underwriter
(collectively, the "Inspectors"), at the offices where normally kept,
during reasonable business hours, all financial and other records,
pertinent corporate documents and instruments of the Company and its
subsidiaries (collectively, the "Records") as shall be reasonably necessary
to enable them to exercise any applicable due diligence responsibilities,
and cause the respective officers, directors and employees of the Company
and its subsidiaries to supply all information reasonably requested by any
such Inspector in connection with such Registration Statement and/or
Prospectus. If the Company shall so require, each Inspector shall agree in
writing that it will keep the Records confidential and that it will not
disclose any of the records that the Company determines, in good faith, to
be confidential and notifies the Inspectors are confidential unless (i) the
<PAGE>
-24-
disclosure of such Records is necessary to avoid or correct a misstatement
or omission in such Registration Statement and/or Prospectus, (ii) the
release of such Records is ordered pursuant to a subpoena or other order
from a court of competent jurisdiction, (iii) disclosure of such
information is, in the reasonable opinion of counsel for any Inspector,
necessary or advisable in connection with any action, claim, suit or
proceeding directly or indirectly involving or potentially involving such
Inspector and arising out of, based upon, relating to or involving this
Agreement, or any transactions contemplated hereby or arising hereunder or
(iv) the information in such Records has been made generally available to
the public. Each selling Holder of such Registrable Notes and each such
Notifying Broker-Dealer will be required to agree that information obtained
by it as a result of such inspections shall be deemed confidential and
shall not be used by it as the basis for any market transactions in the
securities of the Company unless and until such information is generally
available to the public. Each selling Holder of such Registrable Notes and
each such Notifying Broker-Dealer will be required to further agree that it
will, upon learning that disclosure of such Records is sought in a court of
competent jurisdiction, give notice to the Company and allow the Company to
undertake appropriate action to prevent disclosure of the Records deemed
confidential at the Company's sole expense. In addition, prior notice shall
be provided as soon as practicable to the Company of the potential
disclosure of any information by such Inspector pursuant to clauses (i) or
(ii) above to permit the Company to obtain a protective order (or waive the
provisions of this paragraph (o)) and that such Inspector shall take such
actions as are reasonably necessary to protect the confidentiality of such
information (if practicable) to the extent such action is otherwise not
inconsistent with, an impairment of or in derogation of the rights and
interest of the Holder or any Inspector.
(p) Provide an indenture trustee for the Registrable Notes or the
Exchange Notes, as the case may be, and cause
<PAGE>
-25-
the Indenture or the trust indenture provided for in Section 2(a) hereof,
as the case may be, to be qualified under the TIA not later than the
effective date of the Exchange Offer or the first Registration Statement
relating to the Registrable Notes; and in connection therewith, cooperate
with the trustee under any such indenture and the Holders of the
Registrable Notes, to effect such changes to such indenture as may be
required for such indenture to be so qualified in accordance with the terms
of the TIA; and execute, and use its best efforts to cause such trustee to
execute, all documents as may be required to effect such changes and all
other forms and documents required to be filed with the SEC to enable such
indenture to be so qualified in a timely manner.
(q) Comply with all applicable rules and regulations of the SEC and
make generally available to its securityholders earning statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule
158 thereunder (or any similar rule promulgated under the Securities Act)
no later than 45 days after the end of any fiscal quarter (or 90 days after
the end of any fiscal year) (i) commencing at the end of any fiscal quarter
in which Registrable Notes are sold to underwriters in a firm commitment or
best efforts underwritten offering and (ii) if not sold to underwriters in
such an offering, commencing on the first day of the first fiscal quarter
of the Company after the effective date of a Registration Statement, which
statements shall cover said 12-month periods.
(r) Upon consummation of an Exchange Offer or a Private Exchange,
obtain an opinion of counsel to the Company, who may, at the Company's
election, be internal counsel to the Company, in a form customary for
underwritten transactions, addressed to the Trustee for the benefit of all
Holders of Registrable Notes participating in the Exchange Offer or the
Private Exchange, as the case may be, that the Exchange Notes or Private
Exchange Notes, as the case may be, and the related indenture constitute
legal, valid and binding obligations of the Company, enforceable against
the Company in accordance with its
<PAGE>
-26-
respective terms, subject to customary exceptions and qualifications.
