10-K

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, 2008

or

o     Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from                  to                   .

Commission File Number: 000-20086

UNIVERSAL HOSPITAL SERVICES, INC.

(Exact name of registrant as specified in its charter)

Delaware	41-0760940
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

7700 France Avenue South, Suite 275

Edina, Minnesota 55435-5228

(Address of principal executive offices, including zip code)

(952) 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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o  No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes x No o

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 o  No x

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 this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Larger accelerated filer o	Accelerated filer o	Non-accelerated filer x
Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o     No x

The number of shares of common stock, $.01 par value, outstanding as of March 1, 2009 was 1,000.

DOCUMENTS INCORPORATED BY REFERENCE

None.

UNIVERSAL HOSPITAL SERVICES, INC.

TABLE OF CONTENTS

		PAGE
PART I
ITEM 1	Business	1
ITEM 1A	Risk Factors	19
ITEM 1B	Unresolved Staff Comments	29
ITEM 2	Properties	29
ITEM 3	Legal Proceedings	29
ITEM 4	Submission of Matters to a Vote of Security Holders	29
PART II
ITEM 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	30
ITEM 6	Selected Financial Data	30
ITEM 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
ITEM 7A	Quantitative and Qualitative Disclosures about Market Risk	63
ITEM 8	Financial Statements and Supplementary Data	64
ITEM 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	65
ITEM 9A(T)	Controls and Procedures	65
ITEM 9B	Other Information	67
PART III
ITEM 10	Directors, Executive Officers and Corporate Governance	67
ITEM 11	Executive Compensation	76
ITEM 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	103
ITEM 13	Certain Relationships, Related Transactions and Director Independence	106
ITEM 14	Principal Accounting Fees and Services	107
PART IV
ITEM 15	Exhibits and Financial Statement Schedules	108

PART I

ITEM 1:  Business

OUR COMPANY

Universal Hospital Services, Inc. (“we”, “our”, the “Company”, or “UHS”) is a leading nationwide provider of medical equipment outsourcing and lifecycle solutions to the United States health care industry. Our customers include national, regional and local acute and long term acute care hospitals, alternate site providers (such as long term acute care hospitals, skilled nursing facilities, specialty hospitals, large physician clinics, and home care providers) and medical equipment manufacturers.  We provide our customers solutions across the spectrum of the equipment life cycle as a result of our position as one of the industry’s largest purchasers and outsourcers of medical equipment.  We currently own or manage over 530,000 pieces of medical equipment. Our diverse medical equipment outsourcing customer base includes more than 4,125 acute care hospitals and approximately 4,025 alternate site providers.  We also have relationships with more than 200 medical equipment manufacturers and all of the nation’s largest group purchasing organizations (“GPOs”) and many of the integrated delivery networks (“IDNs”).  All of our solutions leverage our nationwide network of 84 offices and our more than 65 years of experience managing and servicing all aspects of medical equipment.  Our fees are paid directly by our customers rather than from direct reimbursement from third-party payors, such as private insurers, Medicare, or Medicaid.  We commenced operations in 1939, originally incorporated in Minnesota in 1954 and reincorporated in Delaware in 2001.

On May 31, 2007, UHS Holdco, Inc. (“Parent”) acquired all of the outstanding capital stock of the Company for approximately $712.0 million in cash less debt, tender premium and accrued interest and capitalized leases per the terms of the Agreement and Plan of Merger, dated as of April 15, 2007, by and among the Company, Parent and Parent’s wholly owned subsidiary, Merger Sub, and related documents which resulted in the occurrence of the events outlined in Note 3 to our audited financial statements in Part IV of this Annual Report on Form 10-K which we collectively refer to as the “Transaction” or the “Acquisition.”  Parent is owned by affiliates of Irving Place Capital Merchant Manager III, L.P. (formerly known as Bear Stearns Merchant Manager III, L.P.) and certain members of our management, whom we collectively refer to as the “equity investors.” Parent and Merger Sub are corporations that were formed, for the purpose of completing the Acquisition, by Bear Stearns Merchant Banking, which was affiliated with Bear Stearns & Co. Inc. and which became an independent firm on November 1, 2008, changing its name to Irving Place Capital (“IPC”).

