<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the fiscal year ended December 31, 1998, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] For the transition period from
________ to _________.
Commission File Number: 0-20086
UNIVERSAL HOSPITAL SERVICES, INC.
---------------------------------
(Exact name of Registrant as specified in its charter)
Minnesota 41-0760940
--------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3800 West 80th Street, Suite 1250
Bloomington, Minnesota 55431-4442
---------------------------------
(Address of principal executive offices)
(Zip Code)
(612) 893-3200
--------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
DOCUMENTS INCORPORATED BY REFERENCE
None.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of Form 10-K or any amendment to this Form
10-K. [X]
<PAGE>
FORM 10-K INDEX
PART I PAGE
- ------ ----
ITEM 1 Business 1
ITEM 2 Properties 14
ITEM 3 Legal Proceedings 14
ITEM 4 Submission of Matters to a Vote of Security Holders 14
PART II
ITEM 5 Market for Registrant's Common Equity and
Related Stockholder Matters 15
ITEM 6 Selected Financial Data 16
ITEM 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 20
ITEM 7A Quantitative and Qualitative Disclosures about Market Risk 28
ITEM 8 Financial Statements and Supplementary Data 28
ITEM 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 28
PART III
ITEM 10 Directors and Executive Officers of the Registrant 29
ITEM 11 Executive Compensation 31
ITEM 12 Principal Shareholders 36
ITEM 13 Certain Relationships and Related Transactions 37
PART IV
ITEM 14 Exhibits, Financial Statements, Schedule and
Reports on Form 10-K 40
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Universal Hospital Services, Inc. ("UHS" or the "Company") is 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 (as defined herein) 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:
o 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.
o 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.
o 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.
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.
1
<PAGE>
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. As of March
31, 1999, our national network of 52 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.
Experienced and Committed Management Team. As part of our February 1998
recapitalization (the "Recapitalization"), (See "Item 7, Management Discussion
and Analysis of Financial Condition and Results of Operations--Recapitalization,
Financing and Related Transactions) we installed a new senior management team
comprised of existing senior 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 the Company, 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,
2
<PAGE>
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.
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 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 two offices in March 1999, Little
Rock, Arkansas and Salt Lake City, Utah.
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.
3
<PAGE>
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 (1)
------- -------- ---- ------------ ----------
(in thousands)
<S> <C> <C> <C> <C>
Biomedical Equipment Rental & Sales,
Inc.("BERS") . . . . . . . . . . . . Raleigh, North Carolina August 1996 $6,035 $2,853
Home Care Instruments, Inc.("HCI"). . . St. Louis, Missouri July 1998 7,920 3,229
Patient's Choice Healthcare,
Inc.("PCH"). . . . . . . . . . . . . Columbus, Ohio August 1998 8,653 2,432
Medical Rentals Stat, Inc.("MRS") . . . Oklahoma City, Oklahoma November 1998 926 441
</TABLE>
(1) Total revenues and EBITDA (as defined herein) are for the last twelve
months 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. The Company's primary equipment rental program is its
Pay-Per-Use program whereby customers are able to obtain equipment when they
need it and pay for equipment only when it is used. Customers may also obtain
equipment through daily, weekly or monthly rental programs. When the Company's
customers request a piece of equipment, the Company provides the equipment in
"patient-ready" condition. Upon delivery, each piece of rented equipment is
logged into the Company's tracking system as being placed with the particular
customer. The Company provides the customer with information as to per-use or
other rental rates at or prior to delivery of the equipment, and these rates are
generally effective for a three month period. The Company generally does not use
written agreements with its customers but emphasizes continuous contact and
shared information with each customer. Under the Company's Pay-Per-Use program,
the customer is responsible for keeping a record of each equipment use and
reporting the use to the Company on a monthly basis. Many customers report
equipment utilization in conjunction with their patient billing procedures. The
Company bills each customer monthly based on this reported usage. The customer
is under no obligation to use the equipment and may request that the Company
remove the equipment at any time. Correspondingly, the Company may remove
equipment or raise the per-use rental fee if it is under-utilized.
Outsourcing Programs. The scope of the Company's relationship with some
of its largest customers has evolved into the AMP program. Through this program,
the Company provides, maintains, manages and tracks substantially all, or a
significant portion of, a customer's movable medical equipment within the
customer's facility or organization. One or more of the Company's employees are
located on site at the customer's facility to coordinate the equipment
management program and record equipment use. Contracts are typically three to
five years in length and equipment rental rates are generally guaranteed for
three years based on target equipment utilization levels. These rental rates
reflect all of the costs related to the additional services provided as part of
the AMP program and are adjusted to reflect actual equipment utilization levels.
The Company's AMP program enables health care providers to have access to all
appropriate medical equipment available when it is needed, while controlling
their costs through improved utilization and efficiency.
4
<PAGE>
ATTRIBUTES
Full Service. The Company emphasizes the full-service features of its
equipment rental and outsourcing programs. The Company's equipment rental fee
includes 24-hour-a-day, 365-day-a-year delivery of "patient ready" equipment,
technical support, training in equipment use, quality assurance services,
regular inspections and maintenance of all equipment rented from the Company.
The Company maintains a total service history of any rented equipment, which
includes inspection, repair and modification activities for the entire life of
the unit. The Company also offers an optional software package that allows a
particular customer to track location, utilization and availability of all
equipment rented, owned or leased by that customer. Together, these services
allow health care providers to eliminate many of the major overhead costs
associated with the ownership or lease of medical equipment.
Customer Responsiveness. The Company's operational structure is
designed to enable it to respond quickly to a customer's needs. Through its
district offices, the Company maintains both a local and system-wide inventory
network which is designed to assure access to a broad range of medical
equipment. The Company's district offices are typically located close enough to
the customers they serve to allow equipment to be delivered and ready for use
generally within two hours of a request.
Management of Equipment Utilization. The Company seeks to allocate its
pool of rental equipment efficiently among its customers by continually
monitoring customers' equipment utilization levels. The Company reviews customer
utilization routinely and, depending on utilization level, may adjust the rental
fee or redeploy the equipment. This system benefits customers by permitting them
to obtain a lower per-use rental fee in the event of higher utilization
efficiency and benefits the Company as it attempts to maximize the utilization
of the equipment in its inventory. See "Item 1, Business, Operations --
Pricing."
Diverse Equipment Selection. The Company generally purchases new
equipment which it believes to be state-of-the-art from manufacturers with a
reputation for quality, product support and innovation. The Company purchases
from a number of different manufacturers to address its customers' diverse needs
with a special emphasis on equipment which lowers patient care costs while
improving quality of care and treatment outcomes. See "Item 1, Business,
Operations -- Equipment Inventory."
OPERATIONS
Pricing. The Company's rental and AMP program pricing strategy is
designed to generate a pay-back period that is substantially shorter than the
useful life of a particular piece of equipment. The Company seeks to set its
rental rates to recoup the equipment's purchase price generally within 16 to 18
months. On a customer-specific basis, the Company then develops a rental rate
for a given piece of equipment which takes into consideration the customer's
needs with respect to equipment type, assumed equipment utilization, length of
placement, frequency and extent of support service and volume of business. As a
customer's utilization rate increases, the Company may adjust the rental fee,
which benefits the customer by permitting them to obtain a lower rental fee and
benefits the Company as it attempts to maximize the utilization of the equipment
inventory. The rental rate is designed not only to recoup costs but also to
provide the Company a targeted financial return on its investment for the
particular category of equipment. Service requirements and rental rates are
generally reviewed on a quarterly basis and rates may be adjusted as the
customer's service needs or utilization levels vary from expected levels. This
evaluation process enables the Company to continuously monitor actual revenues
as compared to targeted return objectives.
Equipment Inventory. The Company purchases movable medical equipment in
the areas of critical care, monitoring, respiratory therapy and newborn care.
Equipment acquisitions may be made to expand the Company's pool of existing
equipment or to add new equipment technologies to the Company's existing rental
pool. The Company considers historical utilization levels, customer demand, life
cycle phase of the equipment and vendor relationships before acquiring such
equipment in order to avoid speculative purchases. In the case of new
technologies, the Company has established a product evaluation committee to
consider new technologies 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, the Company considers 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.
5
<PAGE>
The Company seeks to maximize the useful life of its equipment by
renting its older equipment inventory at lower rental rates or bundling such
older equipment with newer equipment in rental programs with price incentives to
the customer. Equipment, which is no longer required or desired, is either sold,
primarily to non-hospital purchasers, utilized for spare parts or sold for scrap
value.
The Company owns over 72,000 pieces of equipment available for use by
its customers. The cost of each category of equipment in the Company's rental
pool relative to the entire pool as of 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 the
Company's customers by category:
Critical Care Monitoring
- ------------- ----------
Adult/Pediatric Volumetric Pumps Adult Monitors
Alternating Pressure/Flotation Devices Anesthetic Agent Monitors
Ambulatory Infusion Pumps Apnea Monitors
Anesthesia Machines Blood Pressure Monitors
Bazooka Specialty Beds Defibrillators
Blood/Fluid Warmers Electrocardiographs
Cold Therapy Units End Tidal CO(2) Monitors
Continuous Passive Motion Devices (CPM) Fetal Monitors
Controllers, Infusion Monitoring Systems
Electrosurgical Generators Neonatal Monitors
Enteral Infusion Pumps Oximeters
Heat Therapy Units PO(2)/CO(2) Monitors
Hyper-Hypothermia Units Recorders and Printers
Foot Pumps Surgical Monitors
IV Poles Telemetry Monitors
Lymphodema Pumps Urine Output/Temperature Monitors
Patient Controlled Analgesia (PCA) Vital Signs Monitors
Minimal Invasive Surgery (MIS)
Sequential Compression Devices (SCD)
Suction Devices
Syringe Pumps
Tympanic Thermometry
Ultrasonic Aspirators
Wheel Chairs
Respiratory Therapy
- -------------------
Aerosol Tents
BiPAP
Nebulizers
Oximeters
Oxygen Concentrators
Ventilators
Newborn Care
- ------------
Incubators
Infant Warmers
Phototherapy Devices
In 1998 the Company acquired substantially all of its medical equipment
from approximately 75 manufacturers. The Company's five largest suppliers of
movable medical equipment, which supplied approximately 57% of the Company's
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. The Company
believes that alternative sources of medical equipment are available to the
Company should they be needed.
The Company seeks to ensure availability of equipment at favorable
prices. Although the Company does not generally enter into long-term fixed price
contracts with suppliers of its equipment, the Company may receive price
discounts related to the volume of its purchases. In order to receive strong
vendor support throughout the geographic areas in which it does business, the
Company seeks to structure its equipment purchases to ensure credit to local
representatives of those vendors. The purchase price for equipment generally
ranges from $1,000 to $25,000, with some complete monitoring systems costing
more than $1.0 million.
Information Technology. The Company tracks the history of each piece of
equipment in its inventory on an IBM AS/400 centralized computer system located
at its corporate headquarters. This system provides immediate access to
historical equipment information by the use of remote terminals located in the
corporate headquarters and in each of the Company's district offices and
regional service centers. Data on length of placement, transfers, modifications,
repairs, maintenance and inspections 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. The Company also
tracks utilization for each piece of equipment which helps it to maximize
utilization of all the equipment in its rental pool.
6
<PAGE>
Information as to a customer's rental equipment is also provided to the
customer through the Company's Rental Equipment Documentation System ("REDS")
and the Operator Error Identification System ("OEIS"). REDS and OEIS help the
customer to meet its equipment documentation needs under applicable standards
and regulations. In addition, REDS helps the customer track the utilization
levels of each piece of equipment. Keeping utilization records helps the Company
maximize the utilization of all equipment in its inventory. The Company also
offers an optional software package that allows a particular customer to track
location, utilization and availability of all equipment rented, owned or leased
by that customer.
SALE OF DISPOSABLE PRODUCTS
In order to serve its customers fully, the Company sells to hospitals
disposable medical supplies used in conjunction with the medical equipment it
rents. Examples of such disposable items include tubing and cassettes for
infusion devices. In addition, the Company sells disposable medical supplies in
the alternate care market both in connection with rental equipment and on a
stand-alone basis. The Company believes that customers purchase disposables from
the Company 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.
The Company currently acquires substantially all of its rental-related medical
disposables from approximately 85 suppliers. The five largest current suppliers
of disposables to the Company, accounting for over 50% of the Company's
disposable purchases for 1998, are: The Kendall Company; Sims Deltec, Inc.;
Alaris Medical Systems, Inc.; Gaymar Industries; and Ross Labs. The Company
believes that alternative purchasing sources of most disposable medical supplies
are available to the Company, if necessary.
MAINTENANCE
The Company provides all necessary repairs and maintenance of its
equipment and maintains control over the functional testing and safety of all
equipment through its technical staff. Prior to placing equipment with a
customer, the Company applies testing standards designed to ensure the safety of
all such equipment. The Company conducts regular inspections of the equipment
either at one of the Company's district offices or regional service centers, or
on-site at the customer. In order to assist customers in meeting their equipment
documentation needs for purposes of applicable standards or regulations, the
Company maintains a complete record of all inspections, maintenance and repairs
on its REDS computer program. See "Item 1, Business, Operations -- Information
Technology" and "-- Regulation of Medical Equipment."
The Company's equipment is generally initially covered by
manufacturers' warranties, which typically warrant repairs for a period of three
to twelve months from the date of purchase. Because the Company employs
manufacturer-trained personnel for the technical support of its equipment, a
significant portion of repair and maintenance of the Company's equipment is
conducted by the Company's employees.
MARKETING
The Company markets its rental and equipment management programs
primarily through its direct sales force, which consisted of 94 promotional
sales representatives as of December 31, 1998. In its marketing efforts, the
Company primarily targets key decision makers, such as materials managers,
department heads and directors of purchasing, nursing and central supply, as
well as administrators, chief executive officers and chief financial officers.
The Company also promotes its programs and services to hospital and alternate
care provider groups and associations. The Company develops and provides its
direct sales force with a variety of materials designed to support its
promotional efforts. The Company also uses direct mail advertising, as well as
targeted trade journal advertising, to supplement this activity.
From time to time, the Company has developed specific marketing
programs intended to address current market demands. The most significant of
such programs include: the "New Realities" program, which demonstrates the
economic justification for Pay-Per-Use rentals; the AMP program, which presents
hospitals with a total management approach to equipment needs; REDS, which
responds to the equipment documentation and tracking needs of health care
providers as a result of standards set by the Joint Commission on Accreditation
of Healthcare Organizations ("JCAHO") and the Safe Medical Devices Act of 1990
("SMDA"); and OEIS, which responds to JCAHO requirements regarding equipment
operator training. See "Item 1, Business, -- Regulation of Medical Equipment."
7
<PAGE>
DISTRICT OFFICES NETWORK
As of December 31, 1998 the Company operated through 50 district
offices, serving customers in 47 states and the District of Columbia. The
Company currently operates through 52 district offices. 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:
Office Year Opened Office Year Opened
- ------ ----------- ------ -----------
Minneapolis, MN.............. 1941 Detroit, MI.......... 1990
Omaha, NE.................... 1972 Anaheim, CA.......... 1990
Bismarck, ND................. 1973 Phoenix, AZ.......... 1990
Fargo, ND.................... 1974 Pittsburgh, PA....... 1990
Marquette, MI................ 1975 Cincinnati, OH....... 1992
Madison, WI.................. 1975 Pasadena, CA......... 1992
Duluth, MN................... 1978 Memphis, TN.......... 1992
Kansas City, MO.............. 1978 Houston, TX.......... 1993
Sioux Falls, SD.............. 1978 Wichita, KS.......... 1993
Milwaukee, WI................ 1980 Rochester, NY........ 1993
Dallas, TX................... 1981 New York, NY......... 1994
San Antonio, TX.............. 1982 San Diego, CA........ 1994
Atlanta, GA.................. 1983 Richmond, VA......... 1994
St. Louis, MO................ 1983 Denver, CO........... 1995
Tampa, FL.................... 1984 Indianapolis, IN..... 1995
Cleveland, OH................ 1985 Jacksonville, FL..... 1995
Iowa City, IA................ 1985 Sacramento, CA....... 1995
Chicago, IL.................. 1986 Portland, OR......... 1996
Boston, MA................... 1986 Knoxville, TN........ 1996
Philadelphia, PA............. 1986 Raleigh, NC.......... 1996
Ft. Lauderdale, FL........... 1987 Columbus, OH......... 1998
Baltimore, MD................ 1988 Louisville, KY....... 1998
San Francisco, CA............ 1989 Columbia, SC......... 1998
Seattle, WA.................. 1989 Oklahoma City, OK.... 1998
New Orleans, LA.............. 1990 Little Rock, AR...... 1999
Charlotte, NC................ 1990 Salt Lake City, UT... 1999
REGULATION OF MEDICAL EQUIPMENT
The Company's customers are subject to documentation and safety
reporting standards with respect to the medical equipment they use, as
established by the following organizations and laws: JCAHO; the Association for
Advancement of Medical Instrumentation; and the SMDA. Some states and
municipalities also have similar regulations. The Company's REDS and OEIS
programs are specifically designed to help customers meet their documentation
and reporting needs under such standards and laws. The Company also monitors
changes in law and accommodates the needs of customers by providing specific
product information and manufacturers' addresses and contacts to these customers
upon their request. Manufacturers of the Company's medical equipment are subject
to regulation by agencies and organizations such as the Food and Drug
Administration ("FDA"), Underwriters Laboratories, the National Fire Protection
Association and the Canadian Standards Association. The Company believes that
all medical equipment it rents conforms to these regulations.
The SMDA expanded the FDA's authority to regulate medical devices. The
SMDA requires manufacturers, distributors and end-users to report information
which "reasonably suggests" the probability that a medical device caused or
contributed to the death, serious injury or serious illness of a patient. The
Company works with its customers
8
<PAGE>
to assist them in meeting their reporting obligations under the SMDA. Although
the Company does not believe that it is subject to the SMDA or its reporting
requirements, it is possible that the Company may be deemed to be a
"distributor" of medical equipment under the SMDA and would then be subject to
the reporting obligations and related liabilities thereunder.
An additional equipment tracking regulation was added to the SMDA on
August 29, 1993 which requires the Company to provide information to the
manufacturer regarding the permanent disposal of medical rental equipment and
notification of any change in ownership of certain categories of devices. The
Company's medical tracking systems have been reviewed by the FDA and found to be
in substantial compliance with these regulations.
THIRD PARTY REIMBURSEMENT
The Company's business may be significantly affected by, and the
success of its growth strategies depends on, the availability and nature of
reimbursements to hospitals and other health care providers for their medical
equipment costs under federal programs such as Medicare, and by other third
party payors. Under its prospective payment system adopted in 1983 and later
modified in 1991, the 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. The Company
believes 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. The Company believes
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
organizations and managed fee-for-service plans, as these organizations attempt
to reduce the cost and utilization of health care services. The Company believes
that these payors have followed or will follow the federal government in
limiting reimbursement for medical equipment costs through preferred provider
contracts, discounted fee arrangements and capitated (fixed patient care
reimbursement) managed care arrangements. In addition to promoting managed care
plans, employers are increasingly self funding their benefit programs and
shifting costs to employees through increased deductibles, copayments and
employee contributions. The Company believes that these cost reduction efforts
will place additional pressures on health care providers' operating margins and
will encourage efficient equipment management practices, such as use of the
Company's Pay-Per-Use rental and AMP programs.
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, the Company cannot reliably predict the timing of
or the exact effect which these initiatives could have on the pricing and
profitability of, or demand for, the Company's products. The Company also
believes it is likely that the efforts by governmental and private payors to
contain costs through managed care and other efforts and to reform health
systems will continue in the future. There can be no assurance that current or
future initiatives will not have a material adverse effect on the Company's
business, financial condition or results of operations.
9
<PAGE>
LIABILITY AND INSURANCE
Although the Company does not manufacture any medical equipment, the
Company's business entails the risk of claims related to the rental and sale of
medical equipment. In addition, the Company's servicing and repair activity with
respect to its rental equipment and its instruction of hospital employees with
respect to the equipment's use are additional sources of potential claims. The
Company has not suffered a material loss due to a claim; however, any such
claim, if made, could have a material adverse effect on the Company's business,
financial condition or results of operations. The Company maintains general
liability coverage, including product liability insurance and excess liability
coverage. Both policies are subject to annual renewal. The Company believes that
its current insurance coverage is adequate. There is no assurance, however, that
claims exceeding such coverage will not be made or that the Company will be able
to continue to obtain liability insurance at acceptable levels of cost and
coverage.
COMPETITION
The Company believes that the strongest competition to its rental and
outsourcing programs is the purchase alternative for obtaining movable medical
equipment. Currently, many hospitals and alternate care providers view rental
primarily as a means of meeting short-term or peak supplemental needs, rather
than as a long-term alternative to purchase. Although the Company believes that
it can demonstrate the cost-effectiveness of renting medical equipment on a
long-term per-use basis, the Company believes that many health care providers
will continue to purchase a substantial portion of their movable medical
equipment.
The Company has one principal competitor in the medical equipment
rental business: Mediq/PRN, a subsidiary of MEDIQ, based in Pennsauken, New
Jersey. Other competition consists of smaller regional companies and some
medical equipment manufacturers and dealers who rent equipment to augment their
medical equipment sales. The Company believes that it can effectively compete
with any of these entities in the geographic regions in which both the Company
and these entities operate.
SERVICE MARKS AND TRADE NAMES
The Company uses the "UHS" and "Universal Hospital Services" names as
trade names and as service marks in connection with the Company's rental of
medical equipment. The Company has registered these and other marks as service
marks with the United States Patent and Trademark Office.
EMPLOYEES
The Company had 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 the Company's employees is covered by a collective bargaining
agreement, and the Company has experienced no work stoppages to date. The
Company believes that its relations with its employees are good.
RISK FACTORS
The business and operations of the Company involves a high degree of
risk, including the factors described below.
Substantial Leverage; Ability to Service Debt. 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 $35 million of the
Notes (as defined below) on January 26, 1999, the Company would have had $150.1
million of debt outstanding, including $20.3 million of secured debt and
excluding $31.2 million available to borrow under our revolving credit facility.
We may incur additional debt in the future, including senior debt, subject to
certain limitations.
10
<PAGE>
The degree to which we are leveraged may also have the following
effects:
o a substantial portion of our cash flow from operations must be
dedicated to debt service and will not be available for other
purposes;
o we may not be able to obtain additional debt financing in the
future for working capital, capital expenditures or
acquisitions; and
o 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 the Company.
Borrowings made as part of the 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 10 1/4% Senior Notes due
2008 (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.
Restrictions Imposed by Terms of the Company's Indebtedness. Under the Indenture
related to the Notes, we are restricted in our ability to:
o incur additional indebtedness;
o pay cash dividends or make certain other restricted payments;
o create certain liens;
o use proceeds from sales of assets and subsidiary stock; and
o 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 the Company. Substantially all of our assets are pledged
as security under our revolving credit facility.
Possible Inability to Fund a Change of Control Offer. Upon a change of control
of the company, we will 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 repurchase. In addition, restrictions
in our revolving credit facility prohibit such repurchase, and a change of
control of the Company 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.
Risks Associated with New Strategy; Possible Adverse Consequences of Recent
Acquisitions. Our financial performance and profitability will depend on our
ability to execute our business strategy and manage our recent and
11
<PAGE>
possible future growth. Since July 1998, we have acquired three 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 the
Company. 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.
Uncertainties as to Health Care Reform; Reimbursement of Medical Equipment
Costs. There are widespread efforts to control health care costs in the United
States and abroad. As an example, the Balanced Budget Act of 1997 significantly
reduces the growth in federal spending on Medicare and Medicaid over the next
five years by reducing annual payment updates to hospitals, changing payment
systems for both skilled nursing facilities and home health care services from
cost-based to prospective payment systems. 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 "Item 7, 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 "Item
I, Business--Third Party Reimbursement."
General Absence of Formalized Agreements with 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, 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 "Item 1, Business -- Equipment
Management Programs."
Medical Equipment Liability. 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 "Item 1,
Business -- Liability and Insurance."
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 "Item 1, Business -- Competition."
12
<PAGE>
Relationships with Key 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 "Item 1 Business -- Operations" and "-- Sale of Disposable Products.")
Dependence on Key Personnel. 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. (See "Certain Relationship and Related
Transactions." 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.
Dependence on Sales Representatives and Service Specialists. 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 our customers, we face the risk of losing our
customers when a sales representative leaves the Company. 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 Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- MEDIQ Transaction."
Effective Subordination of the Notes. 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.
Control by Investors. J. W. Childs & Associates, Inc. and its affiliates
("Childs") beneficially owns shares representing approximately 78% of the fully
diluted common equity in the Company. 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.
13
<PAGE>
ITEM 2. PROPERTIES
The Company owns its Minneapolis, Minnesota district office facility,
consisting of approximately 26,000 square feet of office, warehouse, processing
and repair shop space and leases its other district offices, averaging 3,500
square feet, and regional service centers. The Company leases its executive
offices, approximately 22,000 square feet, in Bloomington, Minnesota.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
None
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
As of December 31, 1998 there were 52 holders of UHS' common stock, par
value $.01 per share, of the Company ("Common Stock"). Our Common Stock is not
publicly traded and we have never declared or paid a cash dividend on any class
of its Common Stock. We intend to retain earnings for use in the operation and
expansion of our business and therefore do not anticipate paying any cash
dividends in the foreseeable future. Our loan agreements contain certain
restrictions on the Company's ability to pay cash dividends on its Common Stock.
As of December 31, 1998, UHS has 6,246 shares of Series B 13%
Cumulative Accruing Pay-In-Kind Preferred Stock (the "Series B Preferred Stock")
outstanding, all held by one shareholder. There is no public market for the
Series B Preferred Stock. Dividends on the Series B Preferred Stock are payable
at the end of each year in the form of additional shares of Series B Preferred
Stock. (See "Item 7, Management Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources).
On December 18, 1998, the Company issued 6,246 shares of its Series B
Preferred Stock and a warrant to purchase 350,000 shares of Common
Stock to ReliaStar Financial Corp., for an aggregate purchase price of
$6,246,000 in a private offering exempt from the registration requirements of
the Securities Act pursuant to Section 4(2) of the Securities Act.
On November 12, 1998, the Company sold 71,784 and 17,921 shares of
Common Stock to Andrew R. Amicon and John D. Lohrman, respectively, each
employees of UHS for aggregate purchase prices of $200,000 and $50,000 in a
private offering exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) of the Securities Act.
15
<PAGE>
ITEM 6: SELECTED FINANCIAL DATA
The selected financial data presented below under the captions
"Statement of Operations Data" and "Balance Sheet Data" for and as of each of
the years in the five-year period ended December 31, 1998 are derived from the
audited financial statements of the Company. The selected financial data
presented below are qualified in their entirety by, and should be read in
conjunction with, the financial statements and notes thereto and other financial
and statistical information included elsewhere in this Form 10-K, including the
information contained under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
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
-------- -------- -------- -------- --------
Cost 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
======== ======== ======== ======== ========
Other Data:
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 (used in) provided by 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 of period) ....... 72,000 56,000 52,000 45,000 38,000
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
As of December 31,
----------------------------------------------------------
(dollars in thousands)
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital (10) ............ $ 2,934 $ 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
OPERATING DATA: (UNAUDITED)
Offices (at end of period) ...... 50 46 46 43 39
</TABLE>
(1) The Company'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, the Company disposed of
approximately 1,700 excess Bazooka Beds with a recorded loss of $2.9
million in the year ended December 31, 1998.
(2) The Company experienced declining sales of Demand Positive Airway Pressure
("DPAP") devices for adult obstructive sleep apnea during 1996. Because
market acceptance of the DPAP devices did not meet expectations, the
Company's assessment resulted in a write-down of $2.2 million in 1996.
(3) Reflects expenses, consisting primarily of legal, investment banking and
special committee fees, incurred prior to December 31, 1997 by the Company
in the process of exploring strategic alternatives to enhance shareholder
value. Expenses subsequent to December 31, 1997, consist primarily of
legal, investment banking and severance payments incurred by the Company
related to the Recapitalization.
(4) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization. Management believes the 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 the write-down of DPAP
inventories of $2.2 million for the year ended December 31, 1996, loss on
disposition of Bazooka Beds of $2.9 million for the year ended December 31,
1998 and Recapitalization and transaction costs of $0.3 million, $1.7
million, and $5.1 million for the years ended December 31, 1996, 1997, and
1998, respectively. Adjusted EBITDA should not be considered in isolation
or as a substitute for net income, cash flows or other income or cash flow
data prepared in accordance with GAAP or as a measure of a company's
profitability or liquidity.
(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, (See "Item 1,
Business--Growth Strategies, Pursuing Strategic Alliances) assuming such
acquisitions had occurred on January 1, 1998.
(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
17
<PAGE>
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.
18
<PAGE>
SELECTED QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31, 1998
--------------------------------------------------
March 31 June 30 September 30 December 31
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Total Revenues ..................................... $ 16,434 $ 15,093 $ 17,562 $ 20,284
Gross Profit (1) ................................... $ 8,166 $ 6,681 $ 6,439 $ 9,610
Gross Margin (1) ................................... 49.7% 44.3% 36.7% 47.4%
Net Loss (1) ....................................... $ (4,885) $ (292) $ (2,001) $ (325)
Adjusted EBITDA (2) ................................ 7,492 6,891 7,460 8,267
Net cash (used in) provided by operating activities (3,732) 6,508 (170) 7,134
Net cash used in investing activities .............. (7,093) (4,825) (38,581) (12,397)
Net cash provided by (used in) financing activities $ 11,910 $ (2,768) $ 38,751 $ 5,263
Year Ended December 31, 1998
--------------------------------------------------
March 31 June 30 September 30 December 31
-------- -------- ------------ -----------
Total Revenues ..................................... $ 15,962 $ 15,341 $ 14,186 $ 14,586
Gross Profit ....................................... $ 8,303 $ 7,525 $ 6,120 $ 6,277
Gross Margin ....................................... 52.0% 49.1% 43.1% 43.0%
Net Income ......................................... $ 889 $ 976 $ 502 $ 332
Adjusted EBITDA (2) ................................ 6,871 6,838 5,972 6,166
Net cash provided by operating activities .......... 4,566 6,015 5,812 3,608
Net cash used in investing activities .............. (4,291) (5,271) (3,616) (4,848)
Net cash (used in) provided by financing activities $ (473) $ (743) $ (2,197) $ 1,241
Year Ended December 31, 1998
--------------------------------------------------
March 31 June 30 September 30 December 31
-------- -------- ------------ -----------
Total Revenues ..................................... $ 14,392 $ 13,634 $ 13,749 $ 15,166
Gross Profit (3) ................................... $ 7,020 $ 5,256 $ 6,340 $ 5,755
Gross Margin (3) ................................... 48.8% 38.6% 46.1% 38.0%
Net Income (Loss) (3) .............................. $ 922 $ (38) $ 540 $ (492)
Adjusted EBITDA (2) ................................ 5,174 4,774 5,187 5,651
Net cash provided by operating activities .......... 2,657 4,205 3,563 4,232
Net cash used in investing activities .............. (6,341) (2,917) (14,664) (2,937)
Net cash provided by (used in) financing activities $ 3,684 $ (1,288) $ 11,538 $ (1,534)
</TABLE>
(1) Includes loss on disposition of Bazooka Beds of $2.9 million in the
third quarter of 1998.
(2) Adjusted EBITDA reflects EBITDA adjusted to exclude the write down of
DPAP inventories of $1.0 million and $1.2 million for the three months
ended June 30, 1996 and December 31,1996, respectively. The loss on
disposition of Bazooka Beds of $2.9 million for the year ended December
31, 1998 and Recapitalization and transaction cost of $0.3 million,
$0.6 million, $0.3 million, $0.2 million, $0.6 million, $5.0 million
and $0.1 million for the quarters ended December 31, 1996, March 31,
1997, June 30, 1997, September 30, 1997, December 31, 1997, March 31,
1998, and December 31,1998, respectively. Adjusted EBITDA should not be
considered in isolation or as a substitute for net income, cash flows
or other income or cash flow data prepared in accordance with GAAP or
as measure of a Company's Profitability or Liquidity.
(3) Includes write down of DPAP inventories of $1.0 million in the second
quarter and a further write-down in the fourth quarter of 1996 of the
remaining $1.2 million carrying value of DPAP inventories.
19
<PAGE>
ITEM 7, MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is 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 the financial condition of the
Company 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 herein.