(s) If an Exchange Offer or a Private Exchange is to be consummated,
upon delivery of the Registrable Notes by Holders to the Company (or to
such other Person as directed by the Company) in exchange for the Exchange
Notes or the Private Exchange Notes, as the case may be, the Company shall
mark, or cause to be marked, on such Registrable Notes that such
Registrable Notes are being cancelled in exchange for the Exchange Notes or
the Private Exchange Notes, as the case may be; in no event shall such
Registrable Notes be marked as paid or otherwise satisfied.
(t) Cooperate with each seller of Registrable Notes covered by any
Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Notes and their respective counsel in
connection with any filings required to be made with the National
Association of Securities Dealers, Inc. (the "NASD").
(u) Use its best efforts to take all other steps reasonably necessary
to effect the registration of the Registrable Notes covered by a
Registration Statement contemplated hereby.
The Company may require each seller of Registrable Notes as to which any
registration is being effected to furnish to the Company such information
regarding such seller and the distribution of such Registrable Notes as the
Company may, from time to time, reasonably request. The Company may exclude from
such registration the Registrable Notes of any seller who unreasonably fails to
furnish such information within a reasonable time after receiving such request
and in such event shall have no further obligation under this Agreement
(including, without limitation, obligations under Section 4 hereof) with respect
to such seller or any subsequent holder of such Registrable Notes. Each seller
as to which any Shelf Registration is being effected agrees to furnish promptly
to the Company all information required to be disclosed in order to make the
<PAGE>
-27-
information previously furnished to the Company by such seller not materially
misleading.
Each Holder of Registrable Notes and each Participating Broker-Dealer
agrees by acquisition of such Registrable Notes or Exchange Notes to be sold by
such Participating Broker-Dealer, as the case may be, that, upon actual receipt
of any notice from the Company of the happening of any event of the kind
described in Sections 5(c)(ii), 5(c)(iv), 5(c)(v) or 5(c)(vi) hereof, such
Holder will forthwith discontinue disposition of such Registrable Notes covered
by such Registration Statement or Prospectus or Exchange Notes to be sold by
such Holder or Participating Broker-Dealer, as the case may be, until such
Holder's or Participating Broker-Dealer's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 5(k) hereof, or until
it is advised in writing (the "Advice") by the Company that the use of the
applicable Prospectus may be resumed, and has received copies of any amendments
or supplements thereto. In the event that the Company shall give any such
notice, the Applicable Period shall be extended by the number of days during
such periods from and including the date of the giving of such notice to and
including the date when each seller of Registrable Notes covered by such
Registration Statement or Exchange Notes to be sold by such Participating
Broker-Dealer, as the case may be, shall have received (x) the copies of the
supplemented or amended Prospectus contemplated by Section 5(k) hereof or (y)
the Advice.
6. Registration Expenses
All fees and expenses incident to the performance of or compliance with
this Agreement by the Company shall be borne by the Company whether or not the
Exchange Offer or a Shelf Registration is filed or becomes effective, including,
without limitation, (i) all registration and filing fees (including, without
limitation, (A) fees with respect to filings required to be made with the NASD
in connection with an underwritten offering and (B) fees and expenses of
compliance with state securities or Blue Sky laws (including, without
limitation, reasonable fees and disbursements of counsel in connection with Blue
Sky qualifications of the Registrable Notes or Exchange
<PAGE>
-28-
Notes and determination of the eligibility of the Registrable Notes or Exchange
Notes for investment under the laws of such jurisdictions (x) where the holders
of Registrable Notes are located, in the case of the Exchange Notes, or (y) as
provided in Section 5(h) hereof, in the case of Registrable Notes or Exchange
Notes to be sold by a Participating Broker-Dealer during the Applicable
Period)), (ii) printing expenses, including, without limitation, expenses of
printing certificates for Registrable Notes or Exchange Notes in a form eligible
for deposit with The Depository Trust Company and of printing prospectuses if
the printing of prospectuses is requested by the managing underwriter or
underwriters, if any, by the Holders of a majority in aggregate principal amount
of the Registrable Notes included in any Registration Statement or by any
Participating Broker-Dealer, as the case may be, (iii) fees and disbursements of
counsel for the Company and reasonable fees and disbursements of one special
counsel for all of the sellers of Registrable Notes, (iv) fees and disbursements
of all independent certified public accountants referred to in Section 5(n)(iii)
hereof (including, without limitation, the expenses of any special audit and
"cold comfort" letters required by or incident to such performance), (v) rating
agency fees, if any, and any fees associated with making the Registrable Notes
or Exchange Notes eligible for trading through the Depository Trust Company,
(vi) fees and expenses of all other Persons retained by the Company, (vii) the
expense of any annual audit, (viii) the fees and expenses incurred in connection
with the listing of the securities to be registered on any securities exchange,
if applicable, and (ix) the expenses relating to printing, word processing and
distributing of all Registration Statements, underwriting agreements, securities
sales agreements, indentures and any other documents necessary to comply with
this Agreement.