In conjunction with the Acquisition, the Company initiated a cash tender offer to purchase its $260.0 million outstanding aggregate principal amount of its 10.125% Senior Notes due 2011, which the Company completed for $235.0 million of such notes on May 31, 2007, and Merger Sub issued $230.0 million in aggregate principal amount of its Floating Rate Notes due 2015 and $230.0 million in aggregate principal amount of its

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PIK Toggle Notes due 2015 (The PIK Toggle Notes and the Floating Rate Notes are collectively referred to as the “Notes”).  Concurrently with the closing of the Acquisition, Merger Sub merged with and into the Company, which was the surviving corporation and the Company assumed Merger Sub’s obligations with respect to the Notes and related second lien senior indenture dated as of May 31, 2007, between us and Wells Fargo Bank, National Association, as trustee (“Second Lien Senior Indenture”).

In 2007, the Acquisition and the allocation of the purchase price to the opening balance sheet accounts of the Successor were recorded as of the beginning of the first day of our new accounting period (June 1, 2007).

Although the Company continued as the surviving legal entity after the Acquisition, the accompanying information presents our results preceding the Acquisition (“Predecessor”) and the periods following the Acquisition (“Successor”).  All references to the year ended December 31, 2008 and seven months ended December 31, 2007 refer to our Successor results.  All references to the five months ended May 31, 2007 and years ended December 31, 2006, 2005 and 2004 refer to our Predecessor results.

As one of the nation’s leading medical equipment lifecycle solutions companies, we design and offer comprehensive solutions for our customers that help reduce capital and operating expenses while increasing equipment and staff productivity and supporting improved patient safety and outcomes.

We report our financial results in three segments to reflect how we manage our business. Our reporting segments consist of Medical Equipment Outsourcing, Technical and Professional Services, and Medical Equipment Sales and Remarketing. We evaluate the performance of our reporting segments based on gross margin and gross margin, before purchase accounting adjustments. The accounting policies of the individual reporting segments are the same as those of the entire company.  Our revenue, profits, and assets for our reporting segments for the prior three years are described in “Item 6 — Selected Financial Data.”

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Medical Equipment Outsourcing Segment - Manage & Utilize

Our flagship business is our Medical Equipment Outsourcing segment, which accounted for $223.7 million, or approximately 77.4%, of our revenues for the year ended December 31, 2008.  This segment represented 76.6%, 78.9%, and 78.6% of total revenue for the seven months ended December 31, 2007, five months ended May 31, 2007, and year ended December 31, 2006, respectively.  As of December 31, 2008 we owned or managed over 310,000 pieces of medical equipment, primarily in the categories of respiratory therapy, newborn care, critical care, patient monitors, patient handling (such as beds, stretchers and wheelchairs), pressure area management (such as therapy surfaces) and wound therapy.  Historically, we have purchased and owned directly the equipment used in our medical equipment outsourcing programs.  During 2007, the Company has entered into “revenue sharing” agreements with key manufacturers of equipment where the manufacturers retain ownership of the equipment, but UHS takes possession and manages the rental of the equipment to customers.  The Company may enter into more of such arrangements in the future.  Such arrangements are less capital intensive for the Company.

We currently provide outsourcing services to more than 4,125 acute care hospitals and 4,025 alternate site providers in the United States, including some of the nation’s premier health care institutions.

We have contracts in place with the leading national GPOs for both the acute care and alternate site markets.  We also have agreements directly with national acute care and alternate site providers. We expect much of our future growth in this segment to be driven by our customers outsourcing more of their medical equipment needs and taking full advantage of our diversified product offering, customized outsourcing agreements and Asset Management Partnership Programs (“AMPPs”).

Our Medical Equipment Outsourcing Programs provide a range of services for our customers:

·Supplemental and Peak Needs Usage. Our legacy equipment solution for customers is renting patient-ready, medical equipment on a supplemental or peak needs basis. Many of our customers have traditionally owned only the amounts and types of such equipment necessary to service their usual and customary patient census and their typical range of treatment offerings. Our customers rely on us to fulfill many of their equipment needs when they experience a spike or peak in patient census, do not have the resources to maintain their owned equipment in patient-ready condition or require equipment for less common treatments.  We rent equipment on a daily, monthly or pay-per-use basis.  Supplemental and peak needs activity is impacted by changes in hospital patient census and patient acuity, which typically fluctuate on a seasonal basis;

·Customized Outsourcing Agreements. We also offer our customers the opportunity to obtain medical equipment through tailored outsourcing