Safe Harbor Statements under the Private Securities Litigation Reform
Act of 1995: Statements in this Form 10-K 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: the Company's substantial outstanding debt and high degree of
leverage and the continued availability, terms and deployment of capital,
including the Company's ability to service or refinance debt; restrictions
imposed by the terms of the Company's debt; adverse regulatory developments
affecting, among other things, the ability of our customers to obtain
reimbursement of payments made to UHS; 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 "Item 1, Business--Risk Factors.
INDUSTRY ASSESSMENT
The Company's customers, primarily hospitals and alternate care
providers, have been and continue to be faced with cost containment pressures
and uncertainties with respect to health care reform and reimbursement. The
Company believes that market reform is continuing with movement toward managed
care, health care related consolidations and the formation of integrated health
care systems. There is an effort by providers of health care to coordinate all
aspects of patient care irrespective of delivery location. Likely changes in
reimbursement methodology, and a gradual transition toward fixed, per-capita
payment systems and other risk-sharing mechanisms, will reward health care
providers who improve efficiencies and effectively manage their costs, while
providing care in the most appropriate setting. Although future reimbursement
policies remain uncertain and unpredictable, the Company believes that the
five-year budget and Taxpayer Relief Act of 1997, which will be financed largely
through cuts in the growth of Medicare spending, will continue to place focus on
cost containment in health care.
The Company believes its Pay-Per-Use and other rental programs respond
favorably to the current reform efforts by providing high quality equipment
through programs which help health care providers improve their efficiency while
effectively matching costs to patient needs, wherever that care is being
provided. While the Company's strategic focus appears consistent with health
care providers' efforts to contain costs and improve efficiencies, there can be
no assurances as to how health care reform will ultimately evolve and the impact
it will have on the Company.
Because the capital equipment procurement decisions of health care
providers are significantly influenced by the regulatory and political
environment for health care, historically the Company has experienced certain
adverse operating trends in periods when significant health care reform
initiatives were under consideration and uncertainty remained as to their likely
outcome. To the extent general cost containment pressures on health care
spending and reimbursement reform, or uncertainty as to possible reform, causes
hospitals and alternate care providers to defer the procurement of medical
equipment, reduce their capital expenditures or change significantly their
utilization of medical equipment, there could be a material adverse effect on
the Company's business, financial condition and results of operations.
20
<PAGE>
RECAPITALIZATION, FINANCING AND RELATED TRANSACTIONS
The Recapitalization was effected through the merger (the "Merger") of
UHS Acquisition Corp., a newly-formed Minnesota corporation ("Merger Sub")
controlled by Childs, with and into the Company. In connection with the
Recapitalization: (i) the Company's existing shareholders (other than management
investors) received, in consideration for the cancellation of approximately 5.3
million shares of Common Stock, par value $.01 per share, of the Company and
options to purchase approximately 344,000 shares of the Common Stock, cash in
the aggregate amount of approximately $84.7 million (net of aggregate option
exercise price), or $15.50 per share; (ii) the Company repaid outstanding
borrowings of approximately $35.5 million under existing loan agreements; (iii)
the Company paid fees and expenses of approximately $11.5 million related to the
Recapitalization; and (iv) the Company paid approximately $3.3 million in
severance payments to certain non-continuing members of management. In order to
finance the Recapitalization, the Company: (i) received an equity contribution
of approximately $21.3 million in cash from Childs and affiliates and management
investors; (ii) issued $100.0 million in principal amount of Outstanding Notes
and (iii) borrowed approximately $14.3 million under the Revolving Credit
Facility. In addition, management investors retained their existing shares of
Common Stock and options to purchase shares of Common Stock.
MEDIQ TRANSACTION
On February 10, 1997, the Company and MEDIQ Incorporated ("MEDIQ")
entered into a definitive agreement for MEDIQ to acquire the Company for $17.50
per share of Common Stock. Including the assumption of the Company's debt, the
total purchase price would have been approximately $138.0 million excluding fees
and expenses. On September 22, 1997 (the "Termination Date"), the Company and
MEDIQ mutually terminated their agreement (the agreement and its termination,
collectively, the "MEDIQ Transaction"). This termination resulted from the
likelihood of a protracted administrative proceeding before the Federal Trade
Commission ("FTC") and the uncertainty of the outcome and the costs associated
with continuing to defend against the efforts of the FTC to prevent the merger
of MEDIQ and the Company on anti-competitive grounds.
From February 10, 1997 through the Termination Date, the Company
experienced a gradual loss of employees as a result of uncertainties regarding
district office closures and administrative consolidation which were discussed
by MEDIQ. In addition, during this period, some potential and existing customers
of the Company deferred entering into new rental agreements while others
terminated rental agreements with the Company, each as a result of uncertainty
regarding the ownership of the Company. 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 completion of the
Recapitalization; and (iii) the addition of 55 employees, excluding
acquisitions, from the Termination Date through December 31, 1998.
COMPLETED ACQUISITIONS
On July 30, 1998, the Company completed the purchase of HCI for a
purchase price of approximately $19.3 million, including the repayment of
approximately $3.6 million of outstanding indebtedness.
On August 17, 1998, the Company completed the purchase of PCH for a
purchase price of approximately $14.6 million, including the repayment of
approximately $2.7 million of outstanding indebtedness.
On November 5, 1998, the Company completed the purchase of MRS for a
purchase price of approximately $1.8 million, including the repayment of
approximately $0.4 million of outstanding indebtedness.
21
<PAGE>
RESULTS OF OPERATIONS
The following table provides information on the percentages of certain items
of selected financial data to total revenues.
<TABLE>
<CAPTION>
Percentage Increase (Decrease)
--------------------------------
Percentage of Total Revenues Year Ended Year Ended
Years Ended December 31, 1998 over Year 1997 over Year
1998 1997 1996 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>
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 UHS' 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 places a greater emphasis on
sales of disposable products and generates 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, the Company changed its emphasis to increase support staff
while redirecting and decreasing its promotional staff. This change resulted in
higher rental costs offset by
22
<PAGE>
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 the Company's 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 the Company's 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 Company's utilization of Bazooka
beds in the Company's rental pool had been below the desired level and had
declined steadily during 1997 and 1998. The Company had acquired its equipment
pool of Bazooka portable specialty beds under an exclusive agreement, which was
terminated by the Company in March 1996. Because of the continued decline in
utilization, the Company 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. Approximately 750 units of Bazooka beds were retained by the Company
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 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 the Company as a result of the uncertainty relating to the potential sale
of the Company to MEDIQ. These employee expenses were not offset by the
reduction in salary expenses of the executive staff who did not continue on with
the Company after the Recapitalization.
Recapitalization and Transaction Costs. For the year ended December 31,
1998, the Company incurred $5.1 million of non-recurring expenses, consisting
primarily of legal, accounting, and other advisory related fees, associated with
the Recapitalization.
For the year of 1997, the Company incurred $1.7 million of
non-recurring expenses, consisting primarily of legal, investment banking and
special committee fees, associated with the Company's subsequently mutually
terminated acquisition agreement with MEDIQ.
Adjusted EBITDA. The Company believes 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 (as defined) 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 the Recapitalization
of the Company, incremental borrowings associated with capital equipment
additions and the acquisitions of HCI, PCH
23
<PAGE>
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. The Company's effective income tax rate for 1998 was a
benefit of 16.3% due to the net loss of the Company 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 the Recapitalization of the Company.
Extraordinary Charge. In conjunction with the Recapitalization and
Senior Note issuance in the first quarter of 1998, the Company 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, the Company completed
its acquisition of BERS pursuant to a stock purchase agreement among the Company
and the shareholders of BERS. As a result of the acquisition, the Company
acquired all of the outstanding capital stock of BERS, and BERS became a
wholly-owned subsidiary of the Company. In connection with the acquisition, the
Company paid approximately $11.0 million to the shareholders of BERS and repaid
approximately $1.7 million of outstanding indebtedness of BERS. BERS results are
included in the financial statements only from the date of acquisition.
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 primarily from the
acquisition of BERS, completed on August 13, 1996, which contributed
approximately $2.4 million to the increase in rental revenues in the first six
months of 1997. BERS' offices in Baltimore, Richmond, and Charlotte were
integrated into the corresponding Company offices early in the third quarter of
1997 and, consequently, separate 1997 third and fourth quarter revenue data for
BERS is not available. Excluding revenue from BERS, the increase in equipment
rental revenues resulted from continued growth from hospitals and alternate care
customers, as well as from newer offices. This growth was accomplished despite
the continuing gradual decline in hospital census rates and the increase in
consolidations in the health care industry. The Company expects equipment rental
revenues generated from the alternate care market to continue to increase,
reflecting the trend toward treating the patient in the most cost effective
environment.
Sales of Supplies and Equipment, and Other. Sales of supplies and
equipment, and other were $5.6 million in 1997, representing a $0.6 million, or
9.9%, decrease from sales of supplies and equipment, and other of $6.2 million
in 1996. This decrease was primarily due to a decline in the sales of the DPAP
devices as the Company decided to abandon the sleep apnea market in December
1996. Sales of supplies and equipment, and other were also adversely impacted by
the continuing trend of a major vendor of disposables to market its products
directly to some of the Company's larger customers. This trend resulted in a
$0.3 million decline in sales in 1997. The Company did not emphasize sales and
offered them to be a full service provider for its customers.
Cost of Equipment Rentals. Cost of equipment rentals were $13.6 million
in 1997, representing a $0.3 million, or 1.8%, increase from cost of equipment
rentals of $13.3 million in 1996. Cost of equipment rentals as a percentage of
equipment rental revenues decreased to 24.9% in 1997 from 26.3% in 1996. This
decrease resulted from the Company purchasing a newer generation of a particular
line of equipment. The older generation of this equipment had been rented from
the manufacturer on a short term basis in 1996 due to perceived obsolescence
risk. In addition, the decrease reflected the loss of some rental support staff
as a result of the MEDIQ Transaction.
Rental Equipment Depreciation. Rental equipment depreciation was $14.4
million in 1997, representing a $1.8 million, or 14.5%, increase from rental
equipment depreciation of $12.6 million in 1996. Rental equipment depreciation
as a percentage of equipment rental revenues increased to 26.5% in 1997 from
24.8% in 1996. This increase was the result of the impact of a full year of
depreciation on equipment acquisitions made in 1996 (including higher
depreciation as a percentage of equipment rental revenues from BERS) and the
Company's purchase of equipment that was previously rented as discussed above.
Gross Profit. Total gross profit was $28.2 million in 1997,
representing a $3.8 million, or 15.8%, increase from total gross profit of $24.4
million in 1996. Total gross margin increased to 47.0% of total revenues in 1997
from 42.8% of total revenues in 1996. Total gross profit in 1996 was reduced by
$2.2 million, or 3.9% of total revenues, due
24
<PAGE>
to the write-down of DPAP inventories (See "Item 6, Selected Financial Data --
Footnote 2). 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 the Company's expense
control initiatives implemented in late 1996. Additionally, the loss of
employees due to the MEDIQ Transaction reduced SG&A for 1997.
Recapitalization and Transaction Costs. The Company incurred costs of
approximately $1.7 million in 1997, compared to $0.3 million in 1996, reflecting
expenses consisting primarily of legal, investment banking and special committee
fees, incurred by the Company in the process of exploring strategic alternatives
to enhance shareholder value.
Adjusted EBITDA. Primarily as a result of factors stated above,
Adjusted EBITDA was $25.8 million in 1997, representing a $5.0 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. The Company's effective income tax rate decreased to
46.5% in 1997 from 49.6% for 1996. This decrease was primarily due to the effect
of non-deductible expenses on the Company's lower taxable income in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its equipment purchases
primarily through internally generated funds and borrowings under its existing
revolving credit facility. As an asset intensive business, the Company has
required continued access to capital to support the acquisition of equipment for
rental to its customers. The Company purchased 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, the Company expects 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, the Revolving Credit
Facility was increased from $30.0 million to $50.0 million. Borrowings under the
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.
25
<PAGE>
The Company's principal sources of liquidity are expected to be cash
flows from operating activities and borrowings under the Revolving Credit
Facility. It is anticipated that the Company's principal uses of liquidity will
be to fund capital expenditures related to purchases of movable medical
equipment, provide working capital, meet debt service requirements and finance
the Company's strategic plans.
As of December 31,1998 the Company was capitalized with $100.0 million
of outstanding Notes and a $50.0 million senior secured Revolving Credit
Facility (the "Revolving Credit Facilities"). Interest on loans outstanding
under the Revolving Credit Facility is payable at a rate per annum, selected at
the option of the Company, equal to the Base Rate plus a margin of 1.00% (the
"Base Rate Margin"), or the adjusted Eurodollar Rate plus a margin of 2.25% (the
"Eurodollar Rate Margin"). Commencing September 30, 1998, the Eurodollar Rate
Margin and the Base Rate Margin used to calculate such interest rates may be
adjusted if the Company satisfies certain leverage ratios. The Revolving Credit
Facility contains restrictive covenants which, among other things, limit the
Company 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, the Company 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
the Company's Common Stock, for an aggregate price of $6.0 million.
On December 18, 1998, the Company redeemed its 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 the Company's
Common Stock for an aggregate price of approximately $6.3 million.
On January 26, 1999, the Company issued $35 million of 10.25% Senior
Notes and received proceeds of approximately $29.8 million, net of the original
issue discount. The proceeds were used to reduce borrowings under the Revolving
Credit Facility.
The Company believes that with the proceeds from the issuance of the
$35 million of the Notes and based on current levels of operations and
anticipated growth, its cash from operations, together with other sources of
liquidity, including borrowings available under the Revolving Credit Facility,
will be sufficient over the next several years to fund anticipated capital
expenditures and make required payments of principal and interest on its debt,
including payments due on the Notes and obligations under the Revolving Credit
Facility. The Company believes that its ability to repay the Notes and amounts
outstanding under the Revolving Credit Facility at maturity will require
additional financing. There can be no assurance, however, that any such
financing will be available at such time to the Company, or that any such
financing will be on terms favorable to the Company. In addition, the Company
continually evaluates potential acquisitions and expects to fund such
acquisitions from its available sources of liquidity, including borrowings under
the Revolving Credit Facility.
The Company's expansion and acquisition strategy may require
substantial capital, and no assurance can be given that the Company will be able
to raise any necessary additional funds through bank financing or the issuance
of equity or debt securities on terms acceptable to the Company, if at all.
In 1998, the Company incurred non-recurring costs related to the
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
26
<PAGE>
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 the Company and the U.S. and world economy generally.
The Company's Quality Assurance Department procedures currently contain
steps to include Year 2000 compliance verification for all current and future
rental products. The Company has been contacting the rental equipment
manufacturers regarding Year 2000 compliance. The equipment generally falls into
five categories:
o Equipment that is currently Year 2000 compatible;
o Equipment that does not need date processing and therefore is
compatible;
o 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;
o Equipment that will require software or hardware upgrades.
(The Company believes the upgrades will be completed by the
Company's technicians at no material additional expense to the
Company. It is estimated that the costs of the upgrades will
be approximately $225,000.); and
o Equipment that will need to be disposed of (The Company
anticipates the net book value of this equipment will be
immaterial and will be disposed of over the next five
quarters).
Most of the Company's equipment is currently Year 2000 compliant, and
the Company believes that compliance for all of its products will be achieved
prior to January 1, 2000.
The Company is currently using line management to address internal and
external Year 2000 issues. The Company's internal financial and other computer
systems are being reviewed to assess and remediate Year 2000 problems. The
Company's assessment of internal systems includes its informational technology
("IT") as well as non-IT systems. The Company's 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. The Company is currently carrying out all phase of the
compliance program. The Company formed a project team in the first quarter of
1999 consisting of representatives from its 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. The Company has or is currently replacing
certain of its financial and operational systems, and management believes that
the new equipment and software substantially addresses Year 2000 issues.
However, the Company will be required to modify some of its existing software in
order for its computer systems to function properly in the year 2000 and
thereafter. The Company estimates that it will complete its Year 2000 compliance
program for all of its significant internal systems no later than September 30,
1999.
In addition, the Company is requesting and will continue to gain
assurances from its major suppliers that the suppliers are addressing the Year
2000 issue and that products purchased by the Company from such suppliers will
function properly in the year 2000. Also, contacts will be made with the
Company's 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 the Company's Year 2000 IT
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
the Company has 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 its assessments to date, the Company believes it 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 the Company, a shutdown of
the
27
<PAGE>
Company's operations at individual facilities could occur for the duration of
the disruption. The Company has not yet developed a contingency plan to provide
for continuity of processing in such event of various problem scenarios, but it
will assess the need to develop such a plan based on the outcome of its
validation phase of its Year 2000 compliance program and the results of
surveying its major suppliers and customers. Assuming no major disruptions in
service from utility companies, or other critical third-party providers, the
Company believes that it will be able to manage its total Year 2000 transition
without any material effect on the Company's results of operations or financial
condition.
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. The Company is reviewing the requirements of the SOP and has not determined
the impact, if any, of the SOP or the Company's financial statements. SOP 98-1
is required to be adopted by the Company no later than the year ending December
31, 1999.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have any liquid investments. Cash is kept to a minimum
through use of the Company's Revolving Credit Facility. The Company's exposure
to interest rate risk is mainly through its borrowings under its secured
Revolving Credit Facility which permits borrowings up to $50 million. At
December 31, 1998 the Company was primarily exposed to the London Interbank
Offered Rate (LIBOR) interest rate on its borrowings under the Revolving Credit
Facility. The Company does not use derivative financial instruments. Information
about the Company's borrowing arrangements including principal amounts and
related interest rates appear in Note 9 to the Financial Statements included
herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of the independent Accountants, Financial Statements and Schedules
are set forth on pages 44 to 71 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
28
<PAGE>
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below are the names, ages and positions of the persons who
serve as directors and executive officers of the Company.
Name Age Position
- ---- --- --------
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
David E. Dovenberg is the President and Chief Executive Officer, and a
Director of the Company and has served in both of these positions since the 1998
Recapitalization. He joined the Company in 1988 as Vice President, Finance and
Chief Financial Officer. Prior to joining the Company, he had been with The
Prudential Insurance Company of America since 1969. From 1979 to 1988, he was a
regional Vice President in the area of corporate investments in private
placements for Prudential Capital Corporation. Mr. Dovenberg is a member of the
Healthcare Financial Management Association. 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 a Director of the Company. He 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 a Director of the Company. He also 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 a Director of the Company. He also is Senior
Managing Director of Childs and has been at Childs 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, Inc.,
International Diverse Foods, 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 Director of the Company. He also is a Vice President
of Childs and has been at Childs 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 Diverse Foods,
Inc., Pan Am International Flight Academy Holdings, Inc. and National Nephrology
Associates, Inc.
29
<PAGE>
Andrew R. Amicon is the Vice President, Alternate Care East. He joined
the Company in 1998. Prior to joining the Company, Mr. Amicon was founder and
CEO of Patient's Choice Healthcare, Inc. from 1990 to 1998.
Gerald L. Brandt, C.P.A. is the Vice President of Finance and Chief
Financial Officer and has been since the 1998 Recapitalization. He joined the
Company in 1978 as Manager of Accounting, and was promoted to Director of
Finance and Accounting in 1994. Prior to joining the Company, Mr. Brandt was
Vehicle Accounting Manager for National Car Rental from 1976 to 1978. From 1974
to 1976, he was an Auditor with Deloitte, Haskins and Sells. He is a member of
the Minnesota State Society of Certified Public Accountants and the American
Institute of Certified Public Accountants.
Robert H. Braun is the Vice President of Sales and Marketing and has
been since the 1998 Recapitalization. He joined the Company in 1975. He has held
multiple sales management positions within the Company, including Account
Manger, National Accounts Manager, and Division Manager-North Central which
culminated in his promotion to Director of Rental and Sales, West, in 1996.
Randy C. Engen is the Vice President of Sales and Business Development
and has been since the 1998 Recapitalization. He joined the Company in 1979. He
has held multiple sales management roles including Account, District and
Divisional Manager positions. Throughout his tenure with the Company, Mr. Engen
has managed the Company's Madison, Wisconsin district office, the Company's
second largest.
Michael R. Johnson is the Vice President of Administration and has been
since the1998 Recapitalization. He joined the Company in 1978. He 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 is the Vice President of Sales and Major Accounts and
has been since the 1998 Recapitalization. He joined the Company in 1964. He has
held multiple sales management roles including Account, District and Divisional
Manager positions. As District Manager, Mr. Preston served for thirteen years in
the company's largest district office.
Jeffrey L. Singer is Vice President, Alternate Care West. He joined the
Company in 1998. Prior to joining the Company, Mr. Singer was CEO of Home Care
Instruments, Inc. from 1991 to 1998, and held various other positions at HCI
from 1986 to 1991.
30
<PAGE>
ITEM 11. 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 Chief Executive
Officers and the five highest paid executive officers of the Company whose
salary and bonus earned in 1998 exceeded $100,000.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------------ -----------------------
Awards
Stock Payouts
Name and Options LTIP All Other
Principal 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 ...... 1997 188,246 21,839 -- 22,304 4,537
Officer and .......... 1996 170,279 5,904 10,740 23,306 4,500
President
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 1996 268,248 14,177 21,480 72,548 4,500
and President
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
Robert H. Braun ......... 1998 125,781 61,612 191,909 -- 3,562
Vice President of
Customer Service and
Sales-West
Gary L. Preston ......... 1998 110,445 61,612 191,909 -- 3,600
Vice President of
Customer Service and
Sales-East
Randy C. Engen .......... 1998 109,259 61,612 191,909 -- 3,720
Vice President of
Business Development
</TABLE>
31
<PAGE>
(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 the
recapitalization.
(2) The stock options shown in this column for 1996 were all granted pursuant
to the 1992 Long Term Incentive and Stock Option Plan, and as amended in
1995, which was terminated upon the Recapitalization. The stock options
shown in this column for 1998 were all granted pursuant to the 1998 Stock
Option Plan. For a discussion of the material terms of option grants under
the 1998 Stock Option Plan. See 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 the 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 the Company 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 the Recapitalization.
In addition for Mr. Minner, $850,686 of the amount represents severance
payment, $26,351 of the amount represents unused vacation reimbursement,
and $290,933 of the amount represents payments made upon termination of
SERP in connection with the recapitalization.
(5) In connection with the Recapitalization, Mr. Minner resigned his position
with the Company.
32
<PAGE>
STOCK OPTIONS
The following tables summarize option grants during the year ended December
31, 1998 to the Chief Executive Officers and the executive officers named in the
"Summary Compensation Table" above, and the values of the options held by such
persons at December 31, 1998.
<TABLE>
<CAPTION>
Option Grants During Year Ended December 31, 1998
---------------------------------------------------------------------------------
Potential
% of Realizable Value
Total at Annual Rates
Options of Stock Price
Granted to Exercise Appreciation for
Employees or Base Option Term (5)
Options in Fiscal Price Expiration -----------------------
Name Granted(1) Year 1998 ($/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 pursuant to the 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
the Company'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 the
Company, (ii) the date on which the original investors following the
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 the Company'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 pursuant to 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
33
<PAGE>
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 UHS Common Stock).
<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
Shares Options at In-the-Money Options
Acquired December 31, 1998 December 31, 1998 (1)
on Value --------------------------------------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<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 UHS' Board of Directors.
(2) In connection with the 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 the 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 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 the Company's qualified non-contributory 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>
Years of Credited Service
-----------------------------------------
Compensation 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) 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.
34
<PAGE>
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of the
executive officers. For a description of such employment agreements see "Certain
Relationships and Related Transactions - Employment Agreements."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors has a Compensation Committee consisting of
directors of the Company. The current members of the Compensation Committee are
Steven G. Segal and Samuel B. Humphries. Mr. Segal has entered into the
stockholders' agreement with the Company and is an affiliate of Childs, which
has entered into the stockholders' agreement and the management agreement with
the Company. For a description of such arrangements and agreements see "Item 13:
Certain Relationships and Related Transactions."
Prior to the Recapitalization, the members of the Compensation Committee
were Karen A. Bohn and Mr. Humphries.
While serving on the Compensation Committee, 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 the Company. In November 1996, the Company engaged Piper Jaffray to
assist in analyzing its strategic alternatives to enhance shareholder value. In
February 1997, Piper Jaffray, pursuant to an engagement letter dated January 3,
1997, provided the Company with a financial opinion as to the fairness, from a
financial point of view, to the shareholders of the proposed MEDIQ merger (the
"Piper Jaffray Opinion"). Ms. Bohn was not and is not directly involved in the
provision of any such services.
For acting as financial advisor, UHS 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 UHS 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 the recpaitalization,
including options, less the fees paid under (i), (ii) and (iii) above. UHS 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 UHS.
35
<PAGE>
ITEM 12: PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of December 31, 1998 by each
beneficial owner of more than five percent of the Common Stock, each person who
serves as a director of the Company, each named executive officer and all
persons serving as directors and executive officers of the Company as a group.
Except as otherwise indicated, the beneficial owners of the voting stock listed
below, based on information furnished by such owners, have sole investment and
voting power with respect to such shares. The business address for each
executive officer of the Company is in care of the Company.
<TABLE>
<CAPTION>
Shares
Beneficially Percentage
Beneficial Owner Owned (1) Owned
- ---------------- --------- -----
<S> <C> <C>
David E. Dovenberg(2) ................................. 2,202,270 13.3%
Robert H. Braun ....................................... 44,680 0.3%
Gary L. Preston(3) .................................... 102,740 0.6%
Randy C. Engen(3) ..................................... 79,590 0.5%
Gerald L. Brandt(4) ................................... 242,400 1.5%
Michael R. Johnson(5) ................................. 101,260 0.6%
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 78%
Steven G. Segal(6) .................................... 12,622,131 79%
J.W. Childs Equity Partners, L.P. ...................
One Federal Street
Boston, Massachusetts
Jerry D. Horn(6) ...................................... 12,500,905 78%
J.W. Childs Equity Partners, L.P. ...................
One Federal Street
Boston, Massachusetts
Edward D. Yun(6) ...................................... 12,481,149 78%
J.W. Childs Equity Partners, L.P. ...................
One Federal Street
Boston, Massachusetts
All Officers & Directors as a group (twelve persons)(7) 15,787,346 93.5%
</TABLE>
(1) Beneficial ownership is determined in accordance with rules of the
Commission, and includes generally voting power and/or investment power
with respect to securities. Shares of Common Stock subject to options
currently exercisable or exercisable within 60 days of December 31, 1998
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 Common Stock
shown as beneficially owned by them.
(2) Includes 494,400 shares of Common Stock subject to options exercisable
within 60 days after December 31, 1998, 626,530 shares of Common Stock
owned by Mr. Dovenberg's wife and 34,780 shares of Common Stock owned by
Mr. Dovenberg's children.
(3) Includes 58,870 shares of Common Stock subject to options exercisable
within 60 days after December 31, 1998.
(4) Includes 176,300 shares of Common Stock subject to options exercisable
within 60 days after December 31, 1998.
(5) Includes 62,540 shares of Common Stock subject to options exercisable
within 60 days after December 31, 1998.
(6) Includes 12,466,931 shares of Common Stock held by Childs which the
shareholder may be deemed to beneficially own by virtue of his position
with Childs Associates.
(7) Includes 850,980 shares of Common Stock subject to options exercisable
within 60 days after December 31, 1998.
36
<PAGE>
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCKHOLDERS' AGREEMENT
Each executive officer and director who owns UHS common stock (the
"Management Holders") and Childs (with which Mr. Segal, Mr Horn and Mr. Yun are
affiliated) and its affiliates (together, the "Stockholders") are parties to a
stockholders' agreement (the "Stockholders' Agreement") with the Company
governing certain aspects of the relationship among the Stockholders and the
Company. The Stockholders' Agreement, among other things: (i) restricts the
ability of the Stockholders to transfer their shares of the Company's Common
Stock, subject to certain exceptions; (ii) gives the Company, Childs and certain
Designated Employees (as defined in the Stockholders' Agreement) certain rights
of first refusal with respect to shares of Common Stock held by certain
Management Holders in the event of the termination of the employment of any such
Management Holder with the Company for any reason; (iii) gives each Management
Holder certain rights, subject to certain limitations imposed by the Credit
Agreement (as defined below), to require the Company to purchase shares of such
Common Stock held by him, in the event of the termination of his employment with
the Company, other than any such termination by the Company other than for Cause
or resignation by him without Good Reason (as such terms are defined in the
Stockholders' Agreement); and (iv) provides the parties thereto with certain
"tag-along," "drag-along," and "piggyback" registration rights.
MANAGEMENT AGREEMENT
The Company is 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") pursuant to which: (i) the Company paid 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) the Company is 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 the
Revolving Credit Facility and the Indenture. The management agreement is for a
five-year term, automatically renewable for successive extension terms of one
year, unless Childs Associates gives notice of termination.
ISSUANCES OF PREFERRED STOCK
On August 17, 1998, the Company issued 6,000 shares of its Series A
Preferred Stock to an affiliate of Childs, the holder of approximately 78% of
the Company's common stock. The Series A Preferred Stock was redeemed in full,
plus accrued dividends, with the proceeds of the issuance by the Company of the
Series B Preferred Stock and a warrant to purchase 350,000 shares of Common
Stock.
On December 18, 1998, the Company issued 6,246 shares of its Series B
Preferred Stock and a warrant (the "Warrant") to purchase 350,000 shares of the
Company's Common Stock to ReliaStar Financial Corp. ("ReliaStar"), for an
aggregate purchase price of $6,246,000 pursuant to 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
the Company 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 the
Company is permitted to redeem the Series B Preferred Stock in conformance with
the terms of other agreements or instruments with respect to capital stock or
indebtedness of the Company or (ii) August 17, 2008. The Series B Preferred
Stock may be redeemed by the Company 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 the Company.
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) the Company declares a dividend
or other distribution on any class of capital stock of the Company payable in
its Common Stock, (ii) the Company issues options, rights or warrants to all
holders of its Common Stock, (iii) a stock split or reclassification of the
Company's Common Stock, (iv) a consolidation of the Company or sale of all or
substantially all of the assets of the Company or (v) the Company repurchases
any of its Common Stock from Childs.
37
<PAGE>
Pursuant to the Indenture governing the Notes, the issuance of the Series A
Preferred Stock and the Series B Preferred Stock was approved by the Board of
Directors of the Company and prior to the Series A Preferred Stock and Series B
Preferred Stock issuance, the Company received a fairness opinion from Piper
Jaffray Inc. that such issuances were fair to the Company from a financial point
of view.
LOANS TO EXECUTIVE OFFICERS
In connection with the Recapitalization, the Company made loans (the
"Loans"), in an aggregate principal amount of approximately $185,000, to David
E. Dovenberg, Gary L. Preston and Gerald L. Brandt (the "Borrowers") in
connection with their purchase or retention of ownership of shares of Common
Stock. The Loans each have a term of 10 years and are secured by a pledge of the
shares of Common Stock owned by such executive officers and bear interest which
is payable semiannually at a rate equal to the Company's weighted average cost
of capital on the Revolving Credit Facility. The Loans are payable prior to
maturity upon a sale by a Borrower of any or all of the Borrower's equity
securities of the Company or earlier under certain circumstances. The following
executive officers received the following aggregate amount of Loans: David E.
Dovenberg, approximately $100,000, Gary L. Preston, approximately $65,000 and
Gerald L. Brandt, approximately $20,000. As of December 31, 1998, Messrs.
Preston and Brandt had paid off such loans and Mr. Dovenberg had an outstanding
balance on his loan of $50,000.
EMPLOYMENT AGREEMENTS
Pursuant to a letter agreement dated November 25, 1997, (the "Dovenberg
Employment Agreement"), David E. Dovenberg, Chief Financial Officer of the
Company, agreed to serve as President and Chief Executive Officer of the Company
for a term of three years from the consummation of the Recapitalization, subject
to earlier termination pursuant to the terms thereof. The Dovenberg Employment
Agreement then automatically renews for successive one-year terms unless written
notice of termination is given by either party no less than 30 days prior to the
renewal date. The Dovenberg Employment Agreement provides that during its
initial three year term, Mr. Dovenberg will be a member of the Board of
Directors of the Company, will receive an annual base salary of $200,000,
subject to annual adjustment based on changes in the consumer price index and
Board of Directors review, and will receive a bonus of up to 100% of such annual
base salary, based on achievement of certain EBITDA targets. It also provides
for Mr. Dovenberg's participation in one or more stock option plans to be
adopted by the Company. Under the Dovenberg Employment Agreement, if Mr.