7. Indemnification
(a) The Company agrees to indemnify and hold harmless each Holder of
Registrable Notes offered pursuant to a Shelf Registration Statement and each
Participating Broker-Dealer selling Exchange Notes during the Applicable Period,
the officers, directors, employees and agents of each such
<PAGE>
-29-
Person or its affiliates, and each other Person, if any, who controls any such
Person within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act (each, a "Participant"), from and against any and all
losses, claims, damages and liabilities (including, without limitation, the
legal fees and other expenses actually incurred in connection with any suit,
action or proceeding or any claim asserted) caused by, arising out of or based
upon any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement pursuant to which the offering of such
Registrable Notes or Exchange Notes, as the case may be, is registered (or any
amendment thereto) or related Prospectus (or any amendments or supplements
thereto) or any related preliminary prospectus, or caused by, arising out of or
based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided, however, that the Company will not be required to indemnify a
Participant if (i) such losses, claims, damages or liabilities are caused by any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with information relating to any Participant
furnished to the Company in writing by or on behalf of such Participant
expressly for use therein or (ii) if such Participant sold to the person
asserting the claim the Registrable Notes or Exchange Notes that are the subject
of such claim and such untrue statement or omission or alleged untrue statement
or omission was contained or made in any preliminary prospectus and corrected in
the Prospectus or any amendment or supplement thereto and the Prospectus does
not contain any other untrue statement or omission or alleged untrue statement
or omission of a material fact that was the subject matter of the related
proceeding and it is established by the Company in the related proceeding that
such Participant failed to deliver or provide a copy of the Prospectus (as
<PAGE>
-30-
amended or supplemented) to such Person with or prior to the confirmation of the
sale of such Registrable Notes or Exchange Notes sold to such Person if required
by applicable law, unless such failure to deliver or provide a copy of the
Prospectus (as amended or supplemented) was a result of noncompliance by the
Company with Section 5(g) of this Agreement.
(b) Each Participant agrees, severally and not jointly, to indemnify and
hold harmless the Company, its officers, directors, employees and agents and
each Person who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act to the same extent as the
foregoing indemnity from the Company to each Participant, but only (i) with
reference to information relating to such Participant furnished to the Company
in writing by or on behalf of such Participant expressly for use in any
Registration Statement or Prospectus, any amendment or supplement thereto or any
preliminary prospectus or (ii) with respect to any untrue statement or
representation made by such Participant in writing to the Company. The liability
of any Participant under this paragraph shall in no event exceed the proceeds
received by such Participant from sales of Registrable Notes or Exchange Notes
giving rise to such obligations.