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agreements. By committing to a tailored outsourcing agreement, our customers are able to secure the availability of an identified pool of patient-ready equipment and to pay for it on a monthly, yearly or pay-per-use basis.  We continue to maintain and repair the equipment during the term of the agreement; and

·Asset Management Partnership Programs. Our AMPP solution allows our customers to fully outsource the responsibilities and costs of effectively managing medical equipment at their facilities, with the added benefit of enhancing equipment utilization. With UHS asset management, equipment types and quantities are adjusted to meet changes in patient census and acuity. Our employees work at the customers’ sites to integrate our equipment management process and proprietary management software technology tools into the customers’ day-to-day operations.  We assume full responsibility for delivering equipment where and when it is needed at the customer’s facility, removing equipment that is no longer in use and sanitizing, testing and repairing equipment as needed between each patient use. We also perform required training and ‘‘in service’’ sessions to keep our customers’ staffs fully-trained and knowledgeable about the use and operation of key equipment.  As of December 31, 2008, we had 49 AMPPs.

We believe that a multi-billion dollar market exists for these services, including the rental and management of medical equipment.

Our Medical Equipment Outsourcing Programs enable health care providers to replace the fixed costs of owning and/or leasing medical equipment with variable costs that are more closely related to their patient census and patient acuity. They also eliminate significant capital costs associated with equipment acquisitions and liability associated with equipment ownership.  The increased flexibility and solutions provided to our customers allows them to:

·access our extensive data and expertise on the cost, performance, features and functions of all major items of medical equipment;

·increase productivity of available equipment;

·reduce maintenance and management costs through the use of our technology and knowledgeable outsourcing staff;

·increase the productivity and satisfaction of their nursing staff by allowing them to focus on primary patient care responsibilities, leading to lower attrition rates;

·reduce the risk of hospital acquired infections;

·mitigate the risks and costs associated with product recalls or modifications;

·reduce equipment obsolescence risk; and

·facilitate compliance with regulatory and recordkeeping requirements and manufacturers’ specifications on tracking and maintenance of medical equipment.

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Technical and Professional Services Segment – Plan & Acquire; Maintain & Repair

Our Technical and Professional Services segment accounted for $45.2 million, or approximately 15.6%, of our revenues for the year ended December 31, 2008.  This segment represented 16.9%, 13.8%, and, 13.5% of total revenue for the seven months ended December 31, 2007, five months ended May 31, 2007, and year ended December 31, 2006, respectively.  We leverage our 65 plus years of experience and our extensive equipment database in repairing and maintaining medical equipment.  We offer a broad range of inspection, preventative maintenance, repair, logistic and consulting services through our team of approximately 350 technicians and professionals located throughout the United States in our nationwide network of offices, and managed over 210,000 units of customer owned equipment during 2008.  In addition we serviced over 310,000 units that we own or directly manage. As part of our strategy to grow our Technical and Professional Services segment, we acquired the assets of the ICMS division of Intellamed, Inc. on April 1, 2007.

Our Technical and Professional Services segment offerings provide a complementary alternative for customers that wish to own their medical equipment but lack the infrastructure, expertise, or scale to perform routine maintenance, repair, and lifecycle analysis and planning functions.

Our technicians are trained and certified on a wide range of equipment on an ongoing basis directly by equipment manufacturers. Current certifications are maintained and technicians are crossed trained to create valuable resources for our customers.  We also operate a quality assurance department to develop and document our own quality standards for our equipment.  We utilize proprietary recordkeeping software to record these services and the records we maintain meet the applicable standards of The Joint Commission, the National Fire Protection Association (“NFPA”) and the Food and Drug Administration (“FDA”). These maintenance records are available to our customers and to regulatory agencies to verify the maintenance of the equipment.  We have three primary service programs:

·Supplemental Maintenance and Repair Services.  We provide maintenance and repair services on a scheduled and unscheduled basis to supplement the customer’s current maintenance management practices.  As part of the supplemental and repair services, we provide service documentation that supports the customer’s regulatory reporting requirements.  Our maintenance and repair service offerings include fee-for-service arrangements, scheduled maintenance and inspection services, full service maintenance, inspection and repair services and vendor management services in which we manage the manufacturer and/or third-party vendors for service delivery, typically on laboratory and radiology equipment.