Dovenberg's employment is terminated by the Company without cause or because of
death or disability, or by Mr. Dovenberg because the Company has materially
breached the Dovenberg Employment Agreement, reduced or reassigned a material
portion of Mr. Dovenberg's duties, reduced Mr. Dovenberg's annual base salary
(other than in certain specified circumstances), required Mr. Dovenberg to
relocate outside the greater Minneapolis, Minnesota area, or if it is not
renewed on expiration of its initial three year term or the first one-year
renewal term, or because certain other specified events have occurred, the
Company will continue to pay Mr. Dovenberg his base salary and provide his
benefits for a period of 18 months from the date of termination. Payment or
benefits under the Dovenberg Employment Agreement to Mr. Dovenberg within this
18-month period would be offset by the value of compensation from Mr.
Dovenberg's subsequent employment during this 18-month period. In addition, the
Dovenberg Employment Agreement contains certain confidentiality and
noncompetition provisions.
The Company has entered into employment agreements (each, an "Executive
Employment Agreement," and collectively, the "Executive Employment Agreements")
with each of Messrs. Amicon, Brandt, Braun, Engen, Johnson, Preston and Singer
(each, an "Executive," and collectively, the "Executives"). The Executive
Employment Agreements each have a three year term at the end of which the
agreements will automatically renew for successive one-year terms unless
terminated by either party thereto no less than 30 days prior to the renewal
date. Pursuant to the Executive Employment Agreements, from and after the
consummation of the Recapitalization, the Executives each receive an annual base
salary of $125,000, subject to annual adjustment based on changes in the
consumer price index and Board of Directors review, and are eligible to receive
a bonus of up to 100% of their respective annual base salaries based on
achievement of certain EBITDA targets. Employment Agreements also provide that
the Executives are entitled to receive stock options pursuant to one or more
stock option plans adopted or to be adopted by the Company. Under each Executive
Employment Agreement, if an Executive's employment is terminated by the Company
by reason of death or disability, the Company would continue to pay the
Executive, or the Executive's legal representatives, as the case may be, salary
and benefits for a six-month period from the date of termination. If the
Executive's employment is terminated by the Company for other than cause or by
the Executive for good reason (i.e., a breach by the Company of the Executive's
Employment Agreement, certain reductions in salary or duties, required
relocation or other specified events), then the Company
38
<PAGE>
would pay the Executive a prorated bonus for the fiscal year in which the
termination occurred, and would continue to pay the Executive's base salary for
a 12-month period from the date of termination. Payments or benefits under the
Executive Employment Agreement to the Executive within this 12-month period
would be offset by the value of compensation from the Executive's subsequent
employment during this 12-month period. If the Executive's employment is
terminated for cause or the Executive resigns without good reason, then all
rights to payments (other than payments for services previously rendered), and
all other benefits otherwise due to the Executive under the Executive Employment
Agreement, would cease.
In addition, the Executive Employment Agreements contain certain confidentiality
and noncompetition provisions. Finally, the Executive Employment Agreements
provide that the Executives will enter into the stockholders' agreement with the
other equity investors in the Company governing certain aspects of the
relationship among such equity investors and the Company.
39
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULE AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
1. Consolidated Financial Statements
Report of Independent Accountants
Balance Sheets as of December 31, 1998 and 1997
Statements of Income for the years ended December 31, 1998, 1997, and
1996
Statements of Shareholders' Equity for the years ended December 31,
1998, 1997, and 1996
Statements of Cash Flows for the years ended December 31, 1998, 1997,
and 1996
Notes to Financial Statements
2. Consolidated Financial Statement Schedule required to be filed by Item
8 and Paragraph (d) of this Item 14.
Schedule II -Valuation and Qualifying Accounts and Reserves
All other supplemental financial schedules are omitted as not
applicable or not required under the rules of Regulation S-X or the
information is presented in the financial statements or notes thereto.
40
<PAGE>
3. Exhibits
Exhibit
No. Description
- --- -----------
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
*3.2 Amended and Restated Bylaws of the Company
*3.3 Amendment to Articles of Incorporation of the Company
*3.4 Certificate of Designation of Series A 12% Cumulative Convertible
Accruing Pay-In-Kind Preferred Stock
*3.5 Certificate of Designation of Series B 13% Cumulative Accruing
Pay-In-Kind Preferred Stock
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 (Incorporated by reference to Exhibit
5.1 to the Form S-1 filed July 6, 1998)
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)
41
<PAGE>
Exhibit
No. Description
- --- -----------
*10.7 Amended and Restated Employment Agreement between the Company and
Andrew R. Amicon, dated November 12, 1998.
*10.8 Employment Agreement between the Company and Jeffrey Singer, dated
July 30, 1998.
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
*10.15 Amendment No. 7 to the Credit Agreement dated as of January 22, 1999,
by and between the Company and Bankers Trust Company
*10.16 Amendment No. 8 to the Credit Agreement dated as of March 18,1999, by
and between the Company and Bankers Trust Company
*10.17 Form of Incentive Stock Option Agreement dated as of March 17, 1998,
between the Company and certain officers of the Company.
*10.18 Form of Non-Incentive Stock Option Agreement dated as of March 17,
1998, between the Company and certain directors of the Company
*12.1 Statement regarding the computation of ratio of earnings to fixed
charges for the Company
*27.1 Financial Data Schedule
*Filed herewith.
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized on March 26, 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 Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of the
registrant and in the capacities indicated on March 24, 1999.
/s/ David E. Dovenberg President, Chief Executive
- ---------------------------- Officer and Chairman of the
David E. Dovenberg Board of Directors
(Principal Executive Officer)
/s/ Gerald L. Brandt Vice President of Finance and
- ---------------------------- Chief Financial Officer
Gerald L. Brandt (Principal Financial and
Accounting Officer)
/s/ Jerry D. Horn Director
- ----------------------------
Jerry D. Horn
/s/ Samuel B. Humphries Director
- ----------------------------
Samuel B. Humphries
/s/ Steven G. Segal Director
- ----------------------------
Steven G. Segal
/s/ Edward D. Yun Director
- ----------------------------
Edward D. Yun
43
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page(s)
Report of Independent Accountants 45
Financial Statements:
Balance Sheets as of December 31, 1998 and 1997 46
Statements of Income for the years ended December 31, 1998,
1997 and 1996 47
Statements of Shareholders' (Deficiency) Equity for the
years ended December 31, 1998, 1997 and 1996 48-49
Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996 50
Notes to Financial Statements 51-70
44
<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
income, 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.
/s/ PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
February 19, 1999, except as to the last paragraph of Note 9 for which the date
is March 18, 1999.
45
<PAGE>
Universal Hospital Services, Inc.
Balance Sheets
as of December 31, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
<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
============= =============
LIABILITIES AND SHAREHOLDERS' (DEFICIENCY) EQUITY
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
Other accrued expenses 4,324,421 810,874
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.
46
<PAGE>
Universal Hospital Services, Inc.
Statements of Income
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.
47
<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
Issuance of 97,170 shares of common stock (net of
4,530 shares of common stock tendered for exercise
of stock options) pursuant to exercise of stock
options, including $309,150 of tax benefit 972 1,047,592 1,048,564
Net income 2,698,891 2,698,891
---------- ------------ ------------ ------------
Balance, December 31, 1997 54,808 16,042,715 16,902,902 33,000,425
Sale of 1,585 shares of common stock to employees
under stock purchase plan 16 20,367 20,383
Issuance of 334,201 shares 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
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)
</TABLE>
The accompanying notes are an integral part of the financial statements.
48
<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>
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.
49
<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 (194,645) 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.
50
<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-UseTM 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:
o 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.
o 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).
o 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.
o 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.
o The Company received an equity contribution of approximately
$21.3 million from Childs and affiliates and the management
investors.
o The Company issued $100 million in aggregate principal amount of
10.25% Senior Notes due 2008 (the Senior Notes) (see Note 9).
51
<PAGE>
Universal Hospital Services, Inc.
Notes to Financial Statements, Continued
2. Recapitalization, Financings and Related Transactions, continued:
o The Company borrowed approximately $14.3 million under a new
Revolving Credit Facility.
o 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.
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.
52
<PAGE>
Universal Hospital Services, Inc.
Notes to Financial Statements, Continued
3. Significant Accounting Policies, continued:
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.
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.
53
<PAGE>
Universal Hospital Services, Inc.
Notes to Financial Statements, Continued
3. Significant Accounting Policies, continued:
Recent Accounting Pronouncements, continued:
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 the issuance of 256,272 shares of the Company's
common stock valued at $.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.
54
<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.
55
<PAGE>
Universal Hospital Services, Inc.
Notes to Financial Statements, Continued
4. Acquisitions, continued:
Medical Rentals Stat, Inc., continued:
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):
HCI PCH MRS
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
======= ======= ======
The operations of the acquired entities have been included in the
Company's results of operations since the respective dates of
acquisition.
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:
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
===========
56
<PAGE>
Universal Hospital Services, Inc.
Notes to Financial Statements, Continued
4. Acquisitions, continued:
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):
1998 1997 1996
Total revenues $ 80,373 $76,705 $60,497
Net (loss) income (7,801) 2,781 616
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.
57
<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:
1998 1997
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
============ ============
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.
58
<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
------------ -----------
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.
59
<PAGE>
Universal Hospital Services, Inc.
Notes to Financial Statements, Continued
9. Long-Term Debt, continued:
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.
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 debt covenants in 1998. In March 1999, the
Revolving Credit Facility was amended to cure the violations.
60
<PAGE>
Universal Hospital Services, Inc.
Notes to Financial Statements, Continued
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:
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
=============
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.
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.
61
<PAGE>
Universal Hospital Services, Inc.
Notes to Financial Statements, Continued
11. Employee Benefit Plans, continued:
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
======== ======== ========
1998 1997 1996
(in thousands)
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
======== ======== ========
1998 1997 1996
(in thousands)
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)
======== ======== ========
Components of net periodic benefit cost are as follows:
1998 1997 1996
(in thousands)
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>
62
<PAGE>
Universal Hospital Services, Inc.
Notes to Financial Statements, Continued
11. Employee Benefit Plans, continued:
Change in Plan Assets, continued:
Weighted average assumptions as of December 31 are as follows:
1998 1997 1996
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%
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.
63
<PAGE>
Universal Hospital Services, Inc.
Notes to Financial Statements, Continued
12. Income Taxes:
The (benefit) provision for income taxes consisted of the following:
1998 1997 1996
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
=========== ========== ========
Reconciliations between the Company's effective income tax rate and the
U.S. statutory rate follow:
1998 1997 1996
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%
===== ==== ====
64
<PAGE>
Universal Hospital Services, Inc.
Notes to Financial Statements, Continued
12. Income Tax, continued:
The components of the Company's overall net deferred tax liability at
December 31, 1998 and 1997 are as follows:
1998 1997
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
========== ==========
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.
65
<PAGE>
Universal Hospital Services, Inc.
Notes to Financial Statements, Continued
13. Preferred Stock, 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.
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.
66
<PAGE>
Universal Hospital Services, Inc.
Notes to Financial Statements, Continued
14. Shareholders' Equity, continued:
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, 1998, there was no redemption value on the
common stock owned by certain management shareholders.
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.
67
<PAGE>
Universal Hospital Services, Inc.
Notes to Financial Statements, Continued
15. Stock Option and Stock Purchase Plans, continued:
The Director's Stock Option Plan (Director Plan) covered nonemployee
directors. Options could have been granted annually to eligible directors.
Options under the Director Plan became exercisable six months subsequent to
date of grant, expiring five years after the grant date.
Pursuant to the Merger (see Note 2), the Long-Term Incentive and Stock
Option Plan and the Director's Stock Option Plan were terminated with no
additional shares available for grant under the plans. Concurrent with the
Merger, 3,342,010 options granted under the plans were exercised and sold.
The remaining outstanding options were rolled over to and are covered by a
1998 stock option plan (1998 Plan) established by the Company concurrent
with the Merger. All options rolled over to the 1998 Plan continue to be
covered by the original agreements with the individual option holders and
retained the same terms as the Incentive and Stock Option Plan.
All options were granted with option prices based on the estimated fair
market value of the Company's common stock at date of grant.
On March 13, 1998, the Company adopted the 1998 Plan. Under the 1998 Plan,
the Company may grant incentive stock options and stock options and
performance awards to the Company's employees. A total of 5,000,000 shares
are reserved for issuance under the 1998 Plan. Options granted under the
plan will vest in whole or in part within five years from the date granted
based on the achievement of certain financial targets. Any unvested options
will vest eight years following the date of grant.
Stock option activity with respect to the 1998 Plan, Incentive and Stock
Option Plan and Director Plan is as follows:
<TABLE>
<CAPTION>
Incentive and Stock Option Plan Director Plan
--------------------------------- -----------------------------
1998 Plan December 31 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>
68
<PAGE>
Universal Hospital Services, Inc.
Notes to Financial Statements, Continued
15. Stock Option and Stock Purchase Plans, continued:
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.
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:
Pro Forma
-------------------------
1998 1997
Net (loss) income $(7,829,799) $2,315,983
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).
69
<PAGE>
Universal Hospital Services, Inc.
Notes to Financial Statements, Continued
15. Stock Option and Stock Purchase Plans, continued:
The weighted-average grant-date fair value of options granted and stock
purchases under the Employee Stock Purchase Plan during 1998 and 1997 was
$0.4 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:
1998 1997
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
16. Noncash Investing and Financing Transactions:
o 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.
o 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.
o During 1995, the Company issued preferred stock dividends totaling
$277,000.
70
<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 45 of this Annual Report on Form 10-K also included
an audit of the financial statement schedule listed in item 14(a)(2) of this
Form 10-K. 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.
/s/ PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
February 19, 1999
71
<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
Description of period expense accounts reserves of period
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserve for doubtful accounts:
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 3.1
RESTATED ARTICLES OF INCORPORATION
OF
UNIVERSAL HOSPITAL SERVICES, INC.
Article 1. Name
The name of the Corporation is Universal Hospital Services, Inc.
Article 2. Registered Office
The registered office address of the corporation is 1250 Northland
Plaza, 3800 West 80th Street, Bloomington, Minnesota 55431.
Article 3. Authorized Shares
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 25,000,000 shares consisting of
25,000,000 shares of common stock, par value $.01 per share.
Article 4. Director Liability
No director of the Corporation shall be liable to the Corporation or
its shareholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of a director's duty of
loyalty to the Corporation or its shareholders; (ii) for acts of omissions not
in good faith or that involve intentional misconduct or a knowing violation of
law; (iii) under sections 302A.559 or 80A.23 of the Minnesota Statutes; (iv) for
any transaction from which the director derived an improper personal benefit; or
(v) for any act or omission occurring prior to the date when this Article 4
became effective.
If the Minnesota Business Corporation Act is hereafter amended to
authorize any further elimination or limitation on the liability of a director,
then the liability of a director of the Corporation shall be eliminated or
limited to the fullest extent permitted by the Minnesota Business Corporation
Act as amended.
Any repeal or modification of the foregoing provisions of this Article
4 by the shareholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
Article 5. No Cumulative Voting
There shall be no cumulative voting by the shareholders of the
Corporation.
Article 6. No Preemptive Rights
The shareholders of the Corporation shall not have any preemptive
rights to subscribe for or acquire securities or rights to purchase securities
of any class, kind or series of the Corporation.
<PAGE>
Exhibit 3.2
RESTATED BYLAWS
OF
UNIVERSAL HOSPITAL SERVICES, INC.
ARTICLE I.
OFFICES, CORPORATE SEAL
Section 1.01. Registered Office. The registered office of the
corporation in Minnesota shall be that set forth in the articles of
incorporation or in the most recent amendment of the articles of incorporation
or resolution of the directors filed with the secretary of state of Minnesota
changing the registered office.
Section 1.02. Other Offices. The corporation may have such other
offices, within or without the state of Minnesota, as the directors shall, from
time to time, determine.
Section 1.03. Corporate Seal. The corporation shall have no seal.
ARTICLE II.
MEETINGS OF SHAREHOLDERS
Section 2.01. Place and Time of Meetings. Except as provided otherwise
by the Minnesota Business Corporation Act, meetings of the shareholders may be
held at any place, within or without the state of Minnesota, as may from time to
time be designated by the directors and, in the absence of such designation,
shall be held at the registered office of the corporation in the state of
Minnesota. The directors shall designate the time of day for each meeting and,
in the absence of such designation, every meeting of shareholders shall be held
at ten o'clock a.m.
Section 2.02. Regular Meetings.
(a) A regular meeting of the shareholders shall be held on such date as
the board of directors shall by resolution establish.
(b) At a regular meeting the shareholders, voting as provided in the
articles of incorporation and these bylaws, shall designate the number of
directors to constitute the board of directors (subject to the authority of the
board of directors thereafter to increase or decrease the number of directors as
permitted by law), shall elect qualified successors for directors who serve for
an indefinite term or whose terms have expired or are due to expire within six
months after the date of the meeting and shall transact such other business as
may properly come before them.
Section 2.03. Special Meetings. Special meetings of the shareholders
may be held at any time and for any purpose and may be called by the chief
executive officer, the chief financial officer, two or more directors or by a
shareholder or shareholders holding 10% or more of the voting power of all
shares entitled to vote, except that a special meeting for the purpose of
considering any action to directly or indirectly facilitate or affect a business
combination, including any action to change or otherwise affect the composition
of the board of directors for that purpose, must be called by 25% or more of the
voting power of all shares entitled to vote. A shareholder or shareholders
holding the requisite percentage of the voting power of all shares entitled to
vote may demand a special meeting of the shareholders by written notice of
demand given to the chief executive officer or chief financial officer of the
corporation and containing the purposes of the meeting. Within 30 days after
receipt of demand by one of those officers, the board of directors shall cause a
special meeting of shareholders to be called and held on notice no later than 90
days after receipt of the demand, at the expense of the corporation. Special
meetings shall be held on the date and at the time and place fixed by the chief
executive officer or the board of directors, except that a special meeting
called by or at demand of
B-1
<PAGE>
a shareholder or shareholders shall be held in the county where the principal
executive office is located. The business transacted at a special meeting shall
be limited to the purposes as stated in the notice of the meeting.
Section 2.04. Quorum, Adjourned Meetings. The holders of a majority of
the shares of stock issued and outstanding and entitled to vote, represented in
person or by proxy, shall constitute a quorum at all meetings of the
shareholders for the transaction of business except as otherwise provided by
statute or the articles of incorporation. In case a quorum shall not be present
at a meeting, the meeting may be adjourned from time to time without notice
other than announcement at the time of adjournment of the date, time and place
of the adjourned meeting. If a quorum is present, a meeting may be adjourned
from time to time without notice other than announcement at the time of
adjournment of the date, time and place of the adjourned meeting. At adjourned
meetings at which a quorum is present, any business may be transacted which
might have been transacted at the meeting as originally noticed. If a quorum is
present when a meeting is convened, the shareholders present may continue to
transact business until adjournment notwithstanding the withdrawal of enough
shareholders originally present to leave less than a quorum.
Section 2.05. Voting. At each meeting of the shareholders every
shareholder having the right to vote shall be entitled to vote either in person
or by proxy. Each shareholder, unless the articles of incorporation or statutes
provide otherwise, shall have one vote for each share having voting power
registered in such shareholder's name on the books of the corporation. Jointly
owned shares may be voted by any joint owner unless the corporation receives
written notice from any one of them denying the authority of that person to vote
those shares. Upon the demand of any shareholder, the vote upon any question
before the meeting shall be by ballot. All questions shall be decided by a
majority vote of the number of shares entitled to vote and represented at the
meeting at the time of the vote except if otherwise required by statute, the
articles of incorporation, or these bylaws.
Section 2.06. Record Date. The board of directors may fix a date, not
exceeding 60 days preceding the date of any meeting of shareholders, as a record
date for the determination of the shareholders entitled to notice of, and to
vote at, such meeting, notwithstanding any transfer of shares on the books of
the corporation after any record date so fixed. If the board of directors fails
to fix a record date for determination of the shareholders entitled to notice
of, and to vote at, any meeting of shareholders, the record date shall be the
20th day preceding the date of such meeting.
Section 2.07. Notice of Meetings. There shall be mailed to each
shareholder, shown by the books of the corporation to be a holder of record of
voting shares, at his address as shown by the books of the corporation, a notice
setting out the date, time and place of each regular meeting and each special
meeting, except (unless otherwise provided in section 2.04 hereof) where the
meeting is an adjourned meeting and the date, time and place of the meeting were
announced at the time of adjournment, which notice shall be mailed at least ten
days prior thereto (unless otherwise provided in section 2.04 hereof); except
that notice of a meeting at which a plan of merger or exchange is to be
considered shall be mailed to all shareholders of record, whether entitled to
vote or not, at least fourteen days prior thereto. Every notice of any special
meeting called pursuant to section 2.03 hereof shall state the purpose or
purposes for which the meeting has been called, and the business transacted at
all special meetings shall be confined to the purposes stated in the notice. The
written notice of any meeting at which a plan of merger or exchange is to be
considered shall so state such as a purpose of the meeting. A copy or short
description of the plan of merger or exchange shall be included in or enclosed
with such notice.
Section 2.08. Waiver of Notice. Notice of any regular or special
meeting may be waived by any shareholder either before, at or after such meeting
orally or in writing signed by such shareholder or a representative entitled to
vote the shares of such shareholder. A shareholder, by his attendance at any
meeting of shareholders, shall be deemed to have waived notice of such meeting,
except where the shareholder objects at the beginning of the meeting to the
transaction of business because the meeting is not lawfully called or convened,
or objects before a vote on an item of business because the item may not
lawfully be considered at that meeting and does not participate in the
consideration of the item at that meeting.
B-2
<PAGE>
Section 2.09. Written Action. Any action which might be taken at a
meeting of the shareholders may be taken without a meeting if done in writing
and signed by all of the shareholders entitled to vote on that action.
Section 2.10. Electronic Communications. A conference among
shareholders by any means of communication through which the shareholders may
simultaneously hear each other during the conference constitutes a regular or
special meeting, as the case may be, of the shareholders, if all of the notice
and quorum requirements for a regular or special meeting, as the case may be,
are satisfied. Participation in a conference by such means constitutes presence
at the meeting in person or by proxy if all of the requirements of the Minnesota
Business Corporation Act Section 302A.449, as now enacted or hereafter amended,
are met. A shareholder may participate in a regular or special meeting by any
means of communication through which the shareholder, other shareholders so
participating and all shareholders physically present at the meeting may
simultaneously hear each other during the meeting. Participation in a meeting by
such means constitutes presence at the meeting in person or by proxy if all of
the requirements of Minnesota Business Corporation Act 302A.449, as now enacted
or hereafter amended, are met.
ARTICLE III.
DIRECTORS
Section 3.01. General Powers. The business and affairs of the
corporation shall be managed by or under the authority of the board of
directors, except as otherwise permitted by statute.
Section 3.02. Number, Qualification and Term of Office. The number of
directors of the corporation shall be determined from time to time by resolution
of the board. Directors need not be residents of the State of Minnesota nor
shareholders of the corporation. The directors other than the first board of
directors, shall be elected at the regular meeting, and each director elected
shall serve until the next succeeding regular meeting and until the successor
shall have been elected and qualified. The first board of directors shall hold
office until the first annual meeting.
Section 3.03. Board Meetings. Meetings of the board of directors may be
held from time to time at such time and place within or without the state of
Minnesota as may be designated in the notice of such meeting.
Section 3.04. Calling Meetings; Notice. Meetings of the board of
directors may be called by the chairman of the board by giving at least
twenty-four hours' notice, or by any other director by giving at least five
days' notice, of the date, time and place thereof to each director by mail,
telephone, telegram or in person. If the day or date, time and place of a
meeting of the board of directors has been announced at a previous meeting of
the board, no notice is required. Notice of an adjourned meeting of the board of
directors need not be given other than by announcement at the meeting at which
adjournment is taken.
Section 3.05. Waiver of Notice. Notice of any meeting of the board of
directors may be waived by any director either before, at, or after such meeting
orally or in a writing signed by such director. A director, by his attendance at
any meeting of the board of directors, shall be deemed to have waived notice of
such meeting, except where the director objects at the beginning of the meeting
to the transaction of business because the meeting is not lawfully called or
convened and does not participate thereafter in the meeting.
Section 3.06. Quorum. A majority of the directors holding office
immediately prior to a meeting of the board of directors shall constitute a
quorum for the transaction of business at such meeting.
Section 3.07. Absent Directors. A director may give advance written
consent or opposition to a proposal to be acted on at a meeting of the board of
directors. If such director is not present at the meeting, consent or opposition
to a proposal does not constitute presence for purposes of determining the
existence of a quorum, but consent or opposition shall be counted as a vote in
favor of or against the proposal and shall be entered in the minutes or other
record of action at the meeting, if the proposal acted on at the meeting is
substantially the same or has substantially the same effect as the proposal to
which the director has consented or objected.
B-3
<PAGE>
Section 3.08. Conference Communications. Any or all directors may
participate in any meeting of the board of directors, or of any duly constituted
committee thereof, by any means of communication through which the directors may
simultaneously hear each other during such meeting. For the purposes of
establishing a quorum and taking any action at the meeting, such directors
participating pursuant to this section 3.08 shall be deemed present in person at
the meeting; and the place of the meeting shall be the place of origination of
the conference telephone conversation or other comparable communication
technique.
Section 3.09. Vacancies; Newly Created Directorships. Any vacancy
occurring in the board of directors may be filled by the affirmative vote of a
majority of the remaining directors though less than a quorum of the board. A
director elected to fill a vacancy shall be elected for the unexpired portion of
the term of his predecessor in office. Any directorship to be filled by reason
of an increase in the number of directors shall be filled by election at the
next regular meeting or at a special meeting of shareholders called for that
purpose. A director elected to fill a newly created directorship shall serve
until the next succeeding regular meeting and until his successor shall have
been elected and qualified.
Section 3.10. Removal. Any or all of the directors may be removed from
office at any time, with or without cause, by the affirmative vote of the
shareholders holding a majority of the shares entitled to vote at an election of
directors except, as otherwise provided by the Minnesota Business Corporation
Act, section 302A.223, as amended, when the shareholders have the right to
cumulate their votes. A director named by the board of directors to fill a
vacancy may be removed from office at any time, with or without cause, by the
affirmative vote of the remaining directors if the shareholders have not elected
directors in the interim between the time of the appointment to fill such
vacancy and the time of the removal. In the event that the entire board or any
one or more directors be so removed, new directors may be elected at the same
meeting.
Section 3.11. Committees. A resolution approved by the affirmative vote
of a majority of the board of directors may establish committees having the
authority of the board in the management of the business of the corporation to
the extent provided in the resolution. A committee shall consist of one or more
persons, who need not be directors, appointed by affirmative vote of a majority
of the directors present. Committees are subject to the direction and control
of, and vacancies in the membership thereof shall be filled by, the board of
directors.
A majority of the members of the committee present at a meeting is a
quorum for the transaction of business, unless a larger or smaller proportion or
number is provided in a resolution approved by the affirmative vote of a
majority of the directors present.
Section 3.12. Written Action. Any action which might be taken at a
meeting of the board of directors, or any duly constituted committee thereof,
may be taken without a meeting if done in writing and signed by all of the
directors or committee members, unless the articles provide otherwise and the
action need not be approved by the shareholders.
Section 3.13. Compensation. Directors who are not salaried officers of
this corporation shall receive such fixed sum per meeting attended or such fixed
annual sum as shall be determined, from time to time, by resolution of the board
of directors. The board of directors may, by resolution, provide that all
directors shall receive their expenses, if any, of attendance at meetings of the
board of directors or any committee thereof. Nothing herein contained shall be
construed to preclude any director from serving this corporation in any other
capacity and receiving proper compensation therefor.
ARTICLE IV.
OFFICERS
Section 4.01. Number. The officers of the corporation shall consist of
a chairman of the board (if one is elected by the board), the president, one or
more vice presidents (if desired by the board), a treasurer, a secretary (if
B-4
<PAGE>
one is elected by the board) and such other officers and agents as may, from
time to time, be elected by the board of directors. Any number of offices may be
held by the same person.
Section 4.02. Election, Term of Office and Qualifications. The board of
directors shall elect or appoint, by resolution approved by the affirmative vote
of a majority of the directors present, from within or without their number, the
president, treasurer and such other officers as may be deemed advisable, each of
whom shall have the powers, rights, duties, responsibilities, and terms of
office provided for in these bylaws or a resolution of the board of directors
not inconsistent therewith. The president and all other officers who may be
directors shall continue to hold office until the election and qualification of
their successors, notwithstanding an earlier termination of their directorship.
Section 4.03. Removal and Vacancies. Any officer may be removed from
his office by the board of directors at any time, with or without cause. Such
removal, however, shall be without prejudice to the contract rights of the
person so removed. If there be a vacancy in an office of the corporation by
reason of death, resignation or otherwise, such vacancy shall be filled for the
unexpired term by the board of directors.
Section 4.04. Chairman of the Board. The chairman of the board, if one
is elected, shall preside at all meetings of the shareholders and directors and
shall have such other duties as may be prescribed, from time to time, by the
board of directors.
Section 4.05. President. The president shall be the chief executive
officer and shall have general active management of the business of the
corporation. In the absence of the chairman of the board, he shall preside at
all meetings of the shareholders and directors. He shall see that all orders and
resolutions of the board of directors are carried into effect. He shall execute
and deliver, in the name of the corporation, any deeds, mortgages, bonds,
contracts or other instruments pertaining to the business of the corporation
unless the authority to execute and deliver is required by law to be exercised
by another person or is expressly delegated by the articles or bylaws or by the
board of directors to some other officer or agent of the corporation. He shall
maintain records of and, whenever necessary, certify all proceedings of the
board of directors and the shareholders, and in general, shall perform all
duties usually incident to the office of the president. He shall have such other
duties as may, from time to time, be prescribed by the board of directors.
Section 4.06. Vice President. Each vice president, if one or more is
elected, shall have such powers and shall perform such duties as prescribed by
the board of directors or by the president. In the event of the absence or
disability of the president, the vice president(s) shall succeed to his power
and duties in the order designated by the board of directors.
Section 4.07. Secretary. The secretary, if one is elected, shall be
secretary of and shall attend all meetings of the shareholders and board of
directors and shall record all proceedings of such meetings in the minute book
of the corporation. He shall give proper notice of meetings of shareholders and
directors. He shall perform such other duties as may, from time to time, be
prescribed by the board of directors or by the president.
Section 4.08. Treasurer. The treasurer shall be the chief financial
officer and shall keep accurate financial records for the corporation. He shall
deposit all moneys, drafts and checks in the name of, and to the credit of, the
corporation in such banks and depositories as the board of directors shall, from
time to time, designate. He shall have power to endorse, for deposit, all notes,
checks and drafts received by the corporation. He shall disburse the funds of
the corporation, as ordered by the board of directors, making proper vouchers
therefor. He shall render to the president and the directors, whenever
requested, an account of all his transactions as treasurer and of the financial
condition of the corporation, and shall perform such other duties as may, from
time to time, be prescribed by the board of directors or by the president.
Section 4.09. Compensation. The officers of the corporation shall
receive such compensation for their services as may be determined, from time to
time, by resolution of the board of directors.
B-5
<PAGE>
ARTICLE V.
SHARES AND THEIR TRANSFER
Section 5.01. Certificates for Shares. All shares of the corporation
shall be certificated shares. Every owner of shares of the corporation shall be
entitled to a certificate, to be in such form as shall be prescribed by the
board of directors, certifying the number of shares of the corporation owned by
such shareholder. The certificates for such shares shall be numbered in the
order in which they shall be issued and shall be signed, in the name of the
corporation, by the president and by the secretary or an assistant secretary or
by such officers as the board of directors may designate. If the certificate is
signed by a transfer agent or registrar, such signatures of the corporate
officers may be by facsimile if authorized by the board of directors. Every
certificate surrendered to the corporation for exchange or transfer shall be
canceled, and no new certificate or certificates shall be issued in exchange for
any existing certificate until such existing certificate shall have been so
canceled, except in cases provided for in section 5.04.
Section 5.02. Issuance of Shares. The board of directors is authorized
to cause to be issued shares of the corporation up to the full amount authorized
by the articles of incorporation in such amounts as may be determined by the
board of directors and as may be permitted by law. Shares may be issued for any
consideration, including, without limitation, in consideration of cash or other
property, tangible or intangible, received or to be received by the corporation
under a written agreement, of services rendered or to be rendered to the
corporation under a written agreement, or of an amount transferred from surplus
to stated capital upon a share dividend. At the time of approval of the issuance
of shares, the board of directors shall state, by resolution, its determination
of the fair value to the corporation in monetary terms of any consideration
other than cash for which shares are to be issued.
