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, X.X. 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).
(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 X.X. 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.
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(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"),
X.X. 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
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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.
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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.
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(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
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Its
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Optionee
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Appendix A
Management Targets
Fiscal Year Ended EBITDA Target ($000)
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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
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