·Customized Health Care Asset Management Program (“CHAMP”).  We also provide full and part-time on site, resident-based equipment maintenance programs that deliver all the benefits of our supplemental maintenance and repair

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programs, but with the addition of a medical equipment management program.  This is a coordinated management of provider owned equipment utilizing UHS employees, subcontractors, and a broad range of equipment management consulting services. As of December 31, 2008, we had 138 resident CHAMPs within this segment.

·Consulting Services.  We provide equipment consulting services as part of our other equipment management programs or as stand alone services.  Some examples of our consulting services include technology baseline assessments, product comparison research and equipment utilization studies.

Customers

·Urban and Teaching Hospitals. We provide our services to large urban and teaching hospitals on a supplemental and fully outsourced basis. Our services are requested by in-house hospital biomedical departments on a supplemental basis because of our background and skill set with UHS standardized medical equipment.  Our presence allows hospital staffed biomedical departments to focus on high end technology and to alleviate the increasing workload demands on their in-house departments.

·Small Hospitals and Critical Access Hospitals. We offer full lifecycle asset management solutions, including professional and technical services, to small hospitals (those with fewer than 150 beds) and Critical Access Hospitals.  Critical Access Hospitals are rural community hospitals that receive cost-based Medicare reimbursement. These hospitals typically lack the scale and resources to create capital plans to evaluate, acquire, manage, maintain, repair and dispose of medical equipment, The UHS CHAMP program assumes the complete ownership of this process and consults with the hospital to create and implement this function.

·Alternate Site Providers. We offer our technical and repair services to alternate site providers (such long term acute care hospitals, skilled nursing facilities, specialty hospitals, large physician clinics and home health care providers). Our national infrastructure and presence allows our national customers to eliminate a fragmented local approach to a systematic singular solution. Our nationwide service and repair network allows equipment to be efficiently repaired on site, or picked up and repaired in one of our nationwide offices.

·Manufacturers. We provide our logistical and technical services to medical equipment manufacturers. Manufacturers utilize UHS to augment and support manufacturers’ current staffs that are experiencing service supply issues during peak needs and FDA recall issues or as a complete outsourced technical provider.  Our offerings include equipment logistics, parts and demo management programs. Work is performed on a depot or on-site basis. UHS offerings include warranty repair, non-warranty repair, product recall, field upgrades, routine maintenance, onsite installation, and in-service education.

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While our contracts with GPOs once were solely to provide medical equipment outsourcing services, we have expanded some of our agreements with these organizations to include Technical and Professional Services.

Medical Equipment Sales and Remarketing Segment - Redeploy & Remarket

Our Medical Equipment Sales and Remarketing segment accounted for $20.2 million, or approximately 7.0%, of our revenues for the year ended December 31, 2008.  This segment represented 6.5%, 7.3%, and 7.9% of total revenue for the seven months ended December 31, 2007, five months ended May 31, 2007, and year ended December 31, 2006, respectively.  This segment includes three distinct business activities:

·Medical Equipment Remarketing and Disposal. We are one of the nation’s largest buyers and sellers of pre-owned medical equipment.  We buy, source, remarket and dispose of pre-owned medical equipment for our customers through our Asset Recovery Program.  This program provides our customers with the ability to sell their unneeded assets for immediate cash or credit. We provide fair market value assessments and buy-out proposals on equipment the customer intends to trade in for equipment upgrades so that the customer can evaluate the manufacturer’s offer.  Customers can also take advantage of our disposal services, pursuant to which we dispose of equipment that has no remaining economic value in a safe and environmentally appropriate manner, in all material respects.

UHS remarkets pre-owned medical equipment to hospitals, alternate site providers, veterinarians and equipment brokers.  This segment of our business focuses on providing solutions to customers that have capital budget dollars available. We offer a wide range of equipment from our standard medical equipment to diagnostic, ultrasound and x-ray equipment.

·Specialty Medical Equipment Sales and Distribution. We use our national infrastructure to provide sales and distribution for manufacturers of specialty medical equipment on a limited and exclusive basis.  Our distribution services include providing demo services and product maintenance services.  We act as a distributor for only a limited number of products that are particularly suited to our national distribution network or that fit with our ability to provide technical support.  We currently sell equipment in selected product lines including, but not limited to, respiratory percussion vests, continuous passive motion machines, patient monitors, patient handling equipment and infant security systems.

·Sales of Disposables. We offer our customers single use disposable items.  Most of these items are used in connection with our outsourced equipment.  We offer these products as a convenience to customers and to complement our full medical equipment lifecycle solutions.