Section 5.03. Transfer of Shares. Transfer of shares on the books of
the corporation may be authorized only by the shareholder named in the
certificate, or the shareholder's legal representative, or the shareholder's
duly authorized attorney-in-fact, and upon surrender of the certificate or the
certificates for such shares. The corporation may treat as the absolute owner of
shares of the corporation, the person or persons in whose name shares are
registered on the books of the corporation.
Section 5.04. Loss of Certificates. Except as otherwise provided by the
Minnesota Business Corporation Act, section 302A.419, any shareholder claiming a
certificate for shares to be lost, stolen, or destroyed shall make an affidavit
of that fact in such form as the board of directors shall require and shall, if
the board of directors so requires, give the corporation a bond of indemnity in
form, in an amount, and with one or more sureties satisfactory to the board of
directors, to indemnify the corporation against any claim which may be made
against it on account of the reissue of such certificate, whereupon a new
certificate may be issued in the same tenor and for the same number of shares as
the one alleged to have been lost, stolen or destroyed.
ARTICLE VI.
DISTRIBUTIONS, RECORD DATE
Section 6.01. Distributions. Subject to the provisions of the articles
of incorporation, of these bylaws, and of law, the board of directors may
authorize and cause the corporation to make distributions whenever, and in such
amounts or forms as, in its opinion, are deemed advisable.
Section 6.02. Record Date. Subject to any provisions of the articles of
incorporation, the board of directors may fix a date not exceeding 120 days
preceding the date fixed for the payment of any distribution as the record date
for the determination of the shareholders entitled to receive payment of the
distribution and, in such case, only shareholders of record on the date so fixed
shall be entitled to receive payment of such distribution notwithstanding any
transfer of shares on the books of the corporation after the record date.
B-6
<PAGE>
ARTICLE VII.
BOOKS AND RECORDS, FISCAL YEAR
Section 7.01. Share Register. The board of directors of the corporation
shall cause to be kept at its principal executive office, or at another place or
places within the United States determined by the board:
(1) a share register not more than one year old, containing the
names and addresses of the shareholders and the number and
classes of shares held by each shareholder; and
(2) a record of the dates on which certificates or transaction
statements representing shares were issued.
Section 7.02. Other Books and Records. The board of directors shall
cause to be kept at its principal executive office, or, if its principal
executive office is not in Minnesota, shall make available at its Minnesota
registered office within ten days after receipt by an officer of the corporation
of a written demand for them made by a shareholder or other person authorized by
the Minnesota Business Corporation Act, section 302A.461, originals or copies
of:
(1) records of all proceedings of shareholders for the last three
years;
(2) records of all proceedings of the board for the last three
years;
(3) its articles and all amendments currently in effect;
(4) its bylaws and all amendments currently in effect;
(5) financial statements required by the Minnesota Business
Corporation Act, section 302A.463 and the financial statements
for the most recent interim period prepared in the course of
the operation of the corporation for distribution to the
shareholders or to a governmental agency as a matter of public
record;
(6) reports made to shareholders generally within the last three
years;
(7) a statement of the names and usual business addresses of its
directors and principal officers; and
(8) any shareholder voting or control agreements of which the
corporation is aware.
Section 7.03. Fiscal Year. The fiscal year of the corporation shall be
determined by the board of directors.
ARTICLE VIII.
LOANS, GUARANTEES, SURETYSHIP
Section 8.01. The corporation may lend money to, guarantee an
obligation of, become a surety for, or otherwise financially assist a person if
the transaction, or a class of transactions to which the transaction belongs, is
approved by the affirmative vote of a majority of the directors present, and:
(1) is in the usual and regular course of business of the
corporation;
(2) is with, or for the benefit of, a related corporation, an
organization in which the corporation has a financial
interest, an organization with which the corporation has a
business relationship, or an organization to which the
corporation has the power to make donations;
B-7
<PAGE>
(3) is with, or for the benefit of, an officer or other employee
of the corporation or a subsidiary, including an officer or
employee who is a director of the corporation or a subsidiary,
and may reasonably be expected, in the judgment of the board,
to benefit the corporation; or
(4) has been approved by (a) the holders of two-thirds of the
voting power of the shares entitled to vote which are owned by
persons other than the interested person or persons, or (b)
the unanimous affirmative vote of the holders of all
outstanding shares whether or not entitled to vote.
Such loan, guarantee, surety contract or other financial assistance may be with
or without interest, and may be unsecured, or may be secured in the manner as a
majority of the directors present approve, including, without limitation, a
pledge of or other security interest in shares of the corporation. Nothing in
this section shall be deemed to deny, limit or restrict the powers of guaranty,
surety or warranty of the corporation at common law or under a statute of the
state of Minnesota.
ARTICLE IX.
INDEMNIFICATION OF CERTAIN PERSONS
Section 9.01. The corporation shall indemnify all officers and
directors of the corporation, for such expenses and liabilities, in such manner,
under such circumstances and to such extent as permitted by section 302A.521 of
the Minnesota Business Corporation Act, as now enacted or hereafter amended. The
Board of Directors may authorize the purchase and maintenance of insurance
and/or the execution of individual agreements for the purpose of such
indemnification, and the corporation shall advance all reasonable costs and
expenses (including attorneys' fees) incurred in defending any action, suit or
proceeding to all persons entitled to indemnification under this section 9.01,
all in the manner, under the circumstances and to the extent permitted by
Section 302A.521 of the Minnesota Business Corporation Act, as now enacted or
hereafter amended. Unless otherwise approved by the board of directors, the
corporation shall not indemnify any employee of the corporation who is not
otherwise entitled to indemnification pursuant to this section 9.01.
ARTICLE X.
AMENDMENTS
Section 10.01. These bylaws may be amended or altered by a vote of the
majority of the whole board of directors at any meeting. Such authority of the
board of directors is subject to the power of the shareholders, exercisable in
the manner provided in the Minnesota Business Corporation Act, section 302A.181,
subd. 3, to adopt, amend, or repeal bylaws adopted, amended, or repealed by the
board of directors. After the adoption of the initial bylaws, the board of
directors shall not make or alter any bylaws fixing a quorum for meetings of
shareholders, prescribing procedures for removing directors or filling vacancies
in the board of directors, or fixing the number of directors or their
classifications, qualifications, or terms of office, except that the board of
directors may adopt or amend any bylaw to increase their number.
ARTICLE XI.
SECURITIES OF OTHER CORPORATIONS
Section 11.01. Voting Securities Held by the Corporation. Unless
otherwise ordered by the board of directors, the president shall have full power
and authority on behalf of the corporation (a) to attend any meeting of security
holders of other corporations in which the corporation may hold securities and
to vote such securities on behalf of this corporation; (b) to execute any proxy
for such meeting on behalf of the corporation; or (c) to execute a written
action in lieu of a meeting of such other corporation on behalf of this
corporation. At such meeting, the president shall possess and may exercise any
and all rights and powers incident to the ownership of such securities that the
corporation possesses. The board of directors may, from time to time, grant such
power and authority to one or more other persons and may remove such power and
authority from the president or any other person or persons.
B-8
<PAGE>
Section 11.02. Purchase and Sale of Securities. Unless otherwise
ordered by the board of directors, the president shall have full power and
authority on behalf of the corporation to purchase, sell, transfer or encumber
any and all securities of any other corporation owned by the corporation, and
may execute and deliver such documents as may be necessary to effectuate such
purchase, sale, transfer or encumbrance. The board of directors may, from time
to time, confer like powers upon any other person or persons.
B-9
<PAGE>
Exhibit 3.3
AMENDMENT TO ARTICLES OF INCORPORATION
UNIVERSAL HOSPITAL SERVICES, INC.
RESOLVED, that Article 3 to the Amended and Restated Articles of
Incorporation of Universal Hospital Services, Inc. (the "Corporation"), be
amended and restated in its entirety as follows:
ARTICLE 3. AUTHORIZED SHARES
(a) Authorized Capital Stock. The total number of shares of capital
stock which the Corporation is authorized to issue shall be 60,000,000 shares,
consisting of 50,000,000 shares of common stock, par value $0.01 per share
("Common Stock"), and 10,000,000 shares of preferred stock, par value $0.01 per
share ("Preferred Stock").
(b) Common Stock. All shares of Common Stock shall be voting shares and
shall be entitled to one vote per share. Holders of Common Stock shall not be
entitled to cumulate their votes in the election of directors and shall not be
entitled to any preemptive rights to acquire shares of any class or series of
capital stock of the Corporation. Subject to any preferential rights of holders
of Preferred Stock, holders of Common Stock shall be entitled to receive their
pro rata shares, based upon the number of shares of Common Stock held by them,
of such dividends or other distributions as may be declared by the board of
directors from time to time and of any distribution of the assets of the
Corporation upon its liquidation, dissolution or winding up, whether voluntary
or involuntary.
(c) Preferred Stock. The board of directors of the Corporation is
hereby authorized to provide, by resolution or resolutions adopted by such
board, for the issuance of Preferred Stock from time to time in one or more
classes and/or series, to establish the designation and number of shares of each
such class or series, and to fix the relative rights and preferences of the
shares of each such class or series, all to the full extent permitted by
Minnesota Statutes, Section 302A.401, or any successor provision. Without
limiting the generality of the foregoing, the board of directors is authorized
to provide that shares of a class or series of Preferred Stock:
(1) are entitled to cumulative, partially cumulative or
noncumulative dividends or other distributions in payable in cash,
capital stock or indebtedness of the Corporation or other property, at
such times and in such amounts as are set forth in the board
resolutions establishing such class or series or as are determined in a
manner specified in such resolutions;
(2) are entitled to a preference with respect to payment of
dividends over one or more other classes and/or series of capital stock
of the Corporation;
(3) are entitled to a preference with respect to any
distribution of assets of the Corporation upon its liquidation,
dissolution or winding up over one or more other classes and/or series
of capital stock of the Corporation in such amount as is set forth in
the board resolutions establishing such class or series or as is
determined in a manner specified in such resolutions;
(4) are redeemable or exchangeable at the option of the
Corporation and/or on a mandatory basis for cash, capital stock or
indebtedness of the Corporation or other property, at such times or
upon the occurrence of such events, and at such prices, as are set
forth in the board resolutions establishing such class or series or as
are determined in a manner specified in such resolutions;
<PAGE>
(5) are entitled to the benefits of such sinking fund, if any,
as is required to be established by the Corporation for the redemption
and/or purchase of such shares by the board resolutions establishing
such class or series;
(6) are convertible at the option of the holders thereof into
shares of any other class or series of capital stock of the
Corporation, at such times or upon the occurrence of such events, and
upon such terms, as are set forth in the board resolutions establishing
such class or series or as are determined in a manner specified in such
resolutions;
(7) are exchangeable at the option of the holders thereof for
cash, capital stock or indebtedness of the Corporation or other
property, at such times or upon the occurrence of such events, and at
such prices, as are set forth in the board resolutions establishing
such class or series or as are determined in a manner specified in such
resolutions;
(8) are entitled to such voting rights, if any, as are
specified in the board resolutions establishing such class or series
(including, without limiting the generality of the foregoing, the right
to elect one or more directors voting alone as a single class or series
or together with one or more other classes and/or series of Preferred
Stock, if so specified by such board resolutions) at all times or upon
the occurrence of specified events; and
(9) are subject to restrictions on the issuance of additional
shares of Preferred Stock of such class or series or of any other class
or series, or on the reissuance of shares of Preferred Stock of such
class or series or of any other class or series, or on increases or
decreases in the number of authorized shares of Preferred Stock of such
class or series or of any other class or series.
Without limiting the generality of the foregoing authorizations, any of the
rights and preferences of a class or series of Preferred Stock may be made
dependent upon facts ascertainable outside the board resolutions establishing
such class or series, and may incorporate by reference some or all of the terms
of any agreements, contracts or other arrangements entered into by the
Corporation in connection with the issuance of such class or series, all to the
full extent permitted by Minnesota Statutes. Unless otherwise specified in the
board resolutions establishing a class or series of Preferred Stock, holders of
a class or series of Preferred Stock shall not be entitled to cumulate their
votes in any election of directors in which they are entitled to vote and shall
not be entitled to any preemptive rights to acquire shares of any class or
series of capital stock of the Corporation.
2
<PAGE>
Exhibit 3.4
CERTIFICATE OF DESIGNATION OF
SERIES A 12% CUMULATIVE CONVERTIBLE
ACCRUING PAY-IN-KIND PREFERRED STOCK
OF
UNIVERSAL HOSPITAL SERVICES, INC.
1. Designation. The Preferred Stock of Universal Hospital Services,
Inc. (the "Company") created and authorized for issuance hereby shall be
designated as "Series A 12% Cumulative Convertible Accruing Pay-In-Kind
Preferred Stock" (the "Series A Preferred Stock"). The Series A Preferred Stock
created and authorized for issuance hereby will, in the aggregate, consist of
25,000 shares of Series A Preferred Stock.
2. Priority. The Series A Preferred Stock shall, with respect to
dividend rights and rights on liquidation, winding up or dissolution, whether
voluntary or involuntary, whether now or hereafter issued, rank: (a) on parity
with any other series of Preferred Stock established hereafter by the Board of
Directors, the terms of which shall specifically provide that such series shall
rank on parity with the Series A Preferred Stock with respect to dividend rights
and rights on liquidation, winding up or dissolution (any and all of such series
of Preferred Stock to which the Series A Preferred Stock ranks on parity being
collectively referred to herein as "Parity Securities"); (b) junior to any other
series of Preferred Stock established hereafter by the Board of Directors, the
terms of which shall specifically provide that such series shall rank senior to
the Series A Preferred Stock with respect to dividend rights or rights on
liquidation, winding up or dissolution (any and all of such series of Preferred
Stock to which the Series A Preferred Stock ranks junior being collectively
referred to herein as "Senior Securities"); and (c) senior to the Common Stock,
$.01 par value per share, of the Company (the "Common Stock") and, subject to
clauses (a) and (b) hereof, any other equity securities of the Company (all of
such equity securities of the Company to which the Series A Preferred Stock
ranks senior, including without limitation the Common Stock, being collectively
referred to herein as "Junior Securities"). Notwithstanding the foregoing and in
addition to any requirements of applicable law, the Company shall neither (i)
establish, create, authorize or issue any shares of Parity Securities or Senior
Securities nor (ii) amend the Amended and Restated Articles of Incorporation, as
amended, in a manner which adversely affects the rights of the holders of the
Series A Preferred Stock, in either case without the approval of the holders
representing a majority of the shares of Series A Preferred Stock then issued
and outstanding.
3. Dividends.
(a) Entitlement; Accrual; Payment. Holders of shares of Series A
Preferred Stock shall be entitled to receive out of funds legally available
therefor ("Legally Available Funds"), cumulative dividends at an annual rate of
12%, payable with respect to periods ending on December 31 of each year and on
(i) the Mandatory Redemption Date (as defined below), (ii) each Optional
Redemption Date (as defined below) and (iii) the Liquidation Date (as defined
below), or with respect to such other or interim periods, if any, ending on such
dates as
<PAGE>
determined by the Board of Directors (each of such dates being a "Dividend
Accrual Date"), except that if such date is a Saturday, Sunday or legal holiday,
then such dividend shall be payable with respect to a period ending on the next
date that is not a Saturday, Sunday or legal holiday (a "Business Day"). Each of
such dividends shall be fully cumulative and shall accrue (whether or not
declared), without interest, on a daily basis from the first day of the period
with respect to which such dividend may be payable as provided herein; provided,
however, that with respect to the first Dividend Accrual Date following the
issuance of shares of Series A Preferred Stock, such dividend shall accrue from
the date of issuance of such shares. All accrued but unpaid dividends shall be
compounded annually at a rate of 12%. Dividends payable with respect to any
dividend period of more or less than one year shall be computed on the basis of
a 360-day year and the actual number of days elapsed in that period. All
dividends hereunder shall be paid only in shares of Series A Preferred Stock or
such other shares of Preferred Stock of the Company having the same rights and
preferences as those contained herein with respect to the Series A Preferred
Stock, as designated by the Board of Directors (such shares being referred to
herein as the "Equivalent Securities"). Dividends shall be payable to holders of
shares of Series A Preferred Stock only upon, redemption of such shares pursuant
to Section 5 on the Mandatory Redemption Date or applicable Optional Redemption
Date or on such other date as the Board of Directors may from time to time
declare (such date, as it relates to the payment of dividends, is referred to
herein as the "Dividend Payment Date"). No dividend shall be declared or paid on
shares of Series A Preferred Stock if the declaration or payment thereof would
violate the terms or provisions of any instrument governing indebtedness of the
Company.
(b) Issuance of Dividend Shares. All dividends paid in additional
shares of Series A Preferred Stock or Equivalent Securities shall be deemed
issued on the applicable Dividend Payment Date and will thereupon be duly
authorized, validly issued, fully paid and nonassessable and free and clear of
all liens and charges.
(c) No Cash or Other Additional Dividends. No cash dividends on shares
of Series A Preferred Stock shall be declared by the Board of Directors or paid
or set apart for payment by the Company, and holders of shares of Series A
Preferred Stock shall not be entitled to receive any dividends or other
distributions, except as provided herein.
(d) Priority With Respect to Senior and Parity Securities. If at any
time the Company shall have failed to pay all dividends which have accrued on
any outstanding shares of Senior Securities or Parity Securities at the times
such dividends are payable, unless otherwise provided in the terms of the Senior
Securities or the Parity Securities, no dividend shall be declared by the Board
of Directors or paid or set apart for payment by the Company on shares of Series
A Preferred Stock unless prior to or concurrently with such declaration, payment
or setting apart for payment, all accrued and unpaid dividends then payable on
all outstanding shares of such Senior Securities and Parity Securities shall
have been declared, paid or set apart for payment, respectively, without
interest; provided, however, that in the event such failure to pay accrued
dividends is with respect only to the outstanding shares of Series A Preferred
Stock and any outstanding shares of any Parity Securities, dividends may be
declared, paid or set apart for
-2-
<PAGE>
payment, without interest, pro rata on shares of Series A Preferred Stock and
shares of such Parity Securities so that the amounts of any dividends declared,
paid or set apart for payment on shares of Series A Preferred Stock and shares
of such Parity Securities shall in all cases bear to each other the same ratio
that, at the time of such declaration, payment or setting apart for payment, the
amounts of all accrued but unpaid dividends on shares of Series A Preferred
Stock and shares of such Parity Securities bear to each other. Notwithstanding
anything herein to the contrary, no cash dividends may be paid on shares of
Parity Securities pursuant to the proviso in the preceding sentence. Any
dividend not paid pursuant to Section 3(a) or this Section 3(d) shall be fully
cumulative and shall accrue (whether or not declared), without interest and
otherwise as set forth in Section 3(a).
(e) Priority With Respect to Junior Securities. (i) Holders of shares
of Series A Preferred Stock shall be entitled to receive the dividends provided
for in Section 3(a) in preference to and in priority over any dividends upon any
of the Junior Securities.
(ii) So long as any shares of Series A Preferred Stock are
outstanding, the Company shall not declare, pay or set apart for
payment any dividend on any of the Junior Securities or make any
payment on account of, or set apart for payment any money for a sinking
or other similar fund for, the purchase, redemption, retirement or
other acquisition of, or otherwise acquire for value, any of the Junior
Securities or any warrants, rights, calls or options exercisable for
any of the Junior Securities, or make any distribution in respect and
to the holders thereof, either directly or indirectly, whether in cash,
obligations or shares of the Company or other property (other than '
distributions or dividends payable solely in the same Junior
Securities), and shall not permit any company or other entity directly
or indirectly controlled by the Company to purchase or redeem any of
the junior Securities or any warrants, rights, calls or options
exercisable for any of the Junior Securities, unless prior to or
concurrently with such declaration, payment, setting apart for payment,
purchase or distribution, as the case may be, all accrued and unpaid
dividends, if any, on shares of Series A Preferred Stock not paid on
the dates provided for in Section 3(a) hereof (including without
limitation those not paid pursuant to the terms and conditions of
Section 3(d) hereof) shall have been paid.
(iii) Subject to the foregoing provisions of this Section 3,
the Board of Directors may declare and the Company may pay or set apart
for payment dividends and other distributions on any of the Junior
Securities and may purchase or otherwise redeem any of the Junior
Securities or any warrants, rights or options exercisable for any of
the Junior Securities, and the holders of the shares of Series A
Preferred Stock shall not be entitled to share in any such dividends,
distributions or proceeds.
4. Liquidation Preference.
(a) Payment of Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Company, the
holders of shares of Series A Preferred Stock then outstanding shall be entitled
to be paid out of the assets of the
-3-
<PAGE>
Company available for distribution to its shareholders an amount in cash equal
to $1,000 for each share outstanding, plus an amount in cash equal to all
accrued but unpaid dividends thereon (calculated on the basis of $1,000 per
dividend share) to and including the date fixed for liquidation (the
"Liquidation Date"), before any payment shall be made or any assets distributed
to the holders of any of the Junior Securities; provided, however, that the
holders of outstanding shares of Series A Preferred Stock shall not be entitled
to receive such liquidation payment until the liquidation payments on all
outstanding shares of Senior Securities shall have been paid in full. No full
preferential payment on account of any liquidation, dissolution or winding up of
the Company, whether voluntary or involuntary, shall be made to the holders of
any class of Parity Securities unless there shall likewise be paid at the same
time to holders of Series A Preferred Stock the full amounts to which such
holders are entitled with respect to such distribution. If the assets of the
Company are not sufficient to pay in full the liquidation payments payable to
the holders of outstanding shares of Series A Preferred Stock and outstanding
shares of Parity Securities, then the holders of all such shares shall share
ratably in such distribution of assets in accordance with the full respective
preferential amounts that would be payable on such shares of Series A Preferred
Stock and such shares of Parity Securities if all amounts payable thereon were
paid in full.
(b) Other Transactions Deemed a Liquidation. For the purposes of this
Section 4, (i) the voluntary sale, conveyance, exchange or transfer (for cash,
shares of stock, securities or other consideration) of all or substantially all
of the property or assets of the Company or (ii) the consolidation or merger of
the Company with one or more other companies or entities shall be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary.
5. Redemption.
(a) Mandatory Redemption. All of the shares of Series A Preferred Stock
are subject to mandatory redemption by the Company, at a per share redemption
price equal to $1,000 per share plus an amount in cash equal to all dividends on
that share declared pursuant to paragraph (b) of this Section 5 (calculated on
the basis of $1,000 per dividends share) (the "Mandatory Redemption Price") on
or effective as of August 17, 2008 (the "Mandatory Redemption Date").
(b) Optional Redemption. To the extent permitted by law and the terms
or provisions of other agreements or instruments for or with respect to capital
stock or indebtedness of the Company, to which the Company is, or may become, a
party or subject (including without limitation any indentures or certificates
designating additional series of the Preferred Stock), the outstanding shares of
Series A Preferred Stock shall be redeemable, in whole at any time or from time
to time in part, out of Legally Available Funds, at the option of the Company.
Immediately prior to authorizing or making any such redemption with respect to
the Series A Preferred Stock (and in no event later than the Mandatory
Redemption Date or the Optional Redemption Date), the Company, by resolution of
its Board of Directors, shall declare a dividend on the Series A
-4-
<PAGE>
Preferred Stock to be redeemed, which shall be in an amount equal to any accrued
and unpaid dividends on such Series A Preferred Stock, to and including the
Optional Redemption Date. Redemptions shall be made on the date specified in the
Redemption Notice (as defined in paragraph (c) of this Section 5) (the "Optional
Redemption Date"), upon giving notice as provided in Section 5(c), at a per
share redemption price of $1,060 plus an amount in cash equal to all dividends
on that share declared pursuant to the preceding sentence (calculated on the
basis of $1,060 per dividend share) (the "Optional Redemption Price and together
with the Mandatory Redemption Price, the "Redemption Price").
(c) Redemption Notice. The Company shall deliver a notice of each
redemption by first-class mail, postage prepaid, mailed not less than 5 calendar
days following the effective date thereof, to each holder of record of shares of
Series A Preferred Stock, at such holder's address as the same appears on the
stock books of the Company's transfer agent (the "Redemption Notice"). The
Redemption Notice shall state: (i) the effective date of the redemption and the
Mandatory Redemption Date or the Optional Redemption Date (which shall be no
less than 15 nor more than 30 calendar days following the mailing of the
Redemption Notice); (ii) the Redemption Price for the Series A Preferred Stock
to be redeemed; (iii) the accrued but unpaid dividends due on each share (and
all shares) of Series A Preferred Stock held by such holder as of the Mandatory
Redemption Date or the Optional Redemption Date; (iv) the place or places where,
and the procedures pursuant to which, certificates for such shares are to be
presented and surrendered for payment of the Redemption Price; (v) that payment
of the Redemption Price will be made upon proper presentation and surrender of
such certificates for shares of Series A Preferred Stock; (vi) that, as
applicable, (A) dividends shall cease to accrue on any outstanding shares of
Series A Preferred Stock following the Mandatory Redemption Date or (B) unless
the Company defaults in the payment of the Redemption Price for the shares being
redeemed, dividends on the shares to be redeemed shall cease to accrue following
such Optional Redemption Date; (vii) the aggregate number of shares of Series A
Preferred Stock being redeemed and, if a partial redemption, the method (e.g.,
pro rata, by lot, etc.) by which shares have been selected by the Company for
redemption; (viii) in the case of a redemption pursuant to paragraph (b) of this
Section 5, that any shares of Series A Preferred Stock not redeemed will
continue to accrue dividends in accordance with the terms of Section 3; (ix) as
applicable, that holders whose shares are being redeemed only in part will be
issued new certificates representing shares not redeemed by the Company; and (x)
that accrued and unpaid dividends up to and including the Mandatory Redemption
Date or such Optional Redemption Date, as applicable, will be paid to holders as
part of the Redemption Price in respect of shares redeemed by the Company in
accordance with the terms set forth herein.
(d) Redemption Effects and Procedures. (i) The Redemption Notices
having been mailed in accordance with paragraph (c) of this Section 5, on and
after the Mandatory Redemption Date or Optional Redemption Date, as applicable,
unless the Company shall be in default in providing money for the payment of the
Redemption Price for the shares being redeemed, (x) dividends on the shares of
the Series A Preferred Stock so called for redemption shall cease to accrue, (y)
said shares shall no longer be deemed to be outstanding and shall have
-5-
<PAGE>
the status of authorized but unissued shares of Series A Preferred Stock, and
(z) all rights of the holders thereof as holders of those redeemed shares of
Series A Preferred Stock (except the right to receive from the Company the
Redemption Price, without interest thereon, upon presentation and surrender of
the certificates evidencing such shares) shall cease. The Company's obligation
to pay the Redemption Price with respect to any redemption hereunder shall be
deemed fulfilled if, on or before the Optional Redemption Date, the Company
shall deposit with a bank or trust company having both (A) an office or agency
either in the Borough of Manhattan, City of New York or in the City of Boston
and (B) capital and surplus of at least $500,000,000 an amount equal to the
Redemption Price in respect of all shares so redeemed by the Company, in trust
for the account of the holders of the shares to be redeemed (and so as to be and
continue to be available therefor), with irrevocable instructions and authority
to such bank or trust company that such funds be applied to the redemption of
the shares of Series A Preferred Stock so called for redemption. Any funds so
deposited and unclaimed at the end of three years from the Mandatory Redemption
Date or such Optional Redemption Date as applicable, shall be released or repaid
to the Company, after which, subject to any applicable laws relating to escheat
or unclaimed property, the holder or holders of such shares of Series A
Preferred Stock so called for redemption shall look only to the Company for
payment of the Redemption Price. Any interest accrued on such funds shall be
paid to the Company from time to time.
(ii) Upon proper presentation and surrender in accordance with
the Redemption Notice of the certificates for any shares of Series A
Preferred Stock so redeemed (properly endorsed or assigned for
transfer), such shares shall be redeemed by the Company at the
Redemption Price. In the event of a partial redemption of the Series A
Preferred Stock, shares to be redeemed shall be selected by the Company
pro rata or by any other equitable method determined by the Board of
Directors in its sole discretion. If fewer than all the shares
represented by any certificate are redeemed, the Company's transfer
agent for the Series A Preferred Stock shall promptly mail to each
holder or in accordance with such holder's instructions, if any, a
certificate representing shares represented by the surrendered
certificate but not redeemed.
(iii) Notwithstanding the delivery by the Company of a
Redemption Notice in accordance with paragraph (c) of this Section 5,
if any holder of Series A Preferred Stock shall, prior to the close of
business on the second Business Day preceding the Mandatory Redemption
Date or any Optional Redemption Date, give written notice to the
Company of such holder's election to convert, pursuant to Section 7,
any or all of the shares held by such holder to be redeemed
(accompanied by a certificate or certificates for such shares, duly
endorsed or assigned to the Company), then the conversion of such
shares which would otherwise have been redeemed shall become effective
as provided in Section 7 hereof.
(e) Election Irrevocable. The election by the Company to redeem shares
of Series A Preferred Stock pursuant to paragraph (b) of this Section 5 shall
become irrevocable upon delivery of the Redemption Notice to the holders of
Series A Preferred Stock.
-6-
<PAGE>
(f) Possibility of Issuer Tender Offer. If the Company at any time were
to have a class of equity securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the redemption
option of the Company in respect of the Series A Preferred Stock pursuant to
this Section 5 might be deemed to constitute an "issuer tender offer" as defined
in Rule 13e-4 under the Exchange Act, and in such event, such redemption
transaction may be subject to the requirements of Rule 13e-4, including the
filing of an Issuer Tender Offer Statement on Schedule 13E-4 with the Securities
and Exchange Commission and the furnishing of certain information contained
therein to the holders of Series A Preferred Stock. In such event, the Company
will comply with all appropriate rules and regulations applicable to "issuer
tender offers" at such time and will inform the holders of Series A Preferred
Stock of their rights thereunder. In addition, the Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the redemption of shares pursuant to this Section
5.
6. Voting Rights.
(a) General. Except as herein provided or as otherwise required by law,
holders of Series A Preferred Stock shall be entitled to the same voting rights
as, and shall vote together as one class with, holders of Common Stock, with
each holder of shares of Series A Preferred Stock having such voting rights as
are attributable to the number of shares of Common Stock into which such shares
of Series A Preferred Stock are convertible in accordance with Section 7 hereof
as of the date of such vote.
(b) Class Vote. In addition to any matters requiring a separate vote of
the Series A Preferred Stock as a single class under applicable law, the
approval of the holders of a majority of the issued and outstanding shares of
Series A Preferred Stock, voting as a class, shall be required as set forth in
Section 2 hereof with respect to the priority and rights of the Series A
Preferred Stock hereunder and under the Company's Amended and Restated Articles
of Incorporation, as amended.
(c) Quorum. At each meeting of shareholders at which the holders of
shares of Series A Preferred Stock shall have the right, voting separately as a
single class, to take any action, the presence in person or by proxy of the
holders of record of at least 50% of the shares of Series A Preferred Stock
outstanding and entitled to vote on the matter shall be necessary and sufficient
to constitute a quorum. In the absence of a quorum of the holders of shares of
Series A Preferred Stock, a majority of the holders of such shares present in
person or by proxy shall have the power to adjourn the meeting as to the actions
to be taken by the holders of shares of Series A Preferred Stock from time to
time and place to place without notice other than announcement at the meeting
until a quorum shall be present.
-7-
<PAGE>
7. Conversion Rights.
(a) Exercisability. Subject to the terms and conditions of Section
5(d)(iii) and this Section 7, each share of Series A Preferred Stock may be
converted, at the option of the holder, into the number of fully paid,
nonassessable shares of Common Stock determined pursuant to paragraph (b) of
this Section 7.
(b) Terms of Conversion. The number of shares of Common Stock issuable
upon conversion of each share of the Series A Preferred Stock shall be
determined by dividing $1,000 by the Conversion Price (as defined below) in
effect on the date of conversion (calculated as to each conversion to the
nearest one ten-thousandth (1/10,000) of a share). The "Conversion Price" shall
initially equal $2.79; provided, however, that such Conversion Price shall be
adjusted and readjusted from time to time as provided in this Section 7 and, as
so adjusted and readjusted, shall remain in effect until a further adjustment or
readjustment thereof is required by this Section 7.