(c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any Person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such Person (the "Indemnified Person") shall promptly
notify the Person against whom such indemnity may be sought (the "Indemnifying
Person") in writing, and the Indemnifying Person, upon request of the
Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may reasonably designate in such proceeding and shall pay
the fees and expenses actually incurred by such counsel related to such
proceeding; provided, however, that the failure to so notify the Indemnifying
Person shall not relieve it of any obligation or liability that it may have
hereunder or otherwise (unless and only to the extent that such failure directly
results in the loss or compromise of any material rights or defenses by the
Indemnifying Person and the Indemnifying Person was not otherwise aware of such
action or claim). In any such proceeding, any Indemnified Person shall have the
right to retain its own counsel, but the fees and expenses of such counsel shall
be at the expense of such Indemnified Person
<PAGE>
-31-
unless (i) the Indemnifying Person and the Indemnified Person shall have
mutually agreed in writing to the contrary, (ii) the Indemnifying Person shall
have failed within a reasonable period of time to retain counsel reasonably
satisfactory to the Indemnified Person or (iii) the named parties in any such
proceeding (including any impleaded parties) include both the Indemnifying
Person and the Indemnified Person and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing interests
between them. It is understood that the Indemnifying Person shall not, in
connection with any one such proceeding or separate but substantially similar
related proceeding in the same jurisdiction arising out of the same general
allegations, be liable for the fees and expenses of more than one separate firm
(in addition to any local counsel) for all Indemnified Persons, and that all
such fees and expenses shall be reimbursed promptly as they are incurred. Any
such separate firm for the Participants and such control Persons of Participants
shall be designated in writing by Participants who sold a majority in interest
of Registrable Notes and Exchange Notes sold by all such Participants and any
such separate firm for the Company, its officers, directors, employees and
agents and such control Persons of the Company shall be designated in writing by
the Company and shall be reasonably acceptable to the Participants.
The Indemnifying Person shall not be liable for any settlement of any
proceeding effected without its prior written consent, which consent shall not
be unreasonably withheld, but if settled with such consent or if there be a
final non-appealable judgment for the plaintiff for which the Indemnified Person
is entitled to indemnification pursuant to this Agreement, the Indemnifying
Person agrees to indemnify and hold harmless each Indemnified Person from and
against any loss or liability by reason of such settlement or judgment. No
Indemnifying Person shall, without the prior written consent of the Indemnified
Person (which consent shall not be unreasonably withheld), effect any settlement
or compromise of any pending or threatened proceeding in respect of which any
Indemnified Person is or could have been a party, and indemnity could have been
sought hereunder by such Indemnified Person, unless such
<PAGE>
-32-
settlement (A) includes an unconditional written release of such Indemnified
Person, in form and substance reasonably satisfactory to such Indemnified
Person, from all liability on claims that are the subject matter of such
proceeding and (B) does not include any statement as to an admission of fault,
culpability or failure to act by or on behalf of any Indemnified Person.
(d) If the indemnification provided for in the first and second paragraphs
of this Section 7 is for any reason unavailable to, or insufficient to hold
harmless, an Indemnified Person in respect of any losses, claims, damages or
liabilities referred to therein, then each Indemnifying Person under such
paragraphs, in lieu of indemnifying such Indemnified Person thereunder and in
order to provide for just and equitable contribution, shall contribute to the
amount paid or payable by such Indemnified Person as a result of such losses,
claims, damages or liabilities in such proportion as is appropriate to reflect
the relative fault of the Indemnifying Person or Persons on the one hand and the
Indemnified Person or Persons on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof). The relative
fault of the parties shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or such Participant or such other
Indemnified Person, as the case may be, on the other, the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission, and any other equitable considerations appropriate
in the circumstances.
(e) The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
(even if the Participants were treated as one entity for such purpose) or by any
other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Person as a result of the losses, claims,
damages and liabilities referred to in
<PAGE>
-33-
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses actually incurred by
such Indemnified Person in connection with investigating or defending any such
action or claim. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
(f) The indemnity and contribution agreements contained in this Section 7
will be in addition to any liability that the Indemnifying Persons may otherwise
have to the Indemnified Persons referred to above.
8. Rule 144 and 144A
The Company covenants and agrees that it will file the reports required to
be filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder in a timely manner in accordance with
the requirements of the Securities Act and the Exchange Act and, if at any time
the Company is not required to file such reports, the Company will, upon the
request of any Holder of Registrable Notes, make publicly available annual
reports and such information, documents and other reports of the type specified
in Sections 13 and 15(d) of the Exchange Act. The Company further covenants and
agrees for so long as any Registrable Notes remain outstanding, to make
available to any Holder or beneficial owner of Registrable Notes in connection
with any sale thereof and any prospective purchaser of such Registrable Notes
from such Holder or beneficial owner the information required by Rule 144A(d)(4)
under the Securities Act in order to permit resales of such Registrable Notes
pursuant to Rule 144A.