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BUSINESS OPERATIONS

District Offices

We currently operate 84 market based district offices, which allow us to provide our equipment lifecycle solutions to customers in virtually all markets throughout the United States.  Each district office is responsible for servicing their local healthcare market.  Each office maintains an inventory of locally demanded equipment, parts, supplies, and other items tailored to accommodate the needs of individual customers within its geographical area.   Should additional or unusual equipment be required by one of our customers, a district office can draw upon the resources of all of our other districts.  With access to over 310,000 owned or managed pieces of equipment available for customer use, we can most often obtain the necessary equipment within 24 hours.

Depending on the district office size and demands, our district offices are staffed by multi-disciplined teams of sales professionals, service representatives, customer service technicians, and biomedical equipment technicians trained to provide the spectrum of services we offer our customers.  Employees providing resident based services through our AMPP and CHAMP programs are supported by site based managers and/or the district offices in the markets where their customers are located.

Centers of Excellence

Our district office network is supported by six strategically located technical Centers of Excellence.  These Centers focus on providing highly specialized technical services and support.  The Centers of Excellence also provide overflow support, technical expertise, training programs, and specialized depot service functions for our district offices.  All specialized depot work required by our manufacturer customers resides within these Centers of Excellence.  All six of our Centers of Excellence are certified as being in compliance with International Organization for Standardization (“ISO”) 9001:2000 and ISO 13485:2003 standards as a quality commitment to our customers.

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Centralized Functions

Our corporate office is located in Edina, Minnesota. We have centralized many of the key elements of our equipment and service offerings in order to create standardization, and to maximize our operating efficiencies and uniformity of service.  Some of the critical aspects of our business that we have centralized include contract administration, purchasing, pricing, logistics and information technology.

Rental Equipment Fleet

We acquire or manage medical equipment to meet our customers’ needs in seven primary product areas: respiratory therapy, newborn care, critical care, patient monitors, patient handling, pressure area management and wound therapy.  We maintain one of the most technologically advanced equipment fleets in the industry, routinely acquiring new and pre-owned equipment to enhance our fleet.  Our specialized equipment portfolio managers evaluate new products each year to keep abreast of current market technology and to determine whether to add new products to our equipment fleet.  In making equipment purchases, we consider a variety of factors, including manufacturer credibility, repair and maintenance costs, anticipated user demand, equipment mobility and anticipated obsolescence.  Historically, we have purchased and owned directly the equipment used in our medical equipment outsourcing programs.  During 2007, we entered into “revenue sharing” agreements with key manufacturers of equipment where the manufacturers retain ownership of the equipment, but we take possession and manage the rental of the equipment to customers.  We may enter into more of such arrangements

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in the future.  As of December 31, 2008, we owned or managed over 310,000 pieces of equipment available for use by our customers.

Our ten largest manufacturers of medical equipment supplied approximately 66% (measured in dollars spent) of our direct medical equipment purchases.  In 2008, our two largest medical equipment suppliers accounted for approximately 21% and 14% of our medical equipment purchases (measured in dollars spent).

We seek to ensure availability of equipment at favorable prices. We generally do not enter into long-term fixed price contracts with suppliers of our equipment.  We may receive price discounts related to the volume and timing of our purchases. The purchase price we pay for equipment generally averages in the range of $1,000 to $35,000 per item.

OUR STRENGTHS

We believe our business model presents an attractive value proposition to our customers and has resulted in significant growth in recent years.  We service customers across the spectrum of the equipment lifecycle as a result of our position as one of the industry’s largest purchasers, outsourcers and resellers of medical equipment.

We attribute our historical success to, and believe that our potential for future growth comes from, the following strengths:

Unique position in the health care arena.  We believe that we are the only national company providing full medical equipment lifecycle services to the health care industry.  While we have competitors that may offer products and services in various stages of the lifecycle, none provide the comprehensive approach to customers that we do.  Our extensive relationships with more than 4,125 hospitals, approximately 4,025 alternate site providers, over 200 medical equipment manufacturers and the nation’s most prominent GPOs and IDNs, many of which are long-standing, present a unique position and value proposition in the health care arena.

We are uniquely positioned in the health care industry as a result of our:

·investment in our large and modern fleet of medical equipment;

·diversified product offering and customized solutions;

·nationwide infrastructure for service and logistics;

·proprietary medical equipment management software and tools;

·commitment to customer service that has earned us a reputation as a leader in quality, value, and service in our industry; and

·extensive knowledge and experience in acquiring, managing, maintaining and remarketing medical equipment.