(c) Treatment of Dividends Upon Conversion. No payment or adjustment
shall be made upon conversion of the Series A Preferred Stock with respect to
dividends accrued on the Series A Preferred Stock through the date of
conversion.
(d) Conversion Procedures. Upon presentation and surrender to the
Company, at the office of the transfer agent or at such other place or places,
if any, as the Board of Directors may determine, by a holder of Series A
Preferred Stock of certificates, duly endorsed to the Company or in blank,
representing shares of Series A Preferred Stock to be converted, together with
written instructions to the Company requesting conversion of such shares and
specifying the name and address of the person, corporation, firm or other entity
to whom such shares of Com mon Stock are to be issued, (i) the Company shall
issue the number of shares of Common Stock issuable upon conversion thereof as
of the time of such surrender, and (ii) the Company's transfer agent for the
Common Stock shall promptly mail or otherwise deliver to each such holder or in
accordance with such holder's instructions, if any, one or more certificates
representing such shares of Common Stock. Upon surrender of a certificate
representing shares of Series A Preferred Stock to be converted in part, in
addition to the foregoing, the Company shall also issue to such holder a new
certificate representing any unconverted shares of Series A Preferred Stock
represented by the certificate surrendered for conversion.
(e) Adjustment of Conversion Price. The Conversion Price in effect at
any time shall be adjusted as follows:
(i) In the event that the Company shall (A) pay a dividend or
make a distribution on its Common Stock in shares Common Stock, (B)
subdivide its outstanding shares of Common Stock into a greater number
of shares, (C) combine its outstanding shares of Common Stock into a
smaller number of shares or (issue by reclassification of its Common
Stock any other shares capital stock of the Company, then in each such
case,
-8-
<PAGE>
the Conversion Price in effect immediately prior to such action shall
be adjusted so that the holder of any shares of Series A Preferred
thereafter surrendered for conversion shall be entitled to receive the
number of shares of Common Stock or other capital stock the Company
which it would have owned or been entitled to receive immediately
following such action had such shares of Series A Preferred Stock been
converted immediately prior to the occurrence of such event. An
adjustment made pursuant to this Section 7(e)(i) shall become effective
immediately after the record date, in the case of a dividend or
distribution, or immediately after the effective date, in the case of a
subdivision, combination or reclassification. In any case in which this
Section 7(e)(i) provides that an adjustment shall become effective
immediately after a record date for an event, the Company may defer
until the occurrence of such event issuing to the holder of any Series
A Preferred Stock converted after such record date and before the
occurrence of such event the additional shares of Common Stock issuable
upon such conversion by reason of the adjustment required by such event
over and above the Common Stock issuable upon such conversion before
giving effect to such adjustment. If, as a result of an adjustment made
pursuant to this Section 7(e)(i), the holder of any shares of Series A
Preferred Stock thereafter surrendered for conversion shall become
entitled to receive shares of two or more classes of capital stock or
shares of Common Stock and other capital stock of the Company, the
Board of Directors shall determine the allocation of the adjusted
Conversion Price between or among shares of such classes of capital
stock or shares of Common Stock and other capital stock.
(ii) Except as provided in paragraph (e)(i) of this Section 7,
in the event that the Company shall issue or sell any shares of Common
Stock, and the price at which such shares Common Stock are issued or
sold is less than the Conversion Price in effect immediately prior to
such issuance or sale, then the Conversion Price then in effect shall
be adjusted to equal the price determined by multiplying the Conversion
Price in effect immediately prior to such issuance or sale by a
fraction, the numerator which shall be the sum of (A) the number of
shares of Common Stock outstanding immediately prior to such issuance
or sale, (B) the number of shares of convertible Preferred Stock
outstanding immediately prior to such issuance or sale (calculated on
an "as-if converted" basis), (C) the number of shares of Common Stock
issuable upon the exercise of options or warrants to purchase shares of
Common Stock which are outstanding and exercisable (at an exercise
price which is less than or equal to the then current Conversion Price)
immediately prior to such issuance or sale and (D) the number of shares
of Common Stock that the aggregate proceeds to the Company from such
issuance or sale would purchase at the Conversion Price in effect
immediately prior to such issuance or sale, and the denominator of
which shall be the sum of (1) the number of shares of Common Stock
outstanding immediately prior to such issuance or sale, (2) the number
of shares of convertible Preferred Stock outstanding immediately prior
to such issuance or sale (calculated on an "as-if converted" basis),
(3) the number of shares of Common Stock issuable upon the exercise of
options or warrants to purchase shares of Common Stock which are
outstanding and exercisable (at an exercise price which is less than or
equal to
-9-
<PAGE>
the then current Conversion Price) immediately prior to such issuance
or sale and (4) the number additional shares of Common Stock actually
sold or issued.
(iii) In the event that the Company shall issue or any rights,
warrants or options to subscribe for or purchase Common Stock, or other
securities convertible into or exercisable or exchangeable for Common
Stock, with an exercise, conversion or exchange price which is less
than the Conversion Price in effect immediately prior to such issuance
or sale, then the Conversion Price then in effect shall be adjusted to
equal the price determined by multiplying the Conversion Price in
effect immediately price such issuance or sale by a fraction, the
numerator of which shall be the sum of (A) the number of shares of
Common Stock outstanding immediately prior to such issuance or sale,
(B) the number shares of convertible Preferred Stock outstanding
immediately prior to such sale or issuance (calculated on an "as-if
converted" basis), (C) the number of shares of Common Stock issuable up
the exercise of options or warrants to purchase shares of Common Stock
which are outstanding and exercisable (at an exercise price which is
less than or equal to the then current Conversion Price) immediately
prior to such issuance or sale and (D) the number shares of Common
Stock that the aggregate proceeds to the Company from the exercise or
conversion of such rights, warrants, options or convertible securities
would purchase at the Conversion Price in effect immediately prior to
such issuance or sale, and denominator of which shalt be the sum of (1)
the number of shares of Common Stock outstanding immediately prior to
such issuance or sale, (2) the number of shares of convertible
Preferred Stock outstanding immediately prior to such issuance or sale
(calculated on an "as-if converted" basis), (3) the number of shares of
Common Stock issuable upon the exercise of options or warrants to
purchase shares of Common Stock which are outstanding and exercisable
(at an exercise price which is less than or equal to the then current
Conversion Price) immediately prior to such issuance or sale and (4)
the number of additional shares of Common Stock actually offered for
purchase pursuant to such rights, warrants, options or convertible
securities.
(f) No Adjustment Required. Anything herein to the contrary
notwithstanding, no adjustment will be made to the Conversion Price by reason of
(i) the issuance of Common Stock or options to purchase, or securities
convertible into, Common Stock to employees, directors or consultants of the
Company pursuant to employee benefit plans or otherwise or the issuance of
Common Stock upon the conversion, exercise or exchange thereof, (ii) the
issuance of Common Stock upon the conversion, exercise or exchange of options to
purchase, or securities convertible into, Common Stock that are issued and
outstanding on the date a certificate of designations setting forth this
resolution is filed with the Secretary of State of the State of Minnesota, (iii)
the issuance of Common Stock upon the exercise of options issued under the
Universal Hospital Services, Inc. 1998 Stock Option Plan, (iv) the issuance of
Common Stock upon the conversion of the Series A Preferred Stock, (v) rights to
purchase Common Stock pursuant to a Company plan for reinvestment of dividends
or interest, (vi) the issuance or sale of rights, warrants or options in
connection with the issuance and sale by the
-10-
<PAGE>
Company of Preferred Stock or debt and the issuance of Common Stock upon the
exercise of such rights, warrants or options so issued or sold or, (vii) the
issuance of Common Stock upon the exercise, conversion or exchange of rights,
warrants, options or convertible or exchangeable securities of the Company where
the Conversion Price had previously been adjusted pursuant to this Section 7
upon the initial issuance of such rights, warrants, options or convertible
securities. In addition, no adjustment in the Conversion Price need be made (A)
unless the adjustment pursuant to this Section 7 would require an increase or
decrease of at least 1% in the Conversion Price and (B) for a change in the par
value of the Common Stock.
(g) Notice of Adjustment of Conversion Price. Whenever the Conversion
Price is adjusted, the Company shall promptly mail to holders of Series A
Preferred Stock a notice of adjustment briefly stating the facts requiring the
adjustment and the manner of computing it.
(h) Consolidation; Merger; Asset Sale or Transfer; Share Exchange. In
case of any consolidation or merger of the Company with any other entity (other
than a wholly owned subsidiary of the Company), or in case of any sale or
transfer of all or substantially all of the assets of the Company, or in the
case of any share conversion or exchange pursuant to which all of the
outstanding shares of Common Stock are converted into or exchanged for other
securities or property, the Company shall make appropriate provision or cause
appropriate provision to be made so that holders of each share of Series A
Preferred Stock then outstanding shall have the right thereafter to convert such
share of Series A Preferred Stock into the kind and amount of shares of stock or
other securities or property receivable upon such consolidation, merger, sale,
transfer or share conversion or exchange by a holder of the number of shares of
Common Stock into which such share of Series A Preferred Stock might have been
converted immediately prior to the effective date of such consolidation, merger,
sale, transfer or share conversion or exchange. If, in connection with any such
consolidation, merger, sale, transfer or share conversion or exchange, each
holder of shares of Common Stock is entitled to elect to receive either
securities, cash or other assets upon completion of such transaction, the
Company shall provide or cause to be provided to each holder of Series A
Preferred Stock the right to elect to receive the securities, cash or other
assets into which the Series A Preferred Stock held by such holder shall be
convertible after completion of any such transaction on the same terms and
subject to the same conditions applicable to holders of the Common Stock
(including, without limitation notice of the right to elect, limitations on the
period in which such election shall be made and the effect of failing to
exercise the election). The Company shall not effect any such transaction unless
the provisions of this paragraph have been fulfilled. The above provisions shall
similarly apply to securities received by any holder of Series A Preferred Stock
in any such transaction as to successive consolidations, mergers, sales,
transfers or share conversion or exchanges.
(i) Reservation, Fully Paid Nature and Listing of Shares. The Company
shall reserve and at all times keep available, free from preemptive rights, out
of its authorized but unissued shares or shares held in treasury, for the
purpose of effecting the conversion of the Series A Preferred Stock, such number
of shares of its duly authorized Common Stock as shall
-11-
<PAGE>
from time to time be sufficient to effect the conversion of all of the
outstanding shares of Series A Preferred Stock. Before taking any action which
would cause an adjustment reducing the Conversion Price below the then par
value, if any, of the shares of Common Stock issuable upon conversion of the
Series A Preferred Stock, the Company will take all corporate action which may,
in the opinion of its counsel, be necessary in order that the Company may
validly and legally issue fully paid shares of such Common Stock at such
adjusted Conversion Price. The Company covenants that all shares of Common Stock
which may be issued upon conversion of Series A Preferred Stock will, upon
issue, be fully paid and nonassessable by the Company and free from all
documentary, stamp or similar issue or transfer taxes (as described in Section
9), liens and charges with respect to the issue thereof. The Company further
covenants that, if at any time the Common Stock shall be listed on the New York
Stock Exchange or any other national securities exchange, the Company will, if
permitted by the rules of such exchange, list and keep listed, so long as the
Common Stock shall be so listed on such exchange, all Common Stock issuable upon
conversion of the Series A Preferred Stock.
(j) Value of Non-Cash Consideration. When calculating any adjustment to
the Conversion Price pursuant to paragraph (e)(ii) of this Section 7, the value
of any non-cash consideration received by the Company as proceeds upon the
issuance of its securities shall be determined exclusively by the Board of
Directors, which determination shall be final and binding on the holders of
Series A Preferred Stock.
8. Limitation and Rights Upon Insolvency. Notwithstanding any other
provision herein, the Company shall not be required to pay any dividend on, or
to pay any amount in respect of any redemption of, the Series A Preferred Stock
at a time when immediately after making such payment the Company is or would be
rendered insolvent (as defined by applicable law), provided that the obligation
of the Company to make any such payment shall not be extinguished in the event
that the foregoing limitation applies.
9. Transfer or Similar Taxes on Shares Issued. The issue and delivery
of stock certificates in connection with redemptions and on conversions of
Series A Preferred Stock shall be made without charge to the holder of Series A
Preferred Stock so redeemed or converted for, and the Company shall pay, any
documentary, stamp or similar issue or transfer tax in respect of the issue
thereof. The Company shall not, however, be required to pay any such tax which
may be payable in respect of any transfer involved in the issue of stock and
delivery of stock certificates (in connection with any redemption or conversion)
in any name other than that of the holder of the Series A Preferred Stock so
redeemed or converted, and the Company shall not be required to issue any such
stock or deliver any such stock certificate unless and until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
10. Shares to Be Retired. Any share of Series A Preferred Stock
converted, redeemed or otherwise acquired by the Company shall be retired and
cancelled and shall upon cancellation be restored to the status of authorized
but unissued shares of Preferred Stock, subject
-12-
<PAGE>
to reissuance by the Board of Directors as Series A Preferred Stock or shares of
Preferred Stock of one or more other series.
11. Record Holders. The Company and the Company's transfer agent may
deem and treat the record holder of any shares of Series A Preferred Stock as
the true and lawful owner thereof for all purposes, and neither the Company nor
the Company's transfer agent shall be affected by any notice to the contrary.
12. Notice. Except as may otherwise be provided for herein, all notices
referred to herein shall be in writing, and all notices hereunder shall be
deemed to have been given upon the earlier of receipt of such notice or three
Business Days after the mailing of such notice, if sent by registered mail
(unless first-class mail shall be specifically permitted for such notice under
the terms hereof), with postage prepaid, addressed: (a) if to the Company, to
the attention of its corporate secretary or to an agent of the Company
designated as permitted by the Company's Amended and Restated Articles of
Incorporation, as amended; (b) if to any holder of the Series A Preferred Stock,
to such holder at the address of such holder as listed in the stock record books
of the Company (which may include the records of the Company's transfer agent);
or (c) to such other address as the Company or holder, as the case may be, shall
have designated by notice similarly given.
-13-
<PAGE>
Exhibit 3.5
CERTIFICATE OF DESIGNATION OF
SERIES B 13% CUMULATIVE
ACCRUING PAY-IN-KIND PREFERRED STOCK
OF
UNIVERSAL HOSPITAL SERVICES, INC.
1. Designation. The Preferred Stock of Universal Hospital Services,
Inc. (the "Company") created and authorized for issuance hereby shall be
designated as "Series B 13% Cumulative Accruing Pay-In-Kind Preferred Stock"
(the "Series B Preferred Stock"). The Series B Preferred Stock created and
authorized for issuance hereby will, in the aggregate, consist of 25,000 shares
of Series B Preferred Stock.
2. Priority. The Series B Preferred Stock shall, with respect to
dividend rights and rights on liquidation, winding up or dissolution, whether
voluntary or involuntary, whether now or hereafter issued, rank: (a) on parity
with any other series of Preferred Stock established hereafter by the Board of
Directors, the terms of which shall specifically provide that such series shall
rank on parity with the Series B Preferred Stock with respect to dividend rights
and rights on liquidation, winding up or dissolution (any and all of such series
of Preferred Stock to which the Series B Preferred Stock ranks on parity being
collectively referred to herein as "Parity Securities"); (b) junior to any other
series of Preferred Stock established hereafter by the Board of Directors, the
terms of which shall specifically provide that such series shall rank senior to
the Series B Preferred Stock with respect to dividend rights or rights on
liquidation, winding up or dissolution (any and all of such series of Preferred
Stock to which the Series B Preferred Stock ranks junior being collectively
referred to herein as "Senior Securities"); and (c) senior to the Common Stock,
$.01 par value per share, of the Company (the "Common Stock") and, subject to
clauses (a) and (b) hereof, any other equity securities of the Company (all of
such equity securities of the Company to which the Series B Preferred Stock
ranks senior, including without limitation the Common Stock, being collectively
referred to herein as "Junior Securities").
3. Dividends; Payment Priorities.
(a) Entitlement; Accrual; Payment. Holders of shares of Series B
Preferred Stock shall be entitled to receive out of funds legally available
therefor ("Legally Available Funds"), cumulative dividends at an annual rate of
13% per share, with the Series B Preferred Stock valued at the Liquidation Value
(as defined below) per share (and with the dividends calculated on the basis of
the Liquidation Value per dividend share), payable (where applicable, in
accordance with the terms and provisions of Section 4 (as part of the
liquidation preference) or Section 5) with respect to periods ending on December
31 of each year and on (i) the Liquidation Date (as defined below), (ii) the
Mandatory Redemption Date (as defined below) and (iii) each Optional Redemption
Date (as de-fined below), and on such other date or dates, and with respect to
such other or interim period or periods, if any, ending on such date or dates,
as determined by the Board of Directors (each of such dates being a "Dividend
Accrual Date"), except that if such date is a Saturday, Sunday or legal
<PAGE>
holiday, then such dividend shall be payable on a date and with respect to a
period ending on the next date that is not a Saturday, Sunday or legal holiday
(a "Business Day"). Each of such dividends shall be fully cumulative and shall
accrue (whether or not declared and whether or not there are then Legally
Available Funds), without interest, on a daily basis from the first day of the
period with respect to which such dividend shall be payable as provided herein;
provided, however, that with respect to the first Dividend Accrual Date
following the issuance of shares of Series B Preferred Stock, such dividend
shall accrue from the date of issuance of such shares. The date upon which the
Company originally issues any share of Series B Preferred Stock shall be deemed
to be its "date of issuance" regardless of the number of times transfer of such
share of Series B Preferred Stock is made on the stock records of the Company,
and regardless of the number of certificates which may be issued to evidence
such share of Series B Preferred Stock. All accrued and unpaid dividends shall
be compounded annually at a rate of 13%. Dividends payable with respect to any
dividend period of more or less than one year shall be computed on the basis of
a 360-day year and the actual number of days elapsed in that period. All
dividends hereunder shall be paid only in shares of Series B Preferred Stock.
Dividends shall be payable to holders of shares of Series B Preferred Stock only
upon the Liquidation Date (as part of the liquidation preference under Section
4) or redemption of such shares pursuant to Section 5 on the Mandatory
Redemption Date or applicable Optional Redemption Date or on such other date
after the declaration thereof by the Board of Directors as the Board of
Directors may from time to time determine (such date, as it relates to the
payment of dividends, is referred to herein as the "Dividend Payment Date"). No
dividend shall be declared or paid on shares of Series B Preferred Stock if the
declaration or payment thereof would violate the terms or provisions of any
instrument or agreement governing indebtedness of the Company (including without
limitation any note, debenture or indenture).
(b) Issuance of Dividend Shares. All dividends paid in additional
shares of Series B Preferred Stock shall be deemed issued on the applicable
Dividend Payment Date and will thereupon be duly authorized, validly issued,
fully paid and nonassessable and free and clear of all liens and charges.
(c) No Cash Dividends. No cash dividends on shares of Series B
Preferred Stock shall be declared by the Board of Directors or paid or set apart
for payment by the Company.
(d) Priority With Respect to Senior and Parity Securities. If at any
time the Company shall have failed to pay all dividends which have accrued on
any outstanding shares of Senior Securities or Parity Securities at the times
such dividends are payable, unless otherwise provided in the terms of the Senior
Securities or the Parity Securities, no dividend shall be paid or set apart for
payment by the Company on shares of Series B Preferred Stock unless prior to or
concurrently with such payment or setting apart for payment, all accrued and
unpaid dividends then payable on all outstanding shares of such Senior
Securities and Parity Securities shall have been paid or set apart for payment,
respectively, without interest; provided, however, that in the event such
failure to pay accrued dividends is with respect only to the outstanding shares
of Series B Preferred Stock and any outstanding shares of any Parity Securities,
dividends may be paid or set apart for payment, without interest, pro rata on
shares of Series B Preferred Stock and shares of such Parity Securities so that
the amounts of any dividends paid or set apart for payment on shares of Series B
Preferred Stock and shares of such Parity Securities shall in all cases bear to
each other the same
<PAGE>
ratio that, at the time of such payment or setting apart for payment, the
amounts of all accrued but unpaid dividends on shares of Series B Preferred
Stock and shares of such Parity Securities bear to each other. Notwithstanding
anything herein to the contrary, no cash dividends may be paid on shares of
Parity Securities pursuant to the proviso in the preceding sentence. Any
dividend not paid pursuant to Section 3(a) or this Section 3(d) shall be fully
cumulative and shall accrue (whether or not declared), without interest, on a
compound basis and otherwise as set forth in Section 3(a). The proceeds of the
initial offering of the shares of Series B Preferred Stock are being used by the
Company immediately after such initial offering to redeem and retire all
outstanding shares of the Company's Series A 12% Cumulative Convertible Accruing
Pay-In-Kind Preferred Stock, which redemption is acknowledged and expressly
permitted hereby.
(e) Priority With Respect to Junior Securities.
(i) Holders of shares of Series B Preferred Stock shall be
entitled to receive the dividends provided for in Section 3(a) in
preference to and in priority over any dividends upon any of the Junior
Securities.
(ii) So long as any shares of Series B Preferred Stock are
outstanding, the Company shall not pay or set apart for payment any
dividend on any of the Junior Securities or make any distribution in
respect thereof and to the holders thereof, either directly or
indirectly, whether in cash, obligations or shares of the Company or
other property (other than dividends or distributions payable solely in
the same Junior Securities), unless prior to or concurrently with such
payment or distribution, as the case may be, all accrued and unpaid
dividends, if any, on the shares of Series B Preferred Stock (whether
or not declared) shall have been declared and paid.
(iii) So long as any shares of Series B Preferred Stock are
outstanding, the Company shall not make any payment on account of, or
set apart for payment any money for a sinking or other similar fund
for, the purchase, redemption, retirement or other acquisition of, or
purchase, redeem, retire or otherwise acquire for value, any of the
Junior Securities or any warrants, rights, calls or options exercisable
for any of the Junior Securities, and shall not permit any company or
other entity directly or indirectly controlled by (as defined in Rule
12b-2 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) the Company to purchase or redeem any of the Junior
Securities or any warrants, rights, calls or options exercisable for
any of the Junior Securities, (A) unless prior to or concurrently with
such payment, setting apart for payment, purchase or redemption, as the
case may be, all accrued and unpaid dividends, if any, on shares of
Series B Preferred Stock (whether or not declared) shall have been
declared and paid and (B) if the Company shall be in default of its
obligations under Section 5 hereof.
(iv) Subject to the foregoing provisions of this Section 3,
the provisions of the Preferred Stock and Warrant Purchase Agreement
dated December 18, 1998 between the Company and ReliaStar Financial
Corp. and any other applicable contractual obligations relating to
dividends, distributions, purchases and redemptions, the Company may
pay or set apart for payment dividends and other distributions on any
of the Junior Securities and may purchase or otherwise redeem any of
the Junior Securities or any warrants, rights or options exercisable
for any of the
<PAGE>
Junior Securities, and the holders of the shares of Series B Preferred
Stock shall not be entitled to share in any such dividends,
distributions or proceeds.
4. Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Company, the
holders of shares of Series B Preferred Stock then outstanding shall be entitled
to be paid out of the assets of the Company available for distribution to its
shareholders an amount in cash equal to $1,000, appropriately adjusted to
reflect stock splits, stock dividends, reorganizations, consolidations and
similar changes hereafter effected (the "Liquidation Value"), for each share
out-standing plus an amount in cash equal to all accrued and unpaid dividends on
such share (whether or not declared and whether or not there are then Legally
Available Funds) (calculated on the basis of the Liquidation Value per dividend
share) to and including the date of liquidation (the "Liquidation Date"), before
any payment shall be made or any assets distributed to the holders of any of the
Junior Securities; provided, however, that the holders of outstanding shares of
Series B Preferred Stock shall not be entitled to receive such liquidation
payment until the liquidation payments on all outstanding shares of Senior
Securities shall have been paid in full. No full preferential payment on account
of any liquidation, dissolution or winding up of the Company, whether voluntary
or involuntary, shall be made to the holders of any class of Parity Securities
unless there shall likewise be paid at the same time to holders of Series B
Preferred Stock the full amounts to which such holders are entitled with respect
to such distribution. If the assets of the Company are not sufficient to pay in
full the liquidation payments payable to the holders of outstanding shares of
Series B Preferred Stock and outstanding shares of Parity Securities, then the
holders of all such shares shall share pro rata in such distribution of assets
in accordance with the full respective preferential amounts that would be
payable on such shares of Series B Preferred Stock and such shares of Parity
Securities if all amounts payable thereon were paid in full.
5. Redemption.
(a) Mandatory Redemption. All of the shares of Series B Preferred Stock
are subject to mandatory redemption by the Company, out of Legally Available
Funds, in accordance with the terms and provisions of this Section 5(a). At or
prior to the Mandatory Redemption Date (as defined below), the Company, by
resolution of its Board of Directors, shall declare a dividend on the Series B
Preferred Stock to be redeemed, which shall be in an amount equal to any accrued
and unpaid dividends on such Series B Preferred Stock to and including the
Mandatory Redemption Date. Redemptions shall be made at a per share redemption
price equal to the Liquidation Value per share plus an amount in cash equal to
all dividends thereon declared pursuant to this Section 5(a) (calculated on the
basis of the Liquidation Value per dividend share) (the "Mandatory Redemption
Price") on the earlier to occur of (i) the first time after a Change of Control
(as defined below) that (A) all of the Company's 10.25% Senior Notes due 2008
shall have been repaid, retired or redeemed and (B) the Company shall be
permitted to redeem these shares in conformance with the terms or provisions of
other agreements or instruments for or with respect to capital stock or
indebtedness of the Company to which the Company is, or may become, a party or
subject (including without limitation any notes, debentures, indentures or
certificates designating additional series of the Preferred Stock) or (ii) 5:00
p.m., Minneapolis, Minnesota time, on August 17, 2008 (such earlier date and
time, the "Mandatory Redemption Date").
<PAGE>
(b) Optional Redemption by the Company.
(i) To the extent permitted by law and the terms or provisions
of other agreements or instruments for or with respect to capital stock
or indebted-ness of the Company to which the Company is, or may become,
a party or subject (including without limitation any notes, debentures,
indentures or certificates designating additional series of the
Preferred Stock), the outstanding shares of Series B Preferred Stock
shall be redeemable, at the option of the Company, in whole at any time
or from time to time in part, out of Legally Available Funds, in
accordance with the terms and provisions of this Section 5(b).
Immediately prior to authorizing or making any such redemption with
respect to the Series B Preferred Stock (and in no event later than the
applicable Optional Redemption Date (as defined below)), the Company,
by resolution of its Board of Directors, shall declare a dividend on
the Series B Preferred Stock to be redeemed, which shall be in an
amount equal to any accrued and unpaid dividends on such Series B
Preferred Stock to and including the applicable Optional Redemption
Date. Redemptions shall be made on the date specified in the Redemption
Notice (as defined in paragraph (d) of this Section 5) therefor (such
date, with respect to any redemption at the option of the Company under
this paragraph (b), the "Optional Redemption Date"), upon giving notice
as provided in paragraph (d) of this Section 5, at the following per
share redemption prices (expressed as percentages of the Liquidation
Value), if redeemed during the twelve-month period commencing at 5:00
p.m., Minneapolis, Minnesota time, on August 17 of the year set forth
below, plus, in each such case, an amount in cash equal to all
dividends on that share declared pursuant to the preceding sentence
(calculated on the basis of the applicable percentage of the
Liquidation Value per dividend share):
Year Percentage
---- ----------
1998 105.00%
1999 104.50
2000 104.00
2001 103.50
2002 103.00
2003 102.50
2004 102.00
2005 101.50
2006 101.00
2007 100.50
(the "Company Redemption Price").
(ii) To the extent permitted by law and the terms or provisions of
agreements or instruments for or with respect to capital stock or indebtedness
of the Company to which the Company is, or may become, a party or subject
(including without limitation any notes, debentures, indentures or certificates
designating additional series of the Preferred Stock), the Company may, at its
option, use
<PAGE>
the net cash proceeds of one or more public offerings of the Common Stock
providing the Company with aggregate net proceeds equal to or in excess of
$10,000,000 (a "Qualified Offering") to redeem outstanding shares of Series B
Preferred Stock, in whole at any time or from time to time in part, out of
Legally Available Funds, within 180 days after the closing of that Qualified
Offering as set forth herein. Immediately prior to authorizing or making any
such redemption with respect to the Series B Preferred Stock (and in no event
later than the applicable Optional Redemption Date), the Company, by resolution
of its Board of Directors, shall declare a dividend on the Series B Preferred
Stock to be redeemed, which shall be in an amount equal to any accrued and
unpaid dividends on such Series B Preferred Stock to and including the
applicable Optional Redemption Date. Redemptions shall be made on the applicable
Optional Redemption Date, upon giving notice as provided in paragraph (d) of
this Section 5, at a per share redemption price equal to the Liquidation Value
plus an amount in cash equal to all dividends on that share declared pursuant to
the preceding sentence (calculated on the basis of the Liquidation Value per
dividend share) (the "Offering Redemption Price" and together with the Mandatory
Redemption Price and the Company Redemption Price, the "Redemption Price").
(c) Change of Control. "Change of Control" means the occurrence of one
or more of the following events: (i) any sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of all or substantially
all of the assets of the Company to any person or entity or group of related
persons or entities (a "Group") for purposes of Section 13(d) of the Exchange
Act, together with any affiliates (as defined in Rule 12b-2 under the Exchange
Act) thereof, other than to J.W. Childs Equity Partners, L.P. or its affiliates;
(ii) any person, entity or Group (other than J.W. Childs Equity Partners, L.P.
or its affiliates) shall become the owner, directly or indirectly, beneficially
or of record, of shares representing more than 50% of the aggregate ordinary
voting power represented by the issued and outstanding capital stock of the
Company; (iii) the consolidation or merger of the Company with one or more other
companies or entities; or (iv) the replacement of a majority of the Board of
Directors of the Company over a two-year period from the directors who
constituted the Board of Directors of the Company at the beginning of such
period, and such replacement shall not have been approved by a vote of at least
a majority of the Board of Directors of the Company then still in office who
either were members of such Board of Directors at the beginning of such period
or whose election as a member of such Board of Directors was previously so
approved.
(d) Redemption Notice. The Company shall deliver a notice of each
redemption by first-class mail, postage prepaid, to each holder of record of
shares of Series B Preferred Stock at such holder's address as the same appears
on the stock books of the Company's transfer agent (the "Redemption Notice").
For each redemption, the Redemption Notice shall state: (i) the Mandatory
Redemption Date or the applicable Optional Redemption Date (which shall be no
less than 15 nor more than 30 calendar days following the mailing of the
Redemption Notice); (ii) the Redemption Price for the Series B Preferred Stock
to be redeemed; (iii) the accrued but unpaid dividends due on each share (and
all shares) of Series B Preferred Stock held by such holder as of the Mandatory
Redemption Date or such Optional Redemption Date; (iv) that payment of the
Redemption Price will be made upon proper presentation and surrender of such
certificates for shares of Series B Preferred Stock; (v) the place or places
where, and the procedures pursuant to which, certificates for such shares are to
be presented and surrendered for payment of the Redemption Price; (vi) that, as
<PAGE>
applicable, (A) unless the Company defaults in the payment of the Redemption
Price for the shares being redeemed, dividends shall cease to accrue on any
outstanding shares of Series B Preferred Stock following the Mandatory
Redemption Date or (B) unless the Company defaults in the payment of the
Redemption Price for the shares being redeemed, dividends on the shares to be
redeemed shall cease to accrue following such Optional Redemption Date; (vii)
the aggregate number of shares of Series B Preferred Stock being redeemed and,
if a partial redemption, that the shares have been selected by the Company for
redemption pro rata; (viii) in the case of a redemption pursuant to paragraph
(b) of this Section 5, that any shares of Series B Preferred Stock not redeemed
will continue to accrue dividends in accordance with the terms of Section 3;
(ix) as applicable, that holders whose shares of Series B Preferred Stock are
being redeemed only in part will be issued new certificates representing shares
not redeemed by the Company; and (x) that accrued and unpaid dividends on the
Series B Preferred Stock up to and including the Mandatory Redemption Date or
such Optional Redemption Date, as applicable, will be paid to holders as part of
the Redemption Price in respect of shares redeemed by the Company in accordance
with the terms set forth herein.
(e) Redemption Effects and Procedures.