9. Underwritten Registrations
If any of the Registrable Notes covered by any Shelf Registration are to be
sold in an underwritten offering, the investment banker or investment bankers
and manager or managers that will manage the offering will be selected by the
Holders
<PAGE>
-34-
of a majority in aggregate principal amount of such Registrable Notes included
in such offering and reasonably acceptable to the Company.
No Holder of Registrable Notes may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Notes on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
10. Miscellaneous
(a) No Inconsistent Agreements. The Company has not, as of the date hereof,
and shall not, after the date of this Agreement, enter into any agreement with
respect to any of its securities that is inconsistent with the rights granted to
the Holders of Registrable Notes in this Agreement or otherwise conflicts with
the provisions hereof. The rights granted to the Holders hereunder do not in any
way conflict with and are not inconsistent with the rights granted to the
holders of any of the Company's other issued and outstanding securities under
any such agreements. The Company has not entered and will not enter into any
agreement with respect to any of its securities that will grant to any Person
piggy-back registration rights with respect to a Registration Statement.
(b) Adjustments Affecting Registrable Notes. The Company shall not,
directly or indirectly, take any action with respect to the Registrable Notes as
a class that would adversely affect the ability of the Holders of Registrable
Notes to include such Registrable Notes in a registration undertaken pursuant to
this Agreement.
(c) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, otherwise than with the prior written
consent of the Holders of not less than a majority in aggregate
<PAGE>
-35-
principal amount of the then outstanding Registrable Notes. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of Holders of Registrable
Notes whose securities are being sold pursuant to a Registration Statement and
that does not directly or indirectly affect, impair, limit or compromise the
rights of other Holders of Registrable Notes may be given by Holders of at least
a majority in aggregate principal amount of the Registrable Notes being sold by
such Holders pursuant to such Registration Statement; provided, however, that
the provisions of this sentence may not be amended, modified or supplemented
except in accordance with the provisions of the immediately preceding sentence.
(d) Notices. All notices and other communications (including without
limitation any notices or other communications to the Trustee) provided for or
permitted hereunder shall be made in writing by hand delivery, registered
first-class mail, next-day air courier or facsimile:
1. if to a Holder of the Registrable Notes or any Participating
Broker-Dealer, at the most current address of such Holder or Participating
Broker-Dealer, as the case may be, set forth on the records of the
registrar under the Indenture, with a copy in like manner to the Initial
Purchasers as follows:
BT ALEX. BROWN INCORPORATED
130 Liberty Street
New York, New York 10006
Facsimile No.: (212) 250-7200
Attention: Corporate Finance Department
with a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Facsimile No.: (212) 269-5420
Attention: William M. Hartnett, Esq.
<PAGE>
-36-
2. if to the Initial Purchasers, at the address specified in Section
10(d)(1);
3. if to the Company, at the address as follows:
UNIVERSAL HOSPITAL SERVICES, INC.
3800 West 80th Street, Suite 1250
Bloomington, MN 55431-4442
Facsimile No.: (612) 843-3237
Attention: David E. Dovenberg
with a copy to:
Dorsey & Whitney
Pillsbury Center South
220 South 6th Street
Minneapolis, MN 55402
Facsimile No.: (612) 340-2868
Attention: Elizabeth C. Hinck, Esq.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days after
being deposited in the mail, postage prepaid, if mailed; one business day after
being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if sent by facsimile.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address and in the manner specified in such Indenture.
(e) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties hereto;
provided, however, that this Agreement shall not inure to the benefit of or be
binding upon a successor or assign of a Holder unless and to the extent such
successor or assign holds Registrable Notes.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be
<PAGE>
-37-
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(i) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their best efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(j) Securities Held by the Company or Its Affiliates. Whenever the consent
or approval of Holders of a specified percentage of Registrable Notes is
required hereunder, Registrable Notes held by the Company or its affiliates (as
such term is defined in Rule 405 under the Securities Act) shall not be counted
in determining whether such consent or approval was given by the Holders of such
required percentage.
<PAGE>
-38-
(k) Third Party Beneficiaries. Holders of Registrable Notes and
Participating Broker-Dealers are intended third party beneficiaries of this
Agreement and this Agreement may be enforced by such Persons.