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Large, modern equipment fleet.  We own or manage an extensive, modern fleet of medical equipment, consisting of over 310,000 units available for use to our customers. This modern equipment fleet, along with our quality assurance programs and tools, places us in a leadership position in the areas of quality and patient safety.  It also places us in a unique position to service “high end” acute care hospitals, such as teaching, research or specialty institutions that demand the most current technology to satisfy the increasingly complex needs of their patients.

Nationwide infrastructure.  We have a broad, nationwide staff, facility, and vehicle service network coupled with focused and customized operations at the local level. Our extensive network of district offices and Centers of Excellence and our 24-hours-a-day, 365 days-a-year service capabilities enable us to compete effectively for large, national contracts as well as to drive growth regionally and locally.

Proprietary software and asset management tools.  We have used our more than 65 years of experience and our extensive database of equipment management information to develop sophisticated software technology and management tools.  These tools have allowed us to become a leader in meeting the demands of customers by delivering sophisticated asset management programs that we use to drive cost efficiencies, equipment productivity, caregiver satisfaction, and better patient outcomes.  We believe that our continued and significant investment in new tools and technology will help us to continue to distinguish our self to the health care industry.

Superior customer service.  We have a long-standing reputation among our customers for outstanding service and quality.  This reputation is largely due to our strong customer service culture, which is continuously reinforced through management commitment and significant investment in hiring and training resources.  We strive to seamlessly integrate our employees and service offerings into the operations of our customers.  This aggressive focus on customer service has helped us achieve a high customer retention rate.

Proven management team.  We have an industry leading management team with significant depth of health care experience.  Our management team has successfully supervised the development of our competitive strategy, continually enhanced and expanded our service and product offerings, established our nationwide coverage and furthered our reputation as an industry leader for quality, value, and service.

Industry with favorable fundamentals.  Our business benefits from the overall favorable trends in health care in general and our segments in particular.  There is a fundamental shift in the needs of hospitals and alternate site providers from supplemental and peak needs supply of medical equipment to full equipment lifecycle asset management programs.  This move to full outsourcing is not unlike trends in similar services at hospitals including food service, laundry, professional staffing and technology.  The strong fundamentals in medical equipment outsourcing are being driven by the following trends:

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·Favorable demographic trends.  According to the U.S. Census Bureau, individuals aged 65 and older in the United States comprise the fastest growing segment of the population.  This segment is expected to grow to approximately 72 million by 2030 with the first baby boomer turning 65 in 2011.  As a result, over time, the number of patients and the volume of hospital admissions are expected to grow.  The aging population and increasing life expectancy are driving demand for health care services.

·Increase in obesity.  The U.S. population is getting heavier, with 49 states now having obesity prevalence rates over 20%, compared to zero states with such rates in 1996 (Source: CDC U.S. Obesity Trends 1985-2007). Therefore, health care facilities must be prepared for the needs of obese and morbidly obese patients.

·Increased capital and operating expense pressures.  As hospitals continue to experience restricted capital and operating budgets, and while the cost and complexity of medical equipment increases, we expect that hospitals will increasingly look to us to source these capital equipment needs and manage medical equipment to achieve capital and operating expense savings and efficiencies.

·Caregiver retention and satisfaction.  Hospitals continue to experience nursing and other caregiver retention and job satisfaction pressures.  We expect that with these internal pressures, hospitals will increasingly turn to our programs to outsource medical equipment management duties and related management challenges.

·Demand for better patient safety and outcomes.  Hospitals across the United States are focused on improving patient safety and outcomes, which includes efforts to minimize the incidence of hospital-acquired infections, patient falls and pressure ulcers.  Hospitals turn to us to assist them in managing their equipment to help them to minimize these incidents, thereby improving patient safety and outcomes while reducing the cost of these events.

Strong value proposition.  With our focus and expertise in medical equipment lifecycle solutions, we are able to create a strong value proposition for our customers.  All of our equipment lifecycle solutions focus on delivering our customers with:

·lower capital and operating costs;

·enhanced staff productivity and satisfaction; and

·improved patient safety and outcomes.