(i) The Redemption Notices having been mailed in accordance
with paragraph (d) of this Section 5, on and after the Mandatory
Redemption Date or any Optional Redemption Date, as applicable, unless
the Company shall be in default in providing money for the payment of
the Redemption Price for the shares being redeemed, (x) dividends on
the shares of the Series B Preferred Stock so called for redemption
shall cease to accrue, (y) as provided for in Section 9, said shares
shall no longer be deemed to be outstanding and shall have the status
of authorized but unissued shares of Series B Preferred Stock, and (z)
all rights of the holders thereof as holders of those redeemed shares
of Series B Preferred Stock (except the right to receive from the
Company the Redemption Price, without interest thereon, upon
presentation and surrender of the certificates evidencing such shares)
shall cease. The Company's obligation to pay the Redemption Price with
respect to any redemption hereunder shall be deemed ful-filled if, on
or before the Mandatory Redemption Date or applicable Optional
Redemption Date, the Company shall deposit with a bank or trust company
having both (A) an office or agency either in the Borough of Manhattan,
City of New York or in the City of Minneapolis and (B) capital and
surplus of at least $500,000,000 an amount equal to the Redemption
Price in respect of all shares so redeemed by the Company, in trust for
the account of the holders of the shares to be redeemed (and so as to
be and continue to be available therefor), with irrevocable
instructions and authority to such bank or trust company that such
funds be applied to the redemption of the shares of Series B Preferred
Stock so called for redemption. Any funds so deposited and unclaimed at
the end of three years from the Mandatory Redemption Date or such
Optional Redemption Date, as applicable, shall be released or repaid to
the Company, after which, subject to any applicable laws relating to
escheat or unclaimed property, the holder or holders of such shares of
Series B Preferred Stock so called for redemption shall look only to
the Company for payment of the Redemption Price. Any interest accrued
on such funds shall be paid to the Company from time to time.
(ii) Upon proper presentation and surrender in accordance with
the Redemption Notice of the certificates for any shares of Series B
Preferred Stock so redeemed (properly endorsed or assigned for
transfer), such shares shall be redeemed by the Company at the
<PAGE>
Redemption Price. In the event of a partial redemption of the Series B
Preferred Stock, shares to be re-deemed shall be selected by the
Company pro rata. If fewer than all the shares represented by any
certificate are redeemed, the Company's transfer agent for the Series B
Preferred Stock shall promptly mail to each holder or in accordance
with such holder's instructions, if any, a certificate representing
shares represented by the surrendered certificate but not redeemed.
(f) Delayed Payment. If the Company is unable to redeem any shares of
Series B Preferred Stock because there are not then Legally Available Funds or
such redemption otherwise would violate, or create any liability on the part of
the directors of the Company under, the applicable laws of the State of
Minnesota, the Company shall not be obligated to redeem such shares at such time
but shall redeem such shares as soon thereafter as the restrictions precluding
such redemption or imposing such liability shall no longer be applicable;
provided, however, that in the event such restrictions shall at any time no
longer be applicable with respect to some, but not all, of the shares of Series
B Preferred Stock subject to redemption, the Company shall redeem such lesser
number of shares of Series B Preferred Stock on a pro rata basis, with the
remainder being redeemed in accordance with this paragraph (f) after such
restrictions shall no longer be applicable to such remainder. Unpaid dividends
shall continue to accrue on shares of Series B Preferred Stock to and including
the date on which such shares are actually redeemed.
(g) Election Irrevocable. The election by the Company to redeem shares
of Series B Preferred Stock pursuant to paragraph (b) of this Section 5 shall
become irrevocable upon delivery of the Redemption Notice to the holders of
Series B Preferred Stock.
(h) Possibility of Issuer Tender Offer. If the Company at any time were
to have a class of equity securities registered pursuant to Section 12 of the
Exchange Act, the redemption options of the Company in respect of the Series B
Preferred Stock pursuant to this Section 5 might be deemed to constitute an
"issuer ten-der offer" as defined in Rule 13e-4 under the Exchange Act, and in
such event, such redemption transaction may be subject to the requirements of
Rule 13e-4, including the filing of an Issuer Tender Offer Statement on Schedule
13E-4 with the Securities and Exchange Commission and the furnishing of certain
information contained therein to the holders of Series B Preferred Stock. In
such event, the Company will comply with all appropriate rules and regulations
applicable to "issuer tender offers" at such time and will inform the holders of
Series B Preferred Stock of their rights thereunder. In addition, the Company
will comply with the requirements of Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the redemption of shares pursuant
to this Section 5.
6. Voting Rights.
(a) General. Except as herein provided or as otherwise required by law,
holders of Series B Preferred Stock shall not be entitled to voting rights.
(b) Class Vote. Holders of Series B Preferred Stock shall have a
separate vote as a single class only when, as and if required under applicable
law and as set forth in the next succeeding sentence. In addition to any
requirements of applicable law, the Company shall not (i)
<PAGE>
establish, create, authorize or issue any shares of Senior Securities, (ii)
establish, create, authorize or issue any shares of Parity Securities, except to
the extent and in accordance with the requirements of paragraph (d) of this
Section 6, or (iii) amend the Amended and Restated Articles of Incorporation, as
amended, including any certificate of designation for preferred stock (including
without limitation any such amendment in or in connection with a merger,
consolidation, plan of exchange or otherwise, but excluding any such amendment
made in connection with clause (ii) of this paragraph (b) of Section 6), in a
manner which adversely affects the rights of the holders of the Series B
Preferred Stock, in any such case without the approval of the holders
representing a majority of the shares of Series B Preferred Stock then issued
and outstanding voting together as a single class; provided, however, that no
such amendment effected in or in connection with a merger, consolidation, plan
of exchange or otherwise shall be deemed to adversely affect the rights of the
holders of the Series B Preferred Stock unless the amendment effects a change in
the terms of the Series B Preferred Stock set forth in this Certificate which
adversely affects the rights of the holders of the Series B Preferred Stock.
(c) Quorum; Voting. At each meeting of shareholders at which the
holders of shares of Series B Preferred Stock shall have the right, voting
separately as a single class, to take any action, the presence in person or by
proxy of the holders of record of at least 50% of the shares of Series B
Preferred Stock outstanding and entitled to vote on the matter shall be
necessary and sufficient to constitute a quorum. At each such meeting, each
holder of shares of Series B Preferred Stock shall be entitled to one vote for
each share of Series B Preferred Stock then held. In the absence of a quorum of
the holders of shares of Series B Preferred Stock, a majority of the holders of
such shares present in person or by proxy shall have the power to adjourn the
meeting as to the actions to be taken by the holders of shares of Series B
Preferred Stock from time to time and place to place without notice other than
announcement at the meeting until a quorum shall be present.
(d) Special Provisions Regarding Parity Securities. Holders of Series B
Preferred Stock shall not have a separate vote as a single class as to the
establishment, creation, authorization or issuance of any shares of Parity
Securities (i) with a fair value (determined as set forth in the next succeeding
sentence of this Section 6(d)) less than or equal to $20,000,000 in the
aggregate (including all other Parity Securities outstanding (valued at their
fair value) but not, except as otherwise provided below, including Parity
Securities described in clause (ii) of this sentence) or (ii) established,
created or authorized for issuance to, or issued to and, if so issued, owned by,
JWC Equity Funding, Inc. (or an Affiliate (as defined under the Exchange Act)
thereof which is organized for the purpose of providing mezzanine financing to
companies in which J.W. Childs Equity Partners, L.P. has an equity interest) for
the purpose of providing interim financing (for a period not to exceed one year)
for acquisitions or other business transactions to which the Company or one of
its subsidiaries is a party. The "fair value" of Parity Securities for purposes
of the entirety of this Section 6(d) is equal to the per share price at which
the Parity Securities were originally issued and sold by the Company, as
determined in good faith by the Board of Directors of the Company, multiplied by
the number of shares of Parity Securities (excluding any Parity Securities paid
out as dividends on Parity Securities) for which the fair value is sought. For
any establishment, creation, authorization or issuance of Parity Securities
involving an aggregate (together with all other Parity Securities, except Bridge
Parity Securities outstanding less than one year from the date of actual
issuance) fair value in excess of $10,000,000, the Company shall obtain a
favorable opinion as to
<PAGE>
the fairness to the Company of that establishment, creation, authorization or
issuance from a financial point of view from an investment bank, financial
advisory firm or nationally recognized accounting firm. If Parity Securities
issued pursuant to clause (ii) of the first sentence of this Section 6(d)
("Bridge Parity Securities") remain outstanding one year after the date of
initial issuance and such Bridge Parity Securities, together with other Parity
Securities which are not Bridge Parity Securities (but including all other
Bridge Parity Securities outstanding one year or more from the date of initial
issuance) then outstanding, have an aggregate fair value at that time in excess
of $20,000,000, then holders of shares of Series B Preferred Stock shall
determine, by a separate vote as a class, whether the existence of the Bridge
Parity Securities should be continued or whether, in the alternative, the terms
of the Bridge Parity Securities should be modified to convert the Bridge Parity
Securities into Junior Securities. Continuation in existence of the Bridge
Parity Securities and modification of the terms of the Bridge Parity Securities
to convert the Bridge Parity Securities into Junior Securities shall be the only
options. If Bridge Parity Securities remain outstanding one year after the date
of initial issuance and such Bridge Parity Securities, together with other
Parity Securities which are not Bridge Parity Securities (but including all
other Bridge Parity Securities outstanding one year or more from the date of
initial issuance) then outstanding, have an aggregate fair value at that time
less than or equal to $20,000,000 and in excess of $10,000,000, then (x) the
Company shall obtain a favorable opinion as to the fairness to the Company of
the continuation in existence of the Bridge Parity Securities from a financial
point of view from an investment bank, financial advisory firm or nationally
recognized accounting firm or (y) holders of shares of Series B Preferred Stock
shall determine, by a separate vote as a class, whether the existence of the
Bridge Parity Securities should be continued or whether, in the alternative, the
terms of the Bridge Parity Securities should be modified to convert the Bridge
Parity Securities into Junior Securities. If Bridge Parity Securities remain
outstanding one year after the date of initial issuance and such Bridge Parity
Securities, together with other Parity Securities which are not Bridge Parity
Securities (but including all other Bridge Parity Securities outstanding one
year or more from the date of initial issuance) then outstanding, have an
aggregate fair value at that time less than or equal to $10,000,000, the Bridge
Parity Securities shall continue in existence and become Parity Securities
described in clause (i) of this Section 6(d).
7. Limitation and Rights Upon Insolvency. Notwithstanding any other
provision herein, the Company shall not be required to pay any dividend on, or
to pay any amount in respect of any redemption of, the Series B Preferred Stock
(and there shall not then be deemed to be Legally Available Funds) at a time
when immediately after making such payment the Company is or would be rendered
insolvent (as defined by applicable law), provided that the obligation of the
Company to make any such payment shall not be extinguished in the event that the
foregoing limitation applies.
8. Transfer or Similar Taxes on Shares Issued. The issue and delivery
of stock certificates in connection with redemptions of Series B Preferred Stock
shall be made without charge to the holder of Series B Preferred Stock so
redeemed, and the Company shall pay any documentary, stamp or similar issue or
transfer tax in respect of the issue thereof. The Company shall not, however, be
required to pay any such tax which may be payable in respect of any transfer
involved in the issue of stock and delivery of stock certificates (in connection
with any redemption) in any name other than that of the holder of the Series B
Preferred Stock so redeemed, and the Company
<PAGE>
shall not be required to issue any such stock or deliver any such stock
certificate unless and until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
9. Shares to Be Retired. Any share of Series B Preferred Stock redeemed
or otherwise acquired by the Company shall be retired and cancelled and shall
upon cancellation be restored to the status of authorized but unissued shares of
Preferred Stock, subject to reissuance by the Board of Directors as Series B
Preferred Stock or shares of Preferred Stock of one or more other series.
10. Record Holders. The Company and the Company's transfer agent may
deem and treat the record holder of any shares of Series B Preferred Stock as
the true and lawful owner thereof for all purposes, and neither the Company nor
the Company's transfer agent shall be affected by any notice to the contrary.
11. Notice. Except as may otherwise be provided for herein, all notices
referred to herein shall be in writing, and all notices hereunder shall be
deemed to have been given upon the earlier of receipt of such notice or four
Business Days after the mailing of such notice, if sent by registered mail, with
postage pre-paid, addressed: (a) if to the Company, to the attention of its
corporate secretary or to an agent of the Company designated as permitted by the
Company's Amended and Restated Articles of Incorporation, as amended; (b) if to
any holder of the Series B Preferred Stock, to such holder at the address of
such holder as listed in the stock record books of the Company (which may
include the records of the Company's transfer agent); or (c) to such other
address as the Company or holder, as the case may be, shall have designated by
notice similarly given.
<PAGE>
Exhibit 10.7
November 12, 1998
Mr. Andrew R. Amicon
7612 North Goodrich Square
New Albany, Ohio 43054
Dear Mr. Amicon:
Reference is made to the letter agreement dated August 17, 1998 (the
"Agreement") between Universal Hospital Services, Inc., a Minnesota corporation
("UHS" or the "Company") and you. This letter amends and restates the Agreement
in its entirety.
You currently serve as General Manager, Alternate Care of the Company.
This Amendment reflects your promotion to a new position as herein provided. For
this reason and for other good and valuable consideration and to provide for
your services to UHS following the Acquisition, the parties hereto agree as
follows:
1. Position; Duties. From and after the date hereof, the Company shall
employ you, and you agree to serve and accept employment, for the Term (as
defined herein), as Vice President--Alternate Care Rentals of the Company,
subject to the direction and control of the Board of Directors of the Company
(the "Board") and, in connection therewith, to oversee and direct the
development of specified Alternate Care Rentals and Sales of the Company as
determined in conjunction with the Chief Executive Officer of the Company and to
perform such other duties as the Board or the Chief Executive Officer of the
Company may from time to time reasonably direct. During the Term, you agree to
devote all of your time, energy, experience and talents during regular business
hours, and as otherwise reasonably necessary, to such employment, to devote your
best efforts to advance the interests of the Company and not to engage in any
other business activities of a material nature, as an employee, director,
consultant or in any other capacity, whether or not you receive any compensation
therefor, without the prior written consent of the Board. It is understood and
agreed that you may perform your duties while maintaining residency in the State
of Florida for a period not to exceed six months during any calendar year. You
shall not be given duties inconsistent with your executive position.
2. Term of Employment Agreement. The term of your employment hereunder
shall begin as of August 17, 1998 and end as of the close of business on August
17, 2001, subject to earlier termination pursuant to the terms hereof (the
"Term"). Following the initial Term, this Agreement shall automatically be
renewed for successive one-year terms (each a "Renewal Term") unless notice of
termination is given by either party upon not less than 30 days' written notice
prior to the date on which such renewal would otherwise occur.
<PAGE>
Mr. Andrew R. Amicon
November 12, 1998
Page 2
3. Compensation and Benefits.
(a) Base Salary. Your base salary, pro rated for the remainder of the
1998 calendar year, shall be at an annual rate of $125,000, payable in equal
bi-weekly installments. Such base salary shall be adjusted annually based on
changes in the consumer price index (all urban consumers, U.S. city average).
Your base salary will be reviewed beginning in 1999. Necessary withholding
taxes, FICA contributions and the like shall be deducted from your base salary.
(b) Bonus. In addition to your base salary, beginning in 1999, you
shall have the opportunity to receive a bonus of up to 100% of your base salary,
based on the achievement of the annual EBITDA targets applicable to all other
Executive Employees (as defined in Paragraph 4(d) hereof) of the Company that
participate in the bonus program (such targets, as they may be adjusted by the
Board of Directors of the Company from time to time with respect to all such
management employees in the same manner, in good faith, to reflect any
acquisitions, dispositions and material changes to capital spending (the
"Management Targets")). The amount of such bonus would rise linearly from 0% of
base salary to 100% of base salary based on achievement of EBITDA of 90% to 110%
of target EBITDA. No bonus shall be payable if EBITDA is 90% or less of target
EBITDA.
(c) Options. In connection with the Agreement, you received options to
purchase a total of 16,000 shares of the Company's common stock, $.01 par value
(the "Common Stock"), which options were granted under the Company's 1998 Stock
Option Plan (the "Plan"). A copy of the Plan has been provided to you. In
connection with this Amendment, you will also receive options to purchase a
total of 73,444 shares of Common Stock granted under the Plan (the "Additional
Options"). Such Additional Options will be granted at an exercise price equal to
the fair market value of the Common Stock as determined by the Board of
Directors on the date of grant and will vest in accordance with, and will have
such other terms as provided in the Incentive Stock Option Agreement attached
hereto as Annex A and the Plan.
(d) Other. You shall be entitled to such health, life, disability,
vacation, pension, sick leave and other benefits as are generally made available
by the Company to its executive employees. All continuous service with Patient's
Choice Healthcare, Inc. ("PCH") (whether before or after March 17, 1998) will be
recognized by the Company for purposes of the Company's welfare benefit plans
and for eligibility and vesting purposes under the Company's 401(k) plan, but
not for purposes of the Company's defined benefit pension plan. Your benefits
will also consist of five weeks paid vacation time (pro-rated for 1998), an
annual physical exam and reimbursement for tax preparation costs.
<PAGE>
Mr. Andrew R. Amicon
November 12, 1998
Page 3
4. Termination.
(a) Death. This Employment Agreement shall automatically terminate upon
your death. In the event of such termination, the Company shall pay to your
legal representatives your base salary and continue to provide the benefits
hereunder, in each case in monthly installments for six months following such
termination.
(b) Disability. If during the Term you become physically or mentally
disabled, whether totally or partially, either permanently or so that you are
unable with reasonable accommodation substantially and competently to perform
the essential functions of your position for a period of 90 consecutive days or
for 90 days during any six-month period during the Term (a "Disability"), the
Company may terminate your employment hereunder by written notice to you. In the
event of such termination, the Company shall for six months following such
termination (i) pay to you your base salary in monthly installments and (ii)
continue to provide to you (concurrent with your COBRA benefit continuation
period) the health (including dental and life) insurance benefits referenced in
Paragraph 3(d) on the same basis, generally as in effect for you prior to such
termination. Upon such termination, any benefits which you may have been
receiving under the Company's short-term disability plan shall cease.
(c) Cause. Your employment hereunder may be terminated at any time by
the Company for Cause (as defined herein) by written notice to you. In the event
of such termination, all of your rights to payments (other than payment for
services already rendered) and any other benefits otherwise due hereunder shall
cease immediately, except as required by law. The Company shall have "Cause" for
termination of your employment hereunder if any of the following has occurred:
(i) your continued failure, whether willful, intentional or
grossly negligent, after written notice, to perform substantially your
duties hereunder (other than as a result of a Disability);
(ii) dishonesty in the performance of your duties hereunder;
(iii) conviction or confession of an act or acts on your part
constituting a felony under the laws of the United States or any state
thereof;
(iv) any other willful act or omission on your part which is
materially injurious to the financial condition or business reputation
of the Company or any of its subsidiaries;
<PAGE>
Mr. Andrew R. Amicon
November 12, 1998
Page 4
(v) you have breached any provision of this Employment
Agreement contained in Paragraphs 6, 7 and 8 hereof; or
(vi) you have breached any provision of this Employment
Agreement (other than paragraphs 6, 7 or 8 hereof) and such breach
shall not have been cured within sixty days after notice thereof from
the Company to you.
(d) Without Cause. Your employment hereunder may be terminated at any
time by the Company without Cause by written notice to you. In the event of such
termination, the Company shall (i) continue to pay you your base salary through
the date which is twelve months from the Date of Termination (as defined herein)
and (ii) pay to you a prorated bonus based upon the number of days that you were
employed by the Company during the fiscal year to which such bonus relates, such
bonus to be payable at such time as annual bonuses with respect to such fiscal
year are paid to all other similarly-situated employees who are employed by the
Company on the last day of such fiscal year. It is acknowledged and agreed that
termination of your employment upon expiration of the Term or any Renewal Term
shall not be deemed to constitute a termination without Cause for purposes of
this Employment Agreement or for any other purpose. For purposes of this
Employment Agreement, "Executive Employees" shall be deemed to mean the Vice
Presidents of the Company.
(e) Resignation Without Good Reason. You may terminate your employment
hereunder upon 60 days' prior written notice to the Company, without Good Reason
(as defined herein). In the event of such termination, all of your rights to
payment (other than payment for services already rendered) and any other
benefits otherwise due hereunder shall cease upon the date of such termination,
except as required by law. It is acknowledged and agreed that termination of
your employment upon expiration of the Term or any Renewal Term shall not be
deemed to constitute resignation without Good Reason for purposes of this
Employment Agreement or any other purpose. It is understood and agreed that, for
purposes of Section 2.2 and 2.3 of the Stockholders' Agreement (as defined in
Section 10 hereof) and for purposes of your Incentive Stock Option Agreements,
if the Company should notify you that it is not renewing this Agreement for a
Renewal Term as provided in Section 2 hereof, termination of your employment, or
a resignation by you, in such event shall not be deemed to constitute a
resignation without Good Reason.
(f) Resignation For Good Reason. You may terminate your employment
hereunder at any time upon 30 days' written notice to the Company, for Good
Reason. In the event of such termination, the Company shall (i) continue to pay
you your base salary though the date which is twelve months from the Date of
Termination and (ii) pay to you a prorated bonus based upon the number of days
that you were employed by the Company during the fiscal year to which such
<PAGE>
Mr. Andrew R. Amicon
November 12, 1998
Page 5
bonus relates, such bonus to be payable at such time as annual bonuses with
respect to such fiscal year are paid to all other Executive Employees who are
employed by the Company on the last day of such fiscal year.
You shall have "Good Reason" for termination of your employment
hereunder if, other than for Cause, any of the following has occurred:
(i) your base salary has been reduced other than in connection
with an across-the-board reduction (of approximately the same
percentage) in compensation to all Executive Employees imposed by the
Board in response to negative financial results or other adverse
circumstances affecting the Company;
(ii) the Company has reduced or reassigned a material portion
of your duties hereunder;
(iii) your illness, that in the good faith determination of
the Board of Directors of the Company is likely to result in you
becoming disabled and unable to continue your employment with the
Company; or
(iv) the Company has breached this Employment Agreement in any
material respect.
(g) Date and Effect of Termination. The date of termination of your
employment hereunder, pursuant to this Paragraph 4, shall be, (i) in the case of
Paragraph 4(a), the date of your death, (ii) in the case of Paragraphs 4(b), (c)
or (d), the date specified as your last date of employment in the Company's
notice to you of such termination or (iii) in the case of Paragraph 4(e) or
4(f), the date specified in your notice to the Company of such termination (in
each case, the "Date of Termination"). Upon any termination of your employment
hereunder pursuant to this Paragraph 4, you shall not be entitled to any further
payments or benefits of any nature pursuant to this Employment Agreement, or as
a result of such termination, except as specifically provided for in this
Employment Agreement, the Stockholders' Agreement (as defined in Paragraph 10
hereof) in any stock option plans adopted by the Company in accordance with
Paragraph 3(b) hereof, or as may be required by law. Your agreements in
Paragraphs 6, 7 and 8 hereof shall survive the termination of your employment as
herein provided.
(h) Other Employment. Notwithstanding anything in this Employment
Agreement to the contrary, if your employment hereunder is terminated pursuant
to Paragraph 4(d) or if you terminate your employment pursuant to Paragraph
4(f), and if prior to the date which is twelve months after the Date of
Termination you find other employment, the amount of payments or
<PAGE>
Mr. Andrew R. Amicon
November 12, 1998
Page 6
benefits payable to you after such termination in accordance with the terms of
this Employment Agreement shall be reduced by the value of your compensation in
your new employment through the date which is twelve months after the Date of
Termination.
(i) Termination Following Non-Renewal. In the event that (i) your
employment hereunder is not renewed at the end of the Term or any Renewal Term
pursuant to a notice of termination given by the Company to you in accordance
with Paragraph 2 hereof, (ii) you are still employed by the Company after such
non-renewal as an employee at will, (iii) the Company thereafter terminates your
employment as an employee at will, and (iv) no circumstances exist at the time
of such termination which would constitute "Cause" as set forth in Paragraph
4(c) hereof, any amounts to which you are entitled under any severance plan or
program of the Company then in effect which is generally applicable to employees
of the Company shall be paid to you in accordance with the terms of such plan or
program.
5. Acknowledgment. You agree and acknowledge that in the course of
rendering services to the Company and its clients and customers, you will have
access to and become acquainted with confidential information about the
professional, business and financial affairs of the Company and its affiliates.
You acknowledge that the Company is engaged and will be engaged in a highly
competitive business, and the success of the Company in the marketplace depends
upon its good will and reputation for quality and dependability. You agree and
acknowledge that reasonable limits on your ability to engage in activities
competitive with the Company are warranted to protect its substantial investment
in developing and maintaining its status in the marketplace, reputation and good
will.
6. Confidentiality. You agree that during and at all times after the
Term, you will keep secret and will not use for the benefit of anyone other than
the Company all confidential matters and materials of the Company (including its
subsidiaries and affiliates), including, without limitation, know-how, trade
secrets, real estate plans and practices, individual office results, customer
lists, pricing policies, operational methods, any information relating to the
Company (including any of its subsidiaries and affiliates) products, processes,
customers and services and other business and financial affairs of the Company
(collectively, the "Confidential Information"), to which you had or may have
access and will not disclose such Confidential Information to any person other
than the Company, their respective authorized employees and such other person to
whom you have been instructed to make disclosure by the Board, in each case only
to the extent required in the course of your service to the Company hereunder or
as otherwise expressly required in connection with court process. "Confidential
Information" shall not include any information which is in the public domain
during or after the term, provided such
<PAGE>
Mr. Andrew R. Amicon
November 12, 1998
Page 7
information is not in the public domain as a consequence of disclosure by you in
violation of this Employment Agreement.
7. Non-competition. During the Prohibition Period (as hereinafter
defined), you will not, in any capacity, whether for your own account or for any
other person or organization, directly or indirectly, within the United States
or Canada (a) own, operate, manage or control, (b) serve as an officer,
director, partner, employee, agent, consultant, advisor or developer or in any
similar capacity to, or (c) have any financial interest in, or aid or assist
anyone else in the conduct of, any person or enterprise which is engaged in the
business of medical equipment rental or lease or related sales of equipment and
supplies. As used herein, "Prohibition Period" means the period from and after
the Closing Date to and including the later of (i) the date which is eighteen
months from the Date of Termination and (ii) August 17, 2001.
The non-competition agreement contained in this Paragraph 7 shall not
prevent you from owning, directly or indirectly, up to five percent (5%) of the
publicly traded stock in any corporation which is engaged in the medical
equipment rental or leasing business. For purposes of this Agreement, the term
"publicly traded" shall mean traded on a recognized national exchange or quoted
on the NASDAQ National Market System in the United States.
8. Non-solicitation. During the Prohibition Period, you will not,
directly or indirectly, hire, recruit, solicit, call upon, divert, take away,
entice or in any other manner persuade or attempt to do any of the foregoing
with respect to, any employee, independent contractor, dealer, supplier, client,
customer or business contact of the Company or any of its subsidiaries
(including PCH) to discontinue his or her position or relationship or violate
any agreement with the Company or any of its subsidiaries as employee,
independent contractor, dealer, supplier, client, customer or business contact,
except with the prior written consent of the Board, which consent shall be given
at the sole discretion of the Board.
The non-solicitation agreement contained in this Paragraph 8 shall not
apply to (i) any employee of the Company or PCH whose employment relationship
with the Company or PCH has been terminated for at least six months prior to the
date of such hiring, recruitment or solicitation and (ii) any such employee
whose employment is terminated for any reason by the Company or PCH.
9. Modification; Equitable Relief.
(a) You agree and acknowledge that the duration, scope and geographic
area of the covenants described in Paragraphs 6, 7 and 8 are fair, reasonable
and necessary in order to protect the good will and other legitimate interest of
the Company and its subsidiaries, that
<PAGE>
Mr. Andrew R. Amicon
November 12, 1998
Page 8
adequate consideration has been received by you for such obligations and that
these obligations do not prevent you from earning a livelihood. If, however, for
any reason any court of competent jurisdiction determines that any restriction
contained in Paragraphs 6, 7 or 8 are not reasonable, that consideration is
inadequate or that you have been prevented unlawfully from earning a livelihood,
such restriction shall be interpreted, modified or rewritten to include as much
of the duration, scope and geographic area identified in such Paragraphs 6, 7 or
8 as will render such restrictions valid and enforceable.
(b) You acknowledge that the Company will suffer irreparable harm as a
result of a breach of this Employment Agreement by you for which an adequate
monetary remedy does not exist and a remedy at law may prove to be inadequate.
Accordingly, in the event of any actual or threatened breach by you of any
provision of this Employment Agreement, the Company shall, in addition to any
other remedies permitted by law, be entitled to obtain remedies in equity,
including without limitation specific performance, injunctive relief, a
temporary restraining order and/or a permanent injunction in any court of
competent jurisdiction, to prevent or otherwise restrain any such breach without
the necessity of proving damages, posting a bond or other security and to
recover any and all costs and expenses, including reasonable counsel fees,
incurred in enforcing this Employment Agreement against you, and you hereby
consent to the entry of such relief against you and agree not to contest such
entry. Such relief shall be in addition to and not in substitution of any other
remedies available to the Company. The existence of any claim or cause of action
by you against the Company or any of its subsidiaries, whether predicated on
this Employment Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of this Employment Agreement. You agree not to defend
on the basis that there is an adequate remedy at law.
10. Stockholders' Agreement. In connection with the acquisition of any
equity securities, or options therefore, of the Company, you will be expected to
enter, and you agree to enter, into a stockholders' agreement with the other
equity investors in the Company, substantially in the form attached hereto as
Exhibit B (the "Stockholders' Agreement").
11. Life Insurance. The Company may, at its discretion and at any time
after the execution of this Employment Agreement, apply for and procure, as
owner and for its own benefit, and at its own expense, insurance on your life,
in such amount and in such form or forms as the Company may determine. You shall
have no right or interest whatsoever in such policy or policies, but you agree
that you will, at the request of the Company, submit yourself to such medical
examinations, supply such information and execute and deliver such documents as
may be required by the insurance company or companies to which the Company or
any such subsidiary has applied for such insurance.
<PAGE>
Mr. Andrew R. Amicon
November 12, 1998
Page 9
12. Successors; Assigns; Amendment; Notice. This Employment Agreement
shall be binding upon and shall inure to the benefit of the Company and its
successors and assigns. This Employment Agreement shall be binding upon you and
shall inure to the benefit of your heirs, executors, administrators and legal
representatives, but shall not be assignable by you. This Employment Agreement
may be amended or altered only by the written agreement of the Company and you.
All notices or other communications permitted or required under this Employment
Agreement shall be in writing and shall be deemed to have been duly given if
delivered by hand, by facsimile transmission to the Company (if confirmed) or
mailed (certified or registered mail, postage prepaid, return receipt requested)
to you or the Company at the respective addresses on the first page of this
Employment Agreement, or such other address as shall be furnished in writing by
like notice by you or the Company to the other.
13. Entire Agreement. This Employment Agreement, together with the
Stock Purchase Agreement and the Stockholders' Agreement as executed in
accordance with Paragraph 10 hereof, embodies the entire agreement and
understanding between you and the Company with respect to the subject matter
hereof and supersedes all such prior agreements and understandings.
14. Severability. If any term, provision, covenant or restriction of
this Employment Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Employment Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.
15. Governing Law. This Employment Agreement shall be governed in all
respects, including validity, interpretation and effect, by the internal laws of
state of Minnesota, without giving effect to the principles of conflict of laws
thereof. Any action at law, suit in equity or judicial proceeding arising
directly, indirectly or otherwise in connection with, out of, related to or from
this Agreement or any provision hereof, shall be litigated only in the federal
or State courts, as applicable, sitting in the State of Ohio, County of
Franklin. The parties hereto consent to the jurisdiction of such courts for such
purposes. The parties hereto waive any claim to a change of venue because of the
doctrine of forum non conveniens or otherwise.
16. Counterparts. This Employment Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument, and all signatures need
not appear on any one counterpart.
17. Headings. All headings in this Employment Agreement are for
purposes of reference only and shall not be construed to limit or affect the
substance of this Employment Agreement.
<PAGE>
Mr. Andrew R. Amicon
November 12, 1998
Page 10
If you accept and agree to the foregoing, please sign and return a
counterpart of this letter to the Company at the above address, whereupon this
letter will become a binding Employment Agreement between you and the Company as
of the date hereof.
Very truly yours,
UNIVERSAL HOSPITAL SERVICES, INC.