(l) Entire Agreement. This Agreement, together with the Purchase Agreement
and the Indenture, is intended by the parties as a final and exclusive statement
of the agreement and understanding of the parties hereto in respect of the
subject matter contained herein and therein and any and all prior oral or
written agreements, representations, or warranties, contracts, understandings,
correspondence, conversations and memoranda between the Initial Purchasers on
the one hand and the Company on the other, or between or among any agents,
representatives, parents, subsidiaries, affiliates, predecessors in interest or
successors in interest with respect to the subject matter hereof and thereof are
merged herein and replaced hereby.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
UNIVERSAL HOSPITAL SERVICES, INC.
By: /s/ David E. Dovenberg
-----------------------------------
Name: David E. Dovenberg
Title: President and Chief
Executive Officer
INITIAL PURCHASERS:
BT ALEX. BROWN INCORPORATED
By: /s/ Cathy Madigan
-----------------------------------
Name: Cathy Madigan
Title: Managing Director
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Justin Vorwerk
-----------------------------------
Name: Justin Vorwerk
Title: Managing Director
<PAGE>
Exhibit 12.1
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------- -------- -------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
DETERMINATION OF RATIO OF EARNINGS TO
FIXED CHARGES:
Earnings before provision for income taxes ($ 6,737) $ 5,046 $ 1,851 $4,699 $3,496
Write-down of DPAP inventories 2,213
Loss of disposition of Bazooka Beds 2,866
Recapitalization and transaction costs 5,099 1,719 306
Fixed Charges
Amortization of deferred financing 858 12
costs
Interest expense 11,234 3,012 2,518 1,784 1,268
-------- -------- -------- ------ ------
Earnings before fixed charges 13,320 9,789 6,888 6,483 4,764
======== ======== ======== ====== ======
Fixed charges
Amortization of deferred financing 858 12
costs
Interest expense 11,234 3,012 2,518 1,784 1,268
-------- -------- -------- ------ ------
Total fixed charges 12,092 3,024 2,518 1,784 1,268
======== ======== ======== ====== ======
Ratio of earnings to fixed charges 1.1x 3.2x 2.7x 3.6x 3.8x
======== ======== ======== ====== ======
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 (File No.
_____) of our reports dated February 19, 1999, except as to the last paragraph
of Note 9 for which the date is March 18, 1999, on our audits of the financial
statements and financial statement schedule of Universal Hospital Services, Inc.
We also consent to the reference to our firm under the captions "Independent
Accountants."
/s/ PricewaterhouseCoopers LLP
Minneapolis, Minnesota
April 23, 1999
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Universal Hospital Services, Inc. of our
reports dated February 6, 1998 relating to the financial statements of HCI
Acquisition Corp. and subsidiaries, which appear in such Prospectus.
/s/ Rubin, Brown, Gornstein & Co. LLP
RUBIN, BROWN, GORNSTEIN & CO. LLP
St. Louis, Missouri,
April 21, 1999
<PAGE>
Exhibit 23.4
Consent of Independent Accountants
We consent to the inclusion in this registration statement on Form S-4 (File No.
333- ) of our report dated January 30, 1998 on our audit of the financial
statements of Patient's Choice Healthcare, Inc. as of December 31, 1997 and for
the year then ended. We also consent to the reference to our firm under the
caption "Independent Accountants."
/s/ Crowe, Chizek and Company LLP
Columbus, Ohio
April 26, 1999
<PAGE>
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, MINNESOTA 55431-4442
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
10 1/4% SENIOR SUBORDINATED NOTES DUE 2008
(TITLE OF THE INDENTURE SECURITIES)
<PAGE>
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-
70709.
* INCORPORATED BY REFERENCE TO REGISTRATION NUMBER 22-27000.
<PAGE>
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 15TH DAY OF APRIL, 1999.