By /s/ David E. Dovenberg
---------------------------
David E. Dovenberg
President and Chief Executive Officer
Accepted and agreed to:
/s/ Andrew R. Amicon
- ------------------------------
Andrew R. Amicon
<PAGE>
Exhibit 10.8
July 30, 1998
Mr. Jeff Singer
14790 Brook Hill Drive
Chesterfield, Missouri 63017
Dear Mr. Singer:
Reference is made to that certain Stock Purchase and Sale Agreement
dated July 30, 1998 (the "Stock Purchase and Sale Agreement"), by and among
Jeffrey L. Singer, Todd B. Siwak, Roger I. Siwak and The Michael Singer Family
Trust (the "Shareholders"), certain charities named therein, and Universal
Hospital Services, Inc., a Minnesota corporation ("UHS" or the "Company"). As
you know, subject to the terms and conditions of the Stock Purchase and Sale
Agreement, UHS will acquire all of the outstanding shares (the "Acquisition") of
HCI Acquisition Corp. ("HCI").
You currently serve as President of HCI, and this Employment Agreement
is being entered into as inducement for UHS to consummate the Acquisition and
other transactions contemplated by the Stock Purchase and Sale Agreement. For
these reasons and for other good and valuable consideration and to provide for
your services to UHS following the Acquisition, the parties hereto agree as
follows:
1. Position; Duties. From and after the date of the Acquisition, the
Company shall employ you, and you agree to serve and accept employment, for the
Term (as defined herein) as Vice President--Alternate Care Rentals of the
Company, subject to the direction and control of the Board of Directors of the
Company (the "Board"), and, in connection therewith, to oversee and direct the
development of specified Alternate Care Rentals of the Company as determined in
conjunction with the Chief Executive Officer (the "CEO") of the Company and to
perform such other duties as the Board or the Chief Executive Officer of the
Company may from time to time reasonably direct. Your place of employment shall
be in the St. Louis, Missouri, or Minneapolis, Minnesota, areas as mutually
agreed with the CEO. During the Term, you agree to devote all of your time,
energy, experience and talents during regular business hours, and as otherwise
reasonably necessary, to such employment, to devote your best efforts to advance
the interests of the Company and not to engage in any other business activities
of a material nature, as an employee, director, consultant or in any other
capacity, whether or not you receive any compensation therefor, without the
prior written consent of the Board. You shall not be given duties inconsistent
with your executive position.
<PAGE>
Mr. Jeff Singer
July 30, 1998
Page 2
2. Term of Employment Agreement. The term of your employment hereunder
shall begin as of the Closing Date (as defined in the Stock Purchase and Sale
Agreement) and end as of the close of business on the date which is three years
from the Closing Date, subject to earlier termination pursuant to the terms
hereof (including the Renewal Term, as defined in the next sentence, the
"Term"). Following the initial Term, this Agreement shall automatically be
renewed for successive one-year terms (each a "Renewal Term") unless notice of
termination is given by either party upon not less than 30 days' written notice
prior to the date on which such renewal would otherwise occur.
3. Compensation and Benefits.
(a) Base Salary. Your bases salary shall be at annual rate of $125,000,
payable in equal bi-weekly installments. Such base salary shall be adjusted
annually based on changes in the consumer price index (all urban consumers, U.S.
city average). The Board will annually review your base salary beginning in
1999. Necessary withholding taxes, FICA contributions and the like shall be
deducted from your base salary.
(b) Bonus. In addition to your base salary, you shall be entitled to
receive a bonus of up to 100% of your base salary, based on the achievement of
the annual EBITDA targets applicable to all other Executive Employees (as
defined in Paragraph 4(d) hereof) of the Company that participate in the bonus
program (such targets, as they may be adjusted by the Board of Directors of the
Company from time to time with respect to all such management employees in the
same manner, in good faith, to reflect any acquisitions, dispositions and
material changes to capital spending (the "Management Targets")). The amount of
such bonus would rise linearly from 0% of base salary to 100% of base salary
based on achievement of EBITDA of 90% to 110% of target EBITDA. No bonus shall
be payable if EBITDA is 90% or less of target EBITDA.
(c) Options. On the date hereof you will also receive options to
purchase a total of 89,944 shares of the Company's common stock, $.01 par value
(the "Common Stock"), which options will be granted under the Company's 1998
Stock Option Plan (the "Plan"). A copy of the Plan has been provided to you.
Such options will vest in accordance with, and will have such other terms as
provided in, the Stock Option Agreement attached hereto as Exhibit A and the
Plan.
(d) Other. You shall be entitled to such health, life, disability,
vacation, pension, sick leave and other benefits as are generally made available
by the Company to its executive employees. Your benefits will also consist of
five weeks paid vacation time (pro-rated for 1998), an annual physical exam and
reimbursement for tax preparation costs.
<PAGE>
Mr. Jeff Singer
July 30, 1998
Page 3
4. Termination.
(a) Death. This Employment Agreement shall automatically terminate upon
your death. In the event of such termination, the Company shall pay to your
legal representatives your base salary in monthly installments and continue to
provide the benefits provided hereunder, in each case for six months following
such termination.
(b) Disability. If during the Term you become physically or mentally
disabled, whether totally or partially, either permanently or so that you are
unable substantially and competently to perform your duties hereunder for a
period of 90 consecutive days or for 90 days during any six-month period during
the Term (a "Disability"), the Company may terminate your employment hereunder
by written notice to you. In the event of such termination, the Company shall
pay to you your base salary in monthly installments and continue to provide the
benefits provided hereunder, in each case for six months following such
termination.
(c) Cause. Your employment hereunder may be terminated at any time by
the Company for Cause (as defined herein) by written notice to you. In the event
of such termination, all of your rights to payments (other than payment for
services already rendered) and any other benefits otherwise due hereunder shall
cease immediately. The Company shall have "Cause" for termination of your
employment hereunder if any of the following has occurred.
(i) your continued failure, whether willful, intentional or
grossly negligent, after written notice, to perform substantially your
duties hereunder (other than as a result of a Disability);
(ii) dishonesty in the performance of your duties hereunder:
(iii) conviction or confession of an act or acts on your part
constituting a felony under the laws of the United States or any state
thereof;
(iv) any other willful act or omission on your part which is
materially injurious to the financial condition or business reputation
of the Company or any of its subsidiaries;
(v) you have breached any provision of this Employment
Agreement contained in Paragraphs 6, 7 and 8 hereof; or
(vi) you have breached any provision of this Employment
Agreement (other than paragraphs 6, 7 or 8 hereof) and such breach
shall not have been cured within sixty days after notice thereof from
the Company to you.
<PAGE>
Mr. Jeff Singer
July 30, 1998
Page 4
(d) Without Cause. Your employment hereunder may be terminated at any
time by the Company without Cause by written notice to you. In the event of such
termination, the Company shall (i) continue to pay you your base salary through
the date which is twelve months from the Date of Termination (as defined
herein), and (ii) pay to you a prorated bonus based upon the number of days that
you were employed by the Company during the fiscal year to which such bonus
relates, such bonus to be payable at such time as annual bonuses with respect to
such fiscal year are paid to all other Executive Employees (as defined herein)
who are employed by the Company on the last day of such fiscal year. It is
acknowledged and agreed that termination of your employment upon expiration of
the Term shall not be deemed to constitute a termination without Cause for
purposes of this Employment Agreement or for any other purpose. For purposes of
this Employment Agreement, "Executive Employees" shall be deemed to mean the
Vice Presidents of the Company.
(e) Resignation Without Good Reason. You may terminate your employment
hereunder upon sixty days' prior written notice to the Company, without Good
Reason (as defined herein). In the event of such termination, all of your rights
to payment (other than payment for services already rendered) and any other
benefits otherwise due hereunder shall cease upon the date of such termination.
It is acknowledged and agreed that termination of your employment upon
expiration of the Term shall not be deemed to constitute resignation without
Good Reason for purposes of this Employment Agreement or any other purpose.
(f) Resignation For Good Reason. You may terminate your employment
hereunder at any time upon thirty days' written notice to the Company, for Good
Reason. In the event of such termination, the Company shall (i) continue to pay
you your base salary though the date which is twelve months from the Date of
Termination, and (ii) pay to you a prorated bonus based upon the number of days
that you were employed by the Company during the fiscal year to which such bonus
relates, such bonus to be payable at such time as annual bonuses with respect to
such fiscal year are paid to all other Executive Employees who are employed by
the Company on the last day of such fiscal year.
You shall have "Good Reason" for termination of your employment
hereunder if, other than for Cause, any of the following has occurred:
(i) your base salary has been reduced other than in connection
with an across-the-board reduction (of approximately the same
percentage) in executive compensation to Executive Employees imposed by
the Board in response to negative financial results or other adverse
circumstances affecting the Company;
(ii) the Company has reduced or reassigned a material portion
of your duties hereunder;
<PAGE>
Mr. Jeff Singer
July 30, 1998
Page 5
(iii) your illness, that in the good faith determination of
the Board of Directors of the Company is likely to result in you
becoming disabled and unable to continue your employment with the
Company;
(iv) the Company has breached this Employment Agreement in any
material respect; or
(v) the Company requires you to relocate outside of the St.
Louis, Missouri metropolitan area or the greater Minneapolis, Minnesota
metropolitan area; provided that it being understood and agreed that
the Company shall not require you to relocate from St. Louis to
Minneapolis without reasonable notice and without first giving you the
reasonable opportunity to choose the date of such relocation within the
12-month period following such notice.
(g) Date and Effect of Termination. The date of termination of your
employment hereunder, pursuant to this Paragraph 4, shall be, (i) in the case of
Paragraph 4(a), the date of your death, (ii) in the case of Paragraphs 4(b), (c)
or (d), the date specified as your last date of employment in the Company's
notice to you of such termination or (iii) in the case of Paragraph 4(e) or
4(f), the date specified in your notice to the Company of such termination (in
each case, the "Date of Termination"). Upon any termination of your employment
hereunder pursuant to this Paragraph 4, you shall not be entitled to any further
payments or benefits of any nature pursuant to this Employment Agreement, or as
a result of such termination, except as specifically provided for in this
Employment Agreement, the Stockholders' Agreement (as defined in Paragraph 10
hereof) in any stock option plans adopted by the Company in accordance with
Paragraph 3(b) hereof, or as may be required by law.
(h) Other Employment. Notwithstanding anything in this Employment
Agreement to the contrary, if your employment hereunder is terminated pursuant
to Paragraph 4(d) or if you terminate your employment pursuant to Paragraph
4(f), and if prior to the date which is twelve months after the Date of
Termination you find other employment, the amount of payments or benefits
payable to you after such termination in accordance with the terms of this
Employment Agreement shall be reduced by the value of your compensation in your
new employment through the date which is twelve months after the Date of
Termination.
(i) Termination Following Non-Renewal. In the event that (i) your
employment hereunder is not renewed at the end of the Term or any Renewal Term
pursuant to a notice of termination given by the Company to you in accordance
with Paragraph 2 hereof, (ii) you are still employed by the Company after such
non-renewal as an employee at will, (iii) the Company thereafter terminates your
employment as an employee at will, and (iv) no circumstances exist at the time
of such termination which would constitute "Cause" as set forth in Paragraph
4(c)
<PAGE>
Mr. Jeff Singer
July 30, 1998
Page 6
hereof, any amounts to which you are entitled under any severance plan or
program of the Company then in effect which is generally applicable to employees
of the Company shall be paid to you in accordance with the terms of such plan or
program.
5. Acknowledgement. You agree and acknowledge that in the course of
rendering services to the Company and its clients and customers, you will have
access to and become acquainted with confidential information about the
professional, business and financial affairs of the Company and its affiliates.
You acknowledge that the Company is engaged and will be engaged in a highly
competitive business, and the success of the Company in the marketplace depends
upon its good will and reputation for quality and dependability. You agree and
acknowledge that reasonable limits on your ability to engage in activities
competitive with the Company are warranted to protect its substantial investment
in developing and maintaining its status in the marketplace, reputation and good
will.
6. Confidentiality. You agree that during and at all times after the
Term, you will keep secret all confidential matters and materials of the Company
(including its subsidiaries and affiliates), including, without limitation,
know-how, trade secrets, real estate plans and practices, individual office
results, customer lists, pricing policies, operational methods, any information
relating to the Company (including any of its subsidiaries and affiliates)
products, processes, customers and services and other business and financial
affairs of the Company (collectively, the "Confidential Information"), to which
you had or may have access and will not disclose such Confidential Information
to any person other than Holdings or the Company, their respective authorized
employees and such other person to whom you have been instructed to make
disclosure by the Board, in each case only to the extent required in the course
of your service to the Company hereunder or as otherwise expressly required in
connection with court process. "Confidential Information" shall not include any
information which is in the public domain during or after the term, provided
such information is not in the public domain as a consequence of disclosure by
you in violation of this Employment Agreement.
7. Non-competition. During the Prohibition Period (as hereinafter
defined), you will not, in any capacity, whether for your own account or for any
other person or organization, directly or indirectly, within North America (a)
own, operate, manage or control, (b) serve as an officer, director, partner,
employee, agent, consultant, advisor or developer or in any similar capacity to,
or (c) have any financial interest in, or aid or assist anyone else in the
conduct of, any person or enterprise which is engaged in a business competitive
with the activities of the business actually conducted by the Company or HCI on
the Closing Date. As used herein, "Prohibition Period" means the period from and
after the date hereof to and including the later of (i) the date which is twelve
months from the Date of Termination and (ii) the third anniversary following the
Closing Date.
<PAGE>
Mr. Jeff Singer
July 30, 1998
Page 7
The non-competition agreement contained in this Paragraph 7 shall not
prevent you from (i) owning, directly or indirectly, up to five percent (5%) of
the publicly traded stock in any corporation which is engaged in a business
competitive with the activities of the business actually conducted by the
Company or HCI on the Closing Date or (ii) having solely a financial interest in
Advanced Durable Medical, Inc. ("ADM"), so long as ADM does not engage in a
business competitive with the activities of the business actually conducted by
the Company or HCI on the Closing Date. It is understood and agreed that ADM's
business as conducted on the Closing Date is the renting or leasing of equipment
which is paid for by third party payors (as opposed to the lessee) or provided
to certain users on a subcontracting basis (e.g. the arrangement between ADM and
Unity Health Services, pursuant to which ADM provided equipment and set up). For
purposes of this Agreement, the term "publicly traded" shall mean traded on a
recognized national exchange or quoted on the NASDAQ National Market System in
the United States of America.
8. Non-solicitation. During the Prohibition Period, you will not,
directly or indirectly, hire, recruit, solicit, call upon, divert, take away,
entice or in any other manner persuade or attempt to do any of the foregoing
with respect to, any employee, independent contractor, dealer, supplier, client,
customer or business contact of the Company or any of its subsidiaries to
discontinue his or her position or relationship, or violate any agreement, with
the Company or any of its subsidiaries as employee, independent contractor,
dealer, supplier, client, customer or business contact, except with the prior
written consent of the Board, which consent shall be given at the sole
discretion of the Board.
The non-solicitation agreement contained in this Paragraph 7 shall not
apply to (i) any employee of the Company or HCI whose employment relationship
with the Company or HCI has been terminated for at least three months prior to
the date of such hiring, recruitment or solicitation and (ii) any such employee
whose employment is terminated for any reason by the Company or HCI.
9. Modification; Equitable Relief.
(a) You agree and acknowledge that the duration, scope and
geographic area of the covenants described in Paragraphs 6, 7 and 8 are fair,
reasonable and necessary in order to protect the good will and other legitimate
interest of the Company and its subsidiaries, that adequate consideration has
been received by you for such obligations, and that these obligations do not
prevent you from earning a livelihood. If, however, for any reason any court of
competent jurisdiction determines that any restriction contained in Paragraphs
6, 7 or 8 are not reasonable, that consideration is inadequate or that you have
been prevented unlawfully from earning a livelihood, such restriction shall be
interpreted, modified or rewritten to include as much of the
<PAGE>
Mr. Jeff Singer
July 30, 1998
Page 8
duration, scope and geographic area identified in such Paragraphs 6, 7 or 8 as
will render such restrictions valid and enforceable.
(b) You acknowledge that the Company will suffer irreparable
harm as a result of a breach of this Employment Agreement by you for which an
adequate monetary remedy does not exist and a remedy at law may prove to be
inadequate. Accordingly, in the event of any actual or threatened breach by you
of any provision of this Employment Agreement, the Company shall, in addition to
any other remedies permitted by law, be entitled to obtain remedies in equity,
including without limitation specific performance, injunctive relief, a
temporary restraining order and/or a permanent injunction in any court of
competent jurisdiction, to prevent or otherwise restrain any such breach without
the necessity of proving damages, posting a bond or other security, and to
recover any and all costs and expenses, including reasonable counsel fees,
incurred in enforcing this Employment Agreement against you, and you hereby
consent to the entry of such relief against you and agree not to contest such
entry. Such relief shall be in addition to and not in substitution of any other
remedies available to the Company. The existence of any claim or cause of action
by you against the Company or any of its subsidiaries, whether predicated on
this Employment Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of this Employment Agreement. You agree not to defend
on the basis that there is an adequate remedy at law.
10. Stockholders' Agreement. In connection with the acquisition of any
equity securities, or options therefore, of the Company, you will be expected to
enter, and you agree to enter, into a stockholders' agreement with the other
equity investors in the Company, substantially in the form attached hereto as
Exhibit B (the "Stockholders' Agreement").
11. Life Insurance. The Company may, at its discretion and at any time
after the execution of this Employment Agreement, apply for and procure, as
owner and for its own benefit, and at its own expense, insurance on your life,
in such amount and in such form or forms as the Company may determine. You shall
have no right or interest whatsoever in such policy or policies, but you agree
that you will, at the request of the Company, submit yourself to such medical
examinations, supply such information and execute and deliver such documents as
may be required by the insurance company or companies to which the Company or
any such subsidiary has applied for such insurance.
12. Successors; Assigns; Amendment; Notice. This Employment Agreement
shall be binding upon and shall inure to the benefit of the Company and shall
not be assigned by the Company without your prior written consent. This
Employment Agreement shall be binding upon you and shall inure to the benefit of
your heirs, executors, administrators and legal representatives, but shall not
be assignable by you. This Employment Agreement may be amended or altered only
by the written agreement of the Company and you. All notices or other
<PAGE>
Mr. Jeff Singer
July 30, 1998
Page 9
communications permitted or required under this Employment Agreement shall be in
writing and shall be deemed to have been duly given if delivered by hand, by
facsimile transmission to the Company (if confirmed) or mailed (certified or
registered mail, postage prepaid, return receipt requested) to you or the
Company at the respective addresses on the first page of this Employment
Agreement, or such other address as shall be furnished in writing by like notice
by you or the Company to the other.
13. Entire Agreement. This Employment Agreement, together with the
Stockholders' Agreement as executed in accordance with Paragraph 10 hereof,
embodies the entire agreement and understanding between you and the Company with
respect to the subject matter hereof and supersedes all such prior agreements
and understandings.
14. Severability. If any term, provision, covenant or restriction of
this Employment Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Employment Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.
15. Governing Law. This Employment Agreement shall be governed by and
construed and enforced in accordance with the laws of state of Minnesota
applicable to contracts made and to be performed in such state without giving
effect to the principles of conflicts of laws thereof.
16. Counterparts. This Employment Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument, and all signatures need
not appear on any one counterpart.
17. Headings. All headings in this Employment Agreement are for
purposes of reference only and shall not be construed to limit or affect the
substance of this Employment Agreement.
<PAGE>
Mr. Jeff Singer
July 30, 1998
Page 10
If you accept and agree to the foregoing, please sign and return a
counterpart of this letter to the Company at the above address, whereupon this
letter will become a binding Employment Agreement between you and the Company as
of the Closing Date.
Very truly yours,
UNIVERSAL HOSPITAL SERVICES, INC.
By /s/ David E. Dovenberg
------------------------------
Name: David E. Dovenberg
Title: President and Chief Executive
Officer
Accepted and agreed to:
/s/ Jeff Singer
- ---------------------------
<PAGE>
Exhibit 10.14
SIXTH AMENDMENT
TO CREDIT AGREEMENT
SIXTH AMENDMENT TO CREDIT AGREEMENT, dated as of December 18, 1998
(this "Amendment"), among UNIVERSAL HOSPITAL SERVICES, INC., a Minnesota
corporation (the "Borrower"), the financial institutions party to the Credit
Agreement described below (the "Banks") and BANKERS TRUST COMPANY, as
Administrative Agent. All capitalized terms used herein and not otherwise
defined shall have the respective meanings provided such terms in the Credit
Agreement referred to below.
W I T N E S S E T H :
WHEREAS, the Borrower, the Banks and the Administrative Agent are
parties to a Credit Agreement, dated as of February 25, 1998 (as amended,
modified and supplemented through, but not including, the date hereof, the
"Credit Agreement");
WHEREAS, the parties hereto wish to amend the Credit Agreement as
herein provided; and
NOW THEREFORE, it is agreed:
1. Section 6.22 of the Credit Agreement is hereby amended by (i)
deleting the number "15,624,464.406" appearing immediately after the text
"Common Stock of which" in clause (i) in the first sentence and inserting the
number "15,938,845" in lieu thereof, (ii) deleting the text "6,000 shares"
appearing immediately before the text "issued and outstanding" in clause (ii) in
the first sentence and inserting the text "no shares" in lieu thereof, (iii)
inserting the text ", (iii) 25,000 shares of Series B 13% Cumulative Convertible
Accruing Pay-In-Kind Preferred Stock, par value $.01 per share, of which 6,246
shares shall be issued and outstanding" immediately after the text "issued and
outstanding" appearing at the end of clause (ii) in the first sentence and (iv)
deleting the text "(iii)" appearing immediately before the text "4,900,000
shares" in the first sentence and inserting the text "(iv)" in lieu thereof.
2. Section 8.08 of the Credit Agreement is hereby amended by inserting
the text "(other than the JWC Redemption)" immediately after the text "or
redeem" appearing in the first sentence thereof:
3. Section 10 of the Credit Agreement is hereby amended by inserting
the following new definitions in the appropriate alphabetical order:
"JWC Redemption" shall mean the redemption by the Borrower of 6,000
shares of 12% Cumulative Convertible Accruing Pay-In-Kind Preferred Stock, par
value $.01 per share., currently held by JWC Equity Funding, Inc.
"ReliaStar" shall mean ReliaStar Financial Corp., a Minnesota
corporation.
"ReliaStar Stock Purchase" shall mean the purchase by ReliaStar of
6,246 shares of Series B 13% Cumulative Accruing Pay-In-Kind Preferred Stock,
par value $.01 per share, and a warrant for the purchase of 350,000 shares (or
such greater or lesser number of shares as shall be purchasable under the
warrant from time to time in accordance with the terms thereof) of common stock
of the Company, par value $.01 per share pursuant to and in accordance with the
ReliaStar Stock Purchase Documents.
"ReliaStar Stock Purchase Agreement" shall mean the Preferred Stock and
Warrant Purchase
<PAGE>
Agreement, dated as of December 18, 1998, between the Borrower and ReliaStar.
"ReliaStar Stock Purchase Documents" shall mean the ReliaStar Stock
Purchase Agreement and all other documents required to be entered into or
delivered pursuant to the terms and conditions of the ReliaStar Stock Purchase
Agreement.
"ReliaStar Transaction" shall mean the transaction whereby the Borrower
will effect the ReliaStar Stock Purchase and will use 100% of the proceeds
therefrom to effect the JWC Redemption.
4. This Amendment is limited precisely as written and shall not be
deemed to be a consent to or modification of any other term or condition of the
Credit Agreement, the other Credit Documents or any of the instruments or
agreements referred to therein.
5. In order to induce the Banks to enter into this Amendment, the
Borrower hereby represents and warrants that (x) no Default or Event of Default
exists on the Sixth Amendment Effective Date (as defined below) both before and
after giving effect to this Amendment and (y) all of the representations and
warranties contained in the Credit Documents shall be true and correct in all
material respects on the Sixth Amendment Effective Date both before and after
giving effect to this Amendment with the same effect as though such
representations and warranties had been made on and as of the Sixth Amendment
Effective Date (it being understood that any representation or warranty made as
of a specific date shall be true and correct in all material respects as of such
specific date).
6. This Amendment shall become effective upon the date on which the
following conditions precedent shall have been satisfied (such effective date
being herein referred to as the "Sixth Amendment Effective Date"):
(i) the Borrower and each of the Required Banks shall have signed a
counterpart hereof (whether the same or different counterparts) and shall have
delivered (including by way of telecopier) the same to the Administrative Agent
at its Notice Office;
(ii) true and correct copies of the ReliaStar Stock Purchase Documents
shall have been delivered to the Administrative Agent, and all terms of the
ReliaStar Stock Purchase Documents shall be satisfactory in form and substance
to the Administrative Agent;
(iii) the ReliaStar Stock Purchase Documents (and the transactions
contemplated thereby) shall have been duly approved by the boards of directors
and, if required by applicable law, the stockholders of the parties thereto, and
all ReliaStar Stock Purchase Documents required to have been delivered as of the
date hereof shall have been duly executed and delivered by the parties thereto
and shall be in full force and effect;
(iv) (A) each of the conditions precedent to the obligations of the
parties to consummate each of (i) the ReliaStar Stock Purchase as set forth in
the ReliaStar Stock Purchase Agreement and (ii) the JWC Redemption shall have
been satisfied to the satisfaction of the Administrative Agent and the Required
Banks, or waived with the consent of the Administrative Agent and the Required
Banks, (B) the JWC Redemption shall have been consummated in accordance with all
applicable laws and regulations and (C) the ReliaStar Stock Purchase shall have
been consummated in accordance with the ReliaStar Stock Purchase Documents
(without giving effect to any material amendment or modification to the
ReliaStar Stock Purchase Agreement or waiver with respect thereto unless
consented to by the Administrative Agent and the Required Banks) and all
applicable laws, rules and regulations; and
(v) the Borrower shall have delivered a certificate of an Authorized
Officer, dated the Sixth Amendment Effective Date, stating that all of the
conditions set forth in clauses (iii) and (iv) above have been satisfied as of
such date.
7. This Amendment may be executed in any number of counterparts and by
the different
<PAGE>
parties hereto on separate counterparts, each of which counterparts when
executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument. A complete set of counterparts shall be
lodged with the Borrower and the Administrative Agent.
8. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
9. From and after the Sixth Amendment Effective Date, all references in
the Credit Agreement and each of the Credit Documents to the Credit Agreement
shall be deemed to be references to such Credit Agreement as amended hereby.
*********
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Amendment to be duly executed and delivered as of the date
first above written.
UNIVERSAL HOSPITAL SERVICES, INC.
By: /S/ Gerald L. Brandt
----------------------------------------
Title: Vice President, Finance and Chief
Financial Officer
BANKERS TRUST COMPANY,
Individually and as Administrative Agent
By: /S/ David J. Bell
----------------------------------------
Title: Vice President
HELLER FINANCIAL, INC.
By: /S/ Michael S. Sznajder
----------------------------------------
Title: Senior Vice President
FLEET NATIONAL BANK
By: /S/ Stephen Curran
----------------------------------------
Title: Vice President
<PAGE>
Exhibit 10.15
SEVENTH AMENDMENT
TO CREDIT AGREEMENT
SEVENTH AMENDMENT TO CREDIT AGREEMENT, dated as of January 22,
1999 (this "Amendment"), among UNIVERSAL HOSPITAL SERVICES, INC., a Minnesota
corporation (the "Borrower"), the financial institutions party to the Credit
Agreement described below (the "Banks") and BANKERS TRUST COMPANY, as
Administrative Agent. All capitalized terms used herein and not otherwise
defined shall have the respective meanings provided such terms in the Credit
Agreement referred to below.
W I T N E S S E T H :
WHEREAS, the Borrower, the Banks and the Administrative Agent are
parties to a Credit Agreement, dated as of February 25, 1998 (as amended,
modified and supplemented through, but not including, the date hereof, the
"Credit Agreement");
WHEREAS, the parties hereto wish to amend the Credit Agreement as herein
provided; and
NOW THEREFORE, it is agreed:
1. Section 4.02 (a) (iv) of the Credit Agreement is hereby amended by
(i) deleting the text "and" appearing at the end of sub-clause (ii) thereof and
inserting "," in lieu thereof, (ii) deleting the period at the end of sub-clause
(iii) and (iii) inserting the following new clause (iv) at the end of said
section:
", and (iv) all net proceeds of the New Senior Notes shall be applied
to repay the outstanding Revolving Loans on the Seventh Amendment Effective
Date."
2. Section 6.12 of the Credit Agreement is hereby amended by deleting
said clause in its entirety and replacing it with the following new clause:
"6.12 Representations and Warranties in the Documents. All
representations and warranties of the Credit Parties and, to the best knowledge
of the Borrower, of all other Persons party thereto, set forth in (i) the Credit
Documents, the Recapitalization Agreement and the Senior Notes Documents were
true and correct in all material respects as of the time such representations
and warranties were made and shall be true and correct in all material respects
as of the Effective Date as if such representations and warranties were made on
and as of such date and (ii) the New Senior Notes Documents were true and
correct in all material respects as of the time such representations and
warranties were made and shall be true and correct in all material respects as
of the Seventh Amendment Effective Date as if such representations and
warranties were made on and as of such date, unless stated to relate to a
specific earlier date, in which case such representations and warranties shall
be true and correct in all material respects as of such earlier date."
3. Section 6 of the Credit Agreement is hereby further amended by
adding at the end of said section the following new clause :
"6.24 New Senior Notes As of the Seventh Amendment Effective Date, the New
Senior Notes have been duly authorized, issued and delivered in accordance with
applicable law and the offering memorandum relating thereto, and such offering
memorandum, as of the date of its issue, does not contain any untrue statement
of a material fact nor omit to state a material fact necessary in order to make
the statements contained therein, in the light of the circumstances under which
they were made, not misleading."
4. Section 7.01 of the Credit Agreement is hereby amended by adding the
following new clause (m) immediately after clause (l) thereof:
<PAGE>
"(m) New Senior Notes. Promptly after the same are sent, copies of all
financial statements and reports which the Borrower or any of its Subsidiaries
sends to holders of the New Senior Notes (to the extent not otherwise delivered
to the Banks pursuant to this Section 7.01) and promptly after the same are
filed, copies of all financial statements and regular, periodical or special
reports which the Borrower of any of its Subsidiaries may make to, or file with,
the SEC."
5. Section 7 of the Credit Agreement is hereby further amended by
adding at the end of said section the following new clause:
"7.15 New Senior Notes All net proceeds of the New Senior Notes shall
be utilized to pay the outstanding Revolving Loans on the Seventh Amendment
Effective Date."
6. Section 8.04 of the Credit Agreement is hereby amended by (i)
deleting the text "and" appearing at the end of clause (h) thereof, (ii)
deleting the period appearing at the end of clause (i) thereof and inserting the
text ", and" in lieu thereof and (iii) inserting the following new clause (j)
immediately after clause (i):
"(j) Indebtedness of the Borrower under the New Senior Notes in an
aggregate principal amount of up to $40,000,000 without giving effect to any
subsequent extensions, renewals, or refinancings thereof; provided that all net
proceeds of the New Senior Notes shall be utilized to pay the outstanding
Revolving Loans on the Seventh Amendment Effective Date."
7. Section 8.04 is hereby further amended by adding the text "and the
New Senior Notes" immediately after the text "Senior Notes" in the last sentence
of said clause.
8. Section 8.07 of the Credit Agreement is hereby amended by inserting
", the New Senior Notes" immediately after the text "Senior Notes" appearing in
clause (x) thereof.
9. Section 8.07 of the Credit Agreement is hereby further amended by
inserting ", the New Senior Notes Documents" immediately after the text "Senior
Notes Documents" appearing in clause (y) thereof.
10. Section 8.08(b) of the Credit Agreement is hereby amended by (i)
deleting the text "and" appearing at the end of clause (v) thereof, (ii)
deleting the period appearing at the end of clause (vi) thereof and inserting
the text "; and" in lieu thereof and (iii) inserting the following new clause
(vii) immediately after clause (vi):
"(vii) the New Senior Notes Documents."
11. Section 10 of the Credit Agreement is hereby amended by deleting
the text appearing in clause (y) of the definition of "Borrowing Base" in its
entirety and replacing it with the following text:
"(y) (a) as of the Seventh Amendment Effective Date, up to 55%
of Eligible Rental Equipment, and (b) as of six months after the Seventh
Amendment Effective Date, up to 50% of Eligible Rental Equipment,"
12. Section 10 of the Credit Agreement is hereby further amended by
inserting the following new definitions in the appropriate alphabetical order:
"'New Senior Notes' shall mean the 10 1/4 % unsecured senior notes,
issued by the Borrower as in effect on the Seventh Amendment Effective Date and
after giving effect to any changes, amendments or supplements thereto (and shall
include any unsecured senior notes into which the New Senior Notes are exchanged
pursuant to the New Senior Notes Documents)."
"'New Senior Notes Documents' shall mean and include each of the New
Senior Notes, the Senior Notes Indenture and all securities purchase agreements
and other documents and agreements related thereto, as in effect on the Seventh
Amendment Effective Date and after giving effect to any changes, amendments or
supplements thereto."
13. This Amendment is limited precisely as written and shall not be
deemed to be a consent to or modification of any other term or condition of the
Credit Agreement, the other Credit
<PAGE>
Documents or any of the instruments or agreements referred to therein.
14. In order to induce the Banks to enter into this Amendment, the
Borrower hereby represents and warrants that (x) no Default or Event of Default
exists on the Seventh Amendment Effective Date (as defined below) both before
and after giving effect to this Amendment and (y) all of the representations and
warranties contained in the Credit Documents shall be true and correct in all
material respects on the Seventh Amendment Effective Date both before and after
giving effect to this Amendment with the same effect as though such
representations and warranties had been made on and as of the Seventh Amendment
Effective Date (it being understood that any representation or warranty made as
of a specific date, including, but not limited to, the representations and
warranties contained in Section 6.22 of the Credit Agreement, shall be true and
correct in all material respects as of such specific date).
15. This Amendment shall become effective on the date that the Borrower
and the Required Banks shall have signed a counterpart hereof (whether the same
or different counterparts) and shall have delivered (including by way of
telecopier) the same to the Administrative Agent at its Notice Office (such
effective date referred to above is herein called the "Seventh Amendment
Effective Date").
16. This Amendment may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Borrower and the Administrative Agent.
17. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
18. From and after the Seventh Amendment Effective Date, all references
in the Credit Agreement and each of the Credit Documents to the Credit Agreement
or each of the Credit Documents shall be deemed to be references to such Credit
Agreement or each of the Credit Documents as amended hereby.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused
a counterpart of this Amendment to be duly executed and delivered
as of the date first above written.
UNIVERSAL HOSPITAL SERVICES, INC.
By: /S/ Gerald L. Brandt
----------------------------------------
Title: Vice President, Finance and Chief
Financial Officer
BANKERS TRUST COMPANY,
Individually and as Administrative Agent
By: /S/ David J. Bell
----------------------------------------
Title: Vice President
HELLER FINANCIAL, INC.
By: /S/ Michael S. Sznajder
----------------------------------------
Title: Senior Vice President
FLEET NATIONAL BANK
By: /S/ Stephen Curran
----------------------------------------
Title: Vice President
<PAGE>
Exhibit 10.16
EIGHTH AMENDMENT
TO CREDIT AGREEMENT
EIGHTH AMENDMENT TO CREDIT AGREEMENT, dated as of March 18, 1999 (this
"Amendment"), among UNIVERSAL HOSPITAL SERVICES, INC., a Minnesota corporation
(the "Borrower"), the financial institutions party to the Credit Agreement
described below (the "Banks") and BANKERS TRUST COMPANY, as Administrative
Agent. All capitalized terms used herein and not otherwise defined shall have
the respective meanings provided such terms in the Credit Agreement referred to
below.
W I T N E S S E T H :
WHEREAS, the Borrower, the Banks and the Administrative Agent are
parties to a Credit Agreement, dated as of February 25, 1998 (as amended,
modified and supplemented through, but not including, the date hereof, the
"Credit Agreement");
WHEREAS, the parties hereto wish to amend the Credit Agreement as
herein provided; and
NOW THEREFORE, it is agreed:
1. Section 8.02 of the Credit Agreement is hereby amended by (i)
deleting the text "and" appearing at the end of clause (m) thereof, (ii)
deleting the period appearing at the end of clause (n) thereof and inserting the
text "; and" in lieu thereof and (iii) inserting the following new clause (o)
immediately after clause (n) thereof:
"(o) each of the Borrower and its Subsidiaries may acquire all
or substantially all of the assets of any Person (or all or
substantially all of the assets of a product line or division of any
Person) or 100% of the capital stock of any Person (any acquisition
permitted by this clause (o), a "Permitted Acquisition"), so long as
(i) no Default or Event of Default then exists or would result
therefrom, (ii) each of the representations and warranties contained in
Section 6 shall be true and correct in all material respects both
before and after giving effect to such Permitted Acquisitions (it being
understood that any representation or warranty made as of a specific
date, including, but not limited to, the representations and warranties
contained in Section 6.22 of the Credit Agreement, shall be true and
correct in all material respects as of such specific date), (iii) any
liens or Indebtedness assumed or issued in connection with such
acquisition are otherwise permitted under Section 8.03 or 8.04 as the
case may be, (iv) the value of all consideration paid in connection
therewith (including Indebtedness assumed or incurred) (x) for each
Permitted Acquisition shall not exceed $1,000,000 and (y) for all of
the Permitted Acquisitions shall not exceed $5,000,000, (v) the
Borrower shall be in pro forma compliance with all financial covenants
in this Agreement before and after giving effect to such Permitted
Acquisitions and (vi) after giving effect to such Permitted
Acquisition, the Total Unutilized Revolving Commitment shall not be
less than $10,000,000.
<PAGE>
2. Section 8.05(a) of the Credit Agreement is hereby amended by
deleting the periods and amounts appearing in the columns "Period" and
"Amount" in their entirety and replacing them with the following texts and
amounts:
"Period Amount
------- ------
Effective Date through December 31, 1998 $30,616,000
Fiscal Year ending December 31, 1999 $31,700,000
Fiscal Year ending December 31, 2000 $32,000,000
Fiscal Year ending December 31, 2001 $33,200,000
Fiscal Year ending December 31, 2002 $40,000,000
January 1, 2003 through the Maturity Date $ 7,200,000"
3. Section 8.06 of the Credit Agreement is hereby amended by (i)
deleting the text "; and" appearing at the end of clause (i) thereof, (ii)
deleting the period appearing at the end of clause (j) thereof and replacing it
with a semi-column and (iii) inserting the following clause (k) immediately
after clause (j) thereof:
"(k) Permitted Acquisitions shall be permitted"
4. Section 8.11 of the Credit Agreement is hereby amended by deleting
the dates and ratios from and including December 31, 1998 to and including
December 31, 1999 and replacing them with the following dates and ratios:
"December 31, 1998 0.85:1.00
March 31, 1999 0.65:1.00
June 30 1999 0.70:1.00
September 31, 1999 0.75:1.00
December 31, 1999 1.00:1.00"
5. Section 10 of the Credit Agreement is hereby amended by inserting
the following new definitions in the appropriate alphabetical order:
" `Permitted Acquisitions' shall have the meaning provided in Section
8.02(o).
6. Section 10 of the Credit Agreement is hereby further amended by (i)
deleting the period appearing at the end of the definition of "Capital
Expenditures" thereof and replacing it with the following text:
", excluding Capital Expenditures made with the Net Sale Proceeds
obtained from the disposition of property, plant and equipment."
-2-
<PAGE>
7. Section 10 of the Credit Agreement is hereby further amended by
inserting immediately after the text "otherwise" appearing at the end of the
first sentence of the definition of "Consolidated EBITDA", the following text:
", provided that for purposes of Section 8.10, 8.11 and 8.12, there
shall be excluded (to the extent not already excluded) in determining
Consolidated EBITDA for any period the expenses of the Borrower incurred with
respect to (i) salary adjustments in an aggregate amount of $213,000 related to
the departure of personnel in 1998, (ii) expenses in an aggregate amount of
$56,000 associated with the 1998 planned acquisition , (iii) severance charges
related to 1998 in an aggregate amount of $202,000 and (iv) fees paid for 1998
to J.W. Childs in an aggregate amount of $234,000."
8. This Amendment is limited precisely as written and shall not be
deemed to be a consent to or modification of any other term or condition of the
Credit Agreement, the other Credit Documents or any of the instruments or
agreements referred to therein.
9. The Borrower hereby (i) agrees to pay to the Administrative Agent on
behalf of the Banks which execute this Eighth Amendment a non-refundable fee
payable on the Eighth Amendment Effective Date equal to 0.10% of the Commitment
of such Bank and (ii) represents and warrants that (x) no Default or Event of
Default exists on the Eighth Amendment Effective Date (as defined below) both
before and after giving effect to this Amendment and (y) all of the
representations and warranties contained in the Credit Documents shall be true
and correct in all material respects on the Eighth Amendment Effective Date both
before and after giving effect to this Amendment with the same effect as though
such representations and warranties had been made on and as of the Eighth
Amendment Effective Date (it being understood that any representation or
warranty made as of a specific date, including, but not limited to, the
representations and warranties contained in Section 6.22 of the Credit
Agreement, shall be true and correct in all material respects as of such
specific date).
10. This Amendment shall become effective on the date that (i) the
Borrower and the Required Banks shall have signed a counterpart hereof (whether
the same or different counterparts) and shall have delivered (including by way
of telecopier) the same to the Administrative Agent at its Notice Office and
(ii) the Borrower shall have paid the fee described in paragraph 9(i) above
(such effective date referred to above is herein called the "Eighth Amendment
Effective Date").
11. This Amendment may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Borrower and the Administrative Agent.
12. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
-3-
<PAGE>
13. From and after the Eighth Amendment Effective Date, all references
in the Credit Agreement and each of the Credit Documents to the Credit Agreement
or each of the Credit Documents shall be deemed to be references to such Credit
Agreement or each of the Credit Documents as amended hereby.
-4-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Amendment to be duly executed and delivered as of the date first above
written.
UNIVERSAL HOSPITAL SERVICES, INC.
By: /S/ Gerald L. Brandt
----------------------------------------
Title: Vice President, Finance and Chief
Financial Officer
BANKERS TRUST COMPANY,
Individually and as Administrative Agent
By: /S/ David J. Bell
----------------------------------------
Title: Vice President
HELLER FINANCIAL, INC.
By: /S/ Michael S. Sznajder
----------------------------------------
Title: Senior Vice President
FLEET NATIONAL BANK
By: /S/ Stephen Curran
----------------------------------------
Title: Vice President
<PAGE>
Exhibit 10.17
UNIVERSAL HOSPITAL SERVICES, INC.
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT, made as of this 17th day of March, 1998, by and between
Universal Hospital Services, Inc., a Minnesota corporation (the "Company"), and
[Name] ("Optionee").
WHEREAS, in consideration of Optionee executing and delivering to the
Company a Confidentiality/Non-Competition Agreement and pursuant to the
Universal Hospital Services, Inc. 1998 Stock Option Plan (the "Plan"), the
Company wishes to grant this stock option to Optionee;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto hereby agree as follows:
1. Definitions. For purposes of this Agreement, the following terms
shall be defined as set forth below:
(a) "Affiliate" shall mean any Person that directly or
indirectly controls, is controlled by, or is under common control with,
another Person.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Cause" shall mean (i) the continued failure by Optionee,
whether willful, intentional or grossly negligent, after written
notice, to perform substantially his or her duties as an employee of
the Company or any of its Subsidiaries, other than as a result of a
Disability, as defined below; (ii) dishonesty in the performance of the
Optionee's duties as an employee of the Company or any of its
Subsidiaries; (iii) conviction or confession of an act or acts on the
Optionee's part constituting a felony under the laws of the United
States or any state thereof; (iv) any willful act or omission on the
Optionee's part that is materially injurious to the financial condition
or business reputation of the Company or any of its Subsidiaries; (v) a
breach of any duty or obligation of noncompetition or confidentiality
owed by the Optionee to the Company or any of its Subsidiaries; or (vi)
a breach of any provision or covenant contained in any employment
agreement between the Optionee and the Company or any of its
Subsidiaries, which breach shall not have been cured within sixty days
after notice thereof from the Company to the Optionee.
(d) "Change of Control" shall mean when any "person" (as
defined in Section 13(d) and 14(d) of the Securities Exchange Act of
1934), other than the Company, J.W. Childs Equity Partners, L.P., any
trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any Subsidiary, or any corporation owned,
directly or indirectly, by the stockholders of the Company, in
substantially the same proportions as their ownership of stock of the
Company, acquires "beneficial ownership"
<PAGE>
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of
securities representing more than 50% of the combined voting power of
the Company (or, prior to a Public Offering, more than 50% of the
Company's outstanding shares of Common Stock).
(e) "Common Stock" shall mean shares of Common Stock, par
value $.01 per share, of the Company.
(f) "Company" shall mean Universal Hospital Services, Inc., a
corporation organized under the laws of the State of Minnesota, or any
successor corporation.
(g) "Disability" has the meaning ascribed to it in Section
22(e)(3) of the Internal Revenue Code of 1986, as amended.
(h) "EBITDA" shall mean, as of any date for which it is to be
determined, the consolidated earnings of the Company and its
subsidiaries before interest, taxes, depreciation and amortization and
after deduction of all operating expenses, all as calculated in
accordance with generally accepted accounting principles consistently
applied, as reflected in the Company's consolidated financial
statements for the four most recent consecutive fiscal quarters of the
Company ending at least 45 days prior to such date. Calculation of
EBITDA shall specifically exclude expenses related to (i) any payments
to J.W. Childs Associates; (ii) annual bank fees related to the Merger
and related financing transactions; (iii) Bazooka bed asset impairment
write-downs; and (iv) all severance payment incurred, accrued or paid
prior to the first anniversary of the closing of the Merger. In
addition, calculation of EBITDA shall specifically include pro forma
adjustments made to the compensation of certain members of the
Company's senior management.
(i) "Employment Agreement" shall mean that Employment
Agreement dated February , 1998 between Optionee and UHS Acquisition
Corp.
(j) "Good Reason" shall mean resignation by the Optionee from
his or her employment with the Company or any of its Subsidiaries
following and because of (i) the Company's reducing or reassigning a
material portion of the Optionee's duties, without Cause; (ii) a
reduction of the Optionee's base salary other than in connection with
an across-the-board reduction of executive compensation imposed by the
Board in response to negative financial results or other adverse
circumstances affecting the Company; (iii) illness of the Optionee,
that in the good faith determination of the Board of Directors of the
Company is likely to result in Optionee becoming disabled and unable to
continue employment with the Company; or (iv) the Company's breach of
Optionee's Employment Agreement in any material respect.
-2-
<PAGE>
(k) "Merger" shall mean the transactions contemplated by that
certain Agreement and Plan of Merger, dated November 25, 1997, by and
among UHS Acquisition Corp., a Minnesota corporation ("Merger Sub"),
J.W. Childs Equity Partners, L.P. and the Company, providing for, among
other things, the merger of Merger Sub with and into the Company, with
the Company being the surviving corporation in the Merger.
(l) "Person" has the meaning ascribed to it in Section
13(d)(3) or Rule 14(d)(2) of the Securities Exchange Act of 1934.
(m) "Plan" shall mean the Universal Hospital Services, Inc.
1998 Stock Option Plan, as amended from time to time.
(n) "Subsidiary" shall mean any corporation in an unbroken
chain of corporations beginning with the Company if, at the time of
granting of an Option, each of the corporations (other than the last
corporation in the unbroken chain) owns stock possessing 50% or more of
the total combined voting power of all classes of stock in one of the
other corporations in the chain.
2. Grant of Option. The Company hereby grants to Optionee the right and
option (the "Option") to purchase all or any part of an aggregate of [number]
shares (the "Option Shares") of the Common Stock of the Company at the price of
$1.55 per Option Share (the "Exercise Price") on the terms and conditions set
forth herein. It is understood and agreed that the Exercise Price is equal to
100% of the fair market value of each such Option Share on the date of this
Agreement. The Option is intended to be entitled to treatment as an incentive
stock option within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code").
3. Vesting of Option. The Option shall vest in accordance with
subparagraphs (a) through (d) of this Section 3, based on the Company's
achievement of the annual EBITDA targets set forth in Appendix A (subject to
audited results), as may be amended or revised in good faith by the Board, for
acquisitions, divestitures or other circumstances. Such annual EBITDA targets
are referred to herein respectively as the "Management Targets."
(a) Options to acquire between 0% and 20% of the total number
of shares of Option Shares shall vest on April 1 of each year,
beginning with April 1, 1999, provided that the Company meets or
exceeds 90% of the Management Target for the fiscal year preceding such
April 1, on a linear basis with the percentage of achievement of such
Management Target (such that, if, for example, the Company achieves 95%
of the Management Target, 10% of the total number of Option Shares
would vest).
(b) Options to acquire 20% of the total number of Option
Shares shall vest on April 1 of each year, beginning with April 1,
1999, provided that the Company meets or exceeds the Management Target
for the fiscal year preceding such April 1. No more than
-3-
<PAGE>
20% of the total number of Option Shares shall vest in any fiscal year,
except as noted in paragraph c. or d. below, or Section 5 below.
(c) Irrespective of the foregoing, if at the end of the fifth
fiscal year the Company: (i) on a cumulative basis meets the cumulative
Management Target for such period; and (ii) meets or exceeds the annual
Management Target for the fifth fiscal year, additional Options shall
then vest such that the total number of Option Shares for which the
Option shall be vested shall equal to 100%.
(d) Notwithstanding the foregoing, this Option shall vest with
respect to 100% of the total number of Option Shares, eight years
following the date of grant, provided that the Initial Optionee has
been continuously employed by the Company or any Subsidiary through
such date.
4. Manner of Exercise.
(a) The Option can be exercised only by Optionee or other
proper party by delivering within the option period written notice to
the Company at its principal office. The notice shall state the number
of shares as to which the option is being exercised and be accompanied
by payment in full of the option price for all shares designated in the
notice.
(b) Optionee may pay the option price in cash, by check (bank
check, certified check or personal check), by money order or with the
approval of the Company (i) by delivering to the Company for
cancellation shares of Common Stock of the Company with a fair market
value as of the date of exercise equal to the option price of the
portion thereof being paid by tendering such shares, or (ii) by
delivering to the Company a combination of cash and shares of Common
Stock of the Company with an aggregate fair market value and a
principal amount equal to the option price. For these purposes, the
fair market value of the Company's shares of Common Stock as of any
date shall be determined pursuant to the Plan.
(c) Until such time as the occurrence of a Public Offering, as
such term is defined in that Universal Hospital Services, Inc.
Stockholders' Agreement dated as of February 25, 1998 (the
"Stockholders' Agreement"), upon exercise of the Option, the Company
shall not issue any Option Shares until Optionee signs and assents to
the Stockholders' Agreement, unless at such time Optionee is already a
party to the Stockholders' Agreement.
5. Change of Control. In the event of a Change of Control, the unvested
Option Shares shall vest in a proportion equal to the ratio of Option Shares
that have actually vested at such time to the total number of Option Shares that
would have vested had the Company achieved the Management Target for all periods
prior to the Change of Control.
-4-
<PAGE>
6. Expiration. The Option shall expire, unless earlier exercised or
terminated, ten years from the date of grant.
7. Effect of Termination of Relationship with the Company.
(a) In the case of termination of Optionee's employment for
Cause or resignation without Good Reason, the Option shall terminate at
the time of termination of employment.
(b) In the case of termination of Optionee's employment
without Cause or the Optionee's resignation for Good Reason, the
portion of the Option that has vested at the time of termination or
resignation shall terminate three months after the date of employment
termination or resignation, and the portion of the Option that has not
vested shall terminate immediately.
(c) If the Optionee's employment is terminated due to death or
Disability, the portion of the Option that has vested at the time of
termination or resignation shall terminate six months after the date of
employment termination or death and may be exercised during such period
by the Optionee or his or her legal representative or estate, as the
case may be, and the portion of the Option that has not vested shall
terminate immediately.
8. Miscellaneous.
(a) The Option is issued pursuant to the Plan and is subject
to its terms. The Company hereby agrees that the Plan shall be
available for inspection during business hours at the principal office
of the Company.
(b) Prior to execution of this Agreement and in consideration
of the covenants made herein by the Company, Optionee shall have
executed and delivered to the Company a Confidentiality/Non-Competition
Agreement.
(c) This Agreement shall not confer upon Optionee any right
with respect to continuance of employment by the Company or any of its
subsidiaries, nor will it interfere in any way with the right of the
Company to terminate such employment at any time. Optionee shall have
none of the rights of a shareholder with respect to shares subject to
the Option until such shares shall have been issued to Optionee upon
exercise of the Option.
(d) The exercise of all or any parts of the Option shall only
be effective at such time that the sale of shares of Common Stock
pursuant to such exercise will not violate any state or federal
securities or other laws.
-5-
<PAGE>
(e) The Option may not be transferred, except by will or the
laws of descent and distribution to the extent provided in subsection
7(c) hereto, and during Optionee's lifetime the Option is exercisable
only by Optionee.
(f) If there shall be any change in the shares of Common Stock
of the Company through merger, consolidation, reorganization,
recapitalization, dividend in the form of stock (of whatever amount),
stock split or other change in the corporate structure of the Company,
and all or any portion of the Option shall then be unexercised and not
yet expired, then appropriate adjustments in the outstanding Option
shall be made by the Company, in order to prevent dilution or
enlargement of option rights. Such adjustments shall include, where
appropriate, changes in the number of Option Shares and the Exercise
Price.
(g) If Optionee shall dispose of any of the Option Shares
acquired by Optionee pursuant to the exercise of the Option within two
years from the date the Option was granted or within one year after the
transfer of any such shares to Optionee upon exercise of the Option,
then, in order to provide the Company with the opportunity to claim the
benefit of any income tax deduction which may be available to it under
the circumstances, Optionee shall promptly notify the Company of the
dates of acquisition and disposition of such shares, the number of
shares so disposed of, and the consideration, if any, received for such
shares. In order to comply with all applicable federal or state income
tax laws or regulations, the Company may take such action as it deems
appropriate to insure (i) notice to the Company of any disposition of
the Option Shares within the time periods described above and (ii)
that, if necessary, all applicable federal or state payroll,
withholding, income or other taxes are withheld or collected from
Optionee.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
UNIVERSAL HOSPITAL SERVICES, INC.
By
-------------------------------
Its
----------------------------
- ------------------------------
Optionee
-6-
<PAGE>
Appendix A
Management Targets
Fiscal Year Ended EBITDA Target ($000)
- --------------------------------------------------------------------------------
December 31, 1998 $29,709
December 31, 1999 32,977
December 31, 2000 36,445
December 31, 2001 40,314
December 31, 2002 44,635
-7-
<PAGE>
Exhibit 10.18
UNIVERSAL HOSPITAL SERVICES, INC.
NON-INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT, made as of this 17th day of March, 1998, by and between
Universal Hospital Services, Inc., a Minnesota corporation (the "Company"), and
[Name] ("Optionee").
WHEREAS, the Company pursuant to the Universal Hospital Services, Inc.
1998 Stock Option Plan (the "Plan") wishes to grant this stock option to
Optionee;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto hereby agree as follows:
1. Definitions. For purposes of this Agreement, the following terms
shall be defined as set forth below:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Cause" shall mean (i) the continued failure by Optionee,
whether willful, intentional or grossly negligent, after written
notice, to perform substantially his or her duties as an employee of
the Company or any of its Subsidiaries, other than as a result of a
Disability, as defined below; (ii) dishonesty in the performance of the
Optionee's duties as an employee of the Company or any of its
Subsidiaries; (iii) conviction or confession of an act or acts on the
Optionee's part constituting a felony under the laws of the United
States or any state thereof; (iv) any willful act or omission on the
Optionee's part that is materially injurious to the financial condition
or business reputation of the Company or any of its Subsidiaries; (v) a
breach of any duty or obligation of noncompetition or confidentiality
owed by the Optionee to the Company or any of its Subsidiaries; or (vi)
a breach of any provision or covenant contained in any employment
agreement between the Optionee and the Company or any of its
Subsidiaries, which breach shall not have been cured within sixty days
after notice thereof from the Company to the Optionee.
(c) "Change of Control" shall mean when any "person" (as
defined in Section 13(d) and 14(d) of the Securities Exchange Act of
1934), other than the Company, J.W. Childs Equity Partners, L.P., any
trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any Subsidiary, or any corporation owned,
directly or indirectly, by the stockholders of the Company, in
substantially the same proportions as their ownership of stock of the
Company, acquires "beneficial ownership" (as defined in Rule 13d-3
under the Securities Exchange Act of 1934) of securities representing
more than 50% of the combined voting power of the Company (or, prior to
a Public Offering, more than 50% of the Company's outstanding shares of
Common Stock).
(d) "Common Stock" shall mean shares of Common Stock, par
value $.01 per share, of the Company.
<PAGE>
(e) "Company" shall mean Universal Hospital Services, Inc., a
corporation organized under the laws of the State of Minnesota, or any
successor corporation.
(f) "Disability" has the meaning ascribed to it in Section
22(e)(3) of the Internal Revenue Code of 1986, as amended.
(g) "Employment Agreement" shall mean that Employment
Agreement dated February , 1998 between Optionee and UHS Acquisition
Corp.
(h) "Good Reason" shall mean resignation by the Optionee from
his or her employment with the Company or any of its Subsidiaries
following and because of (i) the Company's reducing or reassigning a
material portion of the Optionee's duties, without Cause; (ii) a
reduction of the Optionee's base salary other than in connection with
an across-the-board reduction of executive compensation imposed by the
Board in response to negative financial results or other adverse
circumstances affecting the Company; (iii) illness of the Optionee,
that in the good faith determination of the Board of Directors of the
Company is likely to result in Optionee becoming disabled and unable to
continue employment with the Company; or (iv) the Company's breach of
Optionee's Employment Agreement in any material respect.
(i) "Merger" shall mean the transactions contemplated by that
certain Agreement and Plan of Merger, dated November 25, 1997, by and
among UHS Acquisition Corp., a Minnesota corporation ("Merger Sub"),
J.W. Childs Equity Partners, L.P. and the Company, providing for, among
other things, the merger of Merger Sub with and into the Company, with
the Company being the surviving corporation in the Merger.
(j) "Plan" shall mean the Universal Hospital Services, Inc.
1998 Stock Option Plan, as amended from time to time.
(k) "Realized Value" shall mean cash and the market value of
registered securities, publicly traded securities and tradeable
securities that are not subject to transfer or restriction under Rule
144 of the Securities Acct of 1933.
(l) "Subsidiary" shall mean any corporation in an unbroken
chain of corporations beginning with the Company if, at the time of
granting of an Option, each of the corporations (other than the last
corporation in the unbroken chain) owns stock possessing 50% or more of
the total combined voting power of all classes of stock in one of the
other corporations in the chain.
2. Grant of Option. The Company hereby grants to Optionee the right and
option (the "Option") to purchase all or any part of an aggregate of [number]
shares (the "Option Shares") of the Common Stock of the Company at the price of
$1.55 per Option Share (the "Exercise Price") on the terms and conditions set
forth herein. It is understood and agreed that the Exercise Price is equal to
100% of the fair market value of each such Option Share on the date of this
Agreement. The Option is not intended to be entitled to treatment as an
incentive stock option
-2-
<PAGE>
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
3. Vesting of Option. The Option shall vest on the earlier of (i) a
date within five years following the Merger upon which (A) a Change in Control
shall have occurred and (B) on such date the original Common Stock investors of
the company shall have achieved a Realized Value on their original investment of
at least equal to the multiples set forth in Schedule I hereto for the
corresponding period or (ii) eight years following the date of the grant of the
Option.
4. Manner of Exercise.
(a) The Option can be exercised only by Optionee or other
proper party by delivering within the option period written notice to
the Company at its principal office. The notice shall state the number
of shares as to which the option is being exercised and be accompanied
by payment in full of the option price for all shares designated in the
notice.
(b) Optionee may pay the option price in cash, by check (bank
check, certified check or personal check), by money order or with the
approval of the Company (i) by delivering to the Company for
cancellation shares of Common Stock of the Company with a fair market
value as of the date of exercise equal to the option price of the
portion thereof being paid by tendering such shares, or (ii) by
delivering to the Company a combination of cash and shares of Common
Stock of the Company with an aggregate fair market value and a
principal amount equal to the option price. For these purposes, the
fair market value of the Company's shares of Common Stock as of any
date shall be determined pursuant to the Plan.
(c) Until such time as the occurrence of a Public Offering, as
such term is defined in that Universal Hospital Services, Inc.
Stockholders' Agreement dated as of February 25, 1998 (the
"Stockholders' Agreement"), upon exercise of the Option, the Company
shall not issue any Option Shares until Optionee signs and assents to
the Stockholders' Agreement, unless at such time Optionee is already a
party to the Stockholders' Agreement.
5. Expiration. The Option shall expire, unless earlier exercised or
terminated, ten years from the date of grant.
6. Effect of Termination of Relationship with the Company.
(a) In the case of termination of Optionee's employment for
Cause or resignation without Good Reason, the Option shall terminate at
the time of termination of employment.
(b) In the case of termination of Optionee's employment
without Cause or the Optionee's resignation for Good Reason, the
portion of the Option that has vested at the
-3-
<PAGE>
time of termination or resignation shall terminate three months after
the date of employment termination or resignation, and the portion of
the Option that has not vested shall terminate immediately.
(c) If the Optionee's employment is terminated due to death or
Disability, the portion of the Option that has vested at the time of
termination or resignation shall terminate six months after the date of
employment termination or death and may be exercised during such period
by the Optionee or his or her legal representative or estate, as the
case may be, and the portion of the Option that has not vested shall
terminate immediately.
7. Miscellaneous.
(a) The Option is issued pursuant to the Plan and is subject
to its terms. The Company hereby agrees that the Plan shall be
available for inspection during business hours at the principal office
of the Company.
(b) This Agreement shall not confer upon Optionee any right
with respect to continuance of employment by the Company or any of its
subsidiaries, nor will it interfere in any way with the right of the
Company to terminate such employment at any time. Optionee shall have
none of the rights of a shareholder with respect to shares subject to
the Option until such shares shall have been issued to Optionee upon
exercise of the Option.
(c) The exercise of all or any parts of the Option shall only
be effective at such time that the sale of shares of Common Stock
pursuant to such exercise will not violate any state or federal
securities or other laws.
(d) The Option may not be transferred, except by will or the
laws of descent and distribution to the extent provided in subsection
7(c) hereto, and during Optionee's lifetime the Option is exercisable
only by Optionee.
(e) If there shall be any change in the shares of Common Stock
of the Company through merger, consolidation, reorganization,
recapitalization, dividend in the form of stock (of whatever amount),
stock split or other change in the corporate structure of the Company,
and all or any portion of the Option shall then be unexercised and not
yet expired, then appropriate adjustments in the outstanding Option
shall be made by the Company, in order to prevent dilution or
enlargement of option rights. Such adjustments shall include, where
appropriate, changes in the number of Option Shares and the Exercise
Price.
(f) If Optionee shall dispose of any of the Option Shares
acquired by Optionee pursuant to the exercise of the Option within two
years from the date the Option was granted or within one year after the
transfer of any such shares to Optionee upon exercise of the Option,
then, in order to provide the Company with the opportunity to claim the
-4-
<PAGE>
benefit of any income tax deduction which may be available to it under
the circumstances, Optionee shall promptly notify the Company of the
dates of acquisition and disposition of such shares, the number of
shares so disposed of, and the consideration, if any, received for such
shares. In order to comply with all applicable federal or state income
tax laws or regulations, the Company may take such action as it deems
appropriate to insure (i) notice to the Company of any disposition of
the Option Shares within the time periods described above and (ii)
that, if necessary, all applicable federal or state payroll,
withholding, income or other taxes are withheld or collected from
Optionee.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
UNIVERSAL HOSPITAL SERVICES, INC.
By
--------------------------------
Its
-----------------------------
- ---------------------------
Optionee
-5-
<PAGE>
Schedule I
Realized value achieved prior to the Minimum multiple of realized value
following years after closing of Merger (1) to original Common Stock investors
- --------------------------------------------------------------------------------
Year 3 4.0x
Year 4 4.5x
Year 5 5.0x
(1) "Merger" shall mean the transactions contemplated by that certain
Agreement and Plan of Merger, dated November 25, 1997, by and among UHS
Acquisition Corp., a Minnesota corporation ("Merger Sub"), J.W. Childs
Equity Partners, L.P. and the Company, providing for, among other
things, the merger of Merger Sub with and into the Company, with the
Company being the surviving corporation in the Merger.
-6-
<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>
<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>