U.S. BANK TRUST NATIONAL ASSOCIATION
/s/ Richard H. Prokosch
------------------------------------
RICHARD H. PROKOSCH
ASSISTANT VICE PRESIDENT
/s/ Jo Ann M. Schalk
- ------------------------------
JO ANN M. SCHALK
ASSISTANT SECRETARY
<PAGE>
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: APRIL 15, 1999
U.S. BANK TRUST NATIONAL ASSOCIATION
/S/ RICHARD H. PROKOSCH
-------------------------
RICHARD H. PROKOSCH
ASSISTANT VICE PRESIDENT
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS, STATEMENTS OF INCOME AND STATEMENTS OF
CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 18,864,816
<ALLOWANCES> 964,000
<INVENTORY> 2,617,019
<CURRENT-ASSETS> 22,686,625
<PP&E> 160,807,475
<DEPRECIATION> 84,253,375
<TOTAL-ASSETS> 144,220,666
<CURRENT-LIABILITIES> 20,027,333
<BONDS> 0
0
5,277,000
<COMMON> 160,285
<OTHER-SE> (35,862,606)
<TOTAL-LIABILITY-AND-EQUITY> 144,220,666
<SALES> 6,693,522
<TOTAL-REVENUES> 69,372,718
<CGS> 4,866,604
<TOTAL-COSTS> 35,610,626
<OTHER-EXPENSES> 2,866,119
<LOSS-PROVISION> 194,512
<INTEREST-EXPENSE> 11,233,885
<INCOME-PRETAX> (6,736,750)
<INCOME-TAX> (1,097,000)
<INCOME-CONTINUING> (5,639,750)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,863,020
<CHANGES> 0
<NET-INCOME> (7,502,770)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
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]
<PAGE>
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 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.
-2-
<PAGE>
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 _______________________
-3-
<PAGE>
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: ______________________________________________________________________
-4-
<PAGE>
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 o? 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
-5-
<PAGE>
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 -o 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 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.
-6-
<PAGE>
- --------------------------------------------------------------------------------
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 per on
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)
- --------------------------------------------------------------------------------
-7-
<PAGE>
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.
-8-
<PAGE>
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) ?or 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
- --------------------------------------------------------------------------------
-9-
<PAGE>
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 e
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 or 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
-10-
<PAGE>
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 note holders 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 o Old
Notes--Principal Amount Tendered." A reissued certificate representing the
balance of non-tendered 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.
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.
-11-
<PAGE>
Endorsements on certificates for Old Notes or signatures on bond owners
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 s stem 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. Note holders
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 note holder 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.
-12-
<PAGE>
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 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 it 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.
-13-
<PAGE>
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 Cit 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
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
-14-
<PAGE>
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 Note:) 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.
-15-
<PAGE>
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 under reporting
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.
- --------------------------------------------------------------------------------
-16-
<PAGE>
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
- --------------------------------------------------------------------------------
-17-
<PAGE>
Exhibit 99.2
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 C ], 1998 (the Prospectus"), if certificates
or 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]
<PAGE>
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>
Principal Amount of Old Notes Tendered:* If Old Notes will be delivered by
book-entry transfer to The
Depository Trust Company, provide
account number.
$ ___________________________________
Certificate Nos. (if available):
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): _______________________________________________________
_______________________________________________________
<PAGE>
------------------------------------------------------------
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 on 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 confirmation of the book-entry
transfer of such Old Notes into the Exchange Agent's account at The Depository
Trust Com any 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>
______________________________ ____________________________
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>
Exhibit 99.3
UNIVERSAL HOSPITAL SERVICES, INC.
Offer for 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 1993,
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 [
], 1999 (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 January 26, 1999,
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 [ ], 1999;
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 Taypayer Identification Number on
Substitute Form W-9; and
6. Return envelopes addressed to U.S. Bank Trust National Association,
the Exchange Agent for the Exchange Offer.
Your prompt action is required. The Exchange Offer will expire at 5:00
p.m., New York City time, on [ ], 1999. 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
<PAGE>
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 to 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
<PAGE>
Exhibit 99.4
UNIVERSAL HOSPITAL SERVICES, INC.
Offer for 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 1993,
as Amended
To Our Clients:
Enclosed for your consideration is a Prospectus, dated [ ],
1999 (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 January 26, 1999, 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 [ ], 1999, 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 time, on [ ],
1999, unless extended by the Company.
If you wish to have us tender your Old Notes, please instruct us by
completing, executing and return 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>
INSTRUCTION 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 accounts.
Dated: , 1999
---------------------------------------
---------------------------------------
Signature(s)
---------------------------------------
---------------------------------------
(Print Name(s) here)
---------------------------------------
---------------------------------------
Address
---------------------------------------
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.