No direct third-party payor reimbursement risk.  Many health care providers rely on payment from patients or reimbursement from third-party payors. Our fees are paid directly by our customers, rather than by third-party payors, such as Medicare, Medicaid, managed care organizations or indemnity insurers. Accordingly, our exposure to

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uncollectible patient or reimbursement receivables or Medicare or Medicaid reimbursement changes is reduced, as evidenced by our bad debt expense of approximately 0.7% of total revenues for the year ended December 31, 2008.

GROWTH STRATEGY

Historically, we have experienced significant and sustained organic and strategic growth.  Our overall growth strategy is to continue to grow both organically and through strategic acquisitions.

Organic Growth

We believe that the following external and market factors will provide us significant growth opportunities:

·the aging population;

·increasing life expectancy;

·increasing obesity and patient acuity;

·continued increase in the number and sophistication of medical technologies;

·increasing cost and staffing pressures in hospitals;

·continuing growth of outsourcing of non-core functions by hospitals, alternate site providers and manufacturers; and

·increasing demand by payors and providers for equipment based solutions.

Our organic growth will be driven internally by the following factors:

·growing our rental business through customer education and increasing the numbers and types of equipment we offer in our programs;

·converting transactional rental and biomedical service customers to fully outsourced resident-based programs;

·growing our less capital intensive technical and professional services, equipment sales and remarketing and outsourcing revenue share businesses;

·increasing the number of hospitals, alternative care facilities and manufacturers to which we provide services;

·expanding our relationships with GPOs and other national account customers;

·leveraging our broad range of service offerings to give us opportunities to serve new customers and to provide new services to existing customers; and

·expanding existing offerings and developing new solutions for our customers.

Acquisitions

Since 2005, we have made and successfully integrated two acquisitions that have helped us expand our business by increasing our market share in existing markets, adding additional service offerings, and enabling us to penetrate new geographic regions.  We

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intend to continue to pursue a disciplined course of growing our business with complementary acquisitions, and we regularly evaluate potential acquisitions.

COMPETITION

An analysis of our competition as it relates to our three business segments follows:

Medical Equipment Outsourcing Segment

We believe that the strongest competition to our Medical Equipment Outsourcing solutions lies in the direct purchase or lease of equipment by our customers or potential customers, and assuming management of this equipment themselves. Currently, many acute care hospitals and alternate site providers view outsourcing primarily as a means of meeting short-term or peak supplemental needs, rather than as a long-term alternative to purchasing or leasing equipment and managing that equipment through its full lifecycle. Although we believe that we can demonstrate the cost-effectiveness of outsourcing patient-ready medical equipment and its management in the health care setting, we believe that many health care providers will continue to purchase or lease and manage internally a substantial portion of their medical equipment until they are educated in the advantages and efficiencies of outsourcing.

Our two largest national competitors in medical equipment outsourcing are Hill-Rom Holdings, Inc. (competes most directly in patient handling equipment, beds, and some general medical equipment) and Kinetic Concepts, Inc (competes in negative pressure wound therapy and therapy surfaces).  Our other competition consists of regional or local companies and some medical equipment manufacturers and dealers that provide equipment outsourcing to augment their medical equipment sales.

Technical and Professional Services Segment

We face significant and direct competition in the technical and professional services area from many national, regional and local service providers, as well as from medical equipment manufacturers.  In addition, many of our customers choose to perform these functions using their own personnel.  We believe that through our nationwide network of highly trained technicians, strong customer relationships and extensive equipment database, we offer customers an attractive alternative for performing biomedical repair services on their equipment.

Medical Equipment Sales and Remarketing Segment

In medical equipment sales, we face significant direct competition from a variety of manufacturers and distributors on a nationwide basis, which compete primarily based on price.  As a result, we are selective in our pursuit of these opportunities.  The equipment remarketing market is highly fragmented with low barriers to entry.  In addition to manufacturers seeking to control the remarketing and disposal of their own products, we

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compete with a number of localized or specialized providers of remarketing and disposal services.

EMPLOYEES

We had 1,451 regular employees as of December 31, 2008, including 1,330 full-time and 121 part-time employees. Of such employees, 145 were sales representatives, 1,190 were operations personnel and 116 were employed in corporate support functions.

None of our employees are covered by a collective bargaining agreement, and we have experienced no work stoppages to date. We believe that our relations with our employees are good.

INTELLECTUAL PROPERTY

We use ‘‘UHS®’’ and the UHS logo in connection with our services and have registered these marks with the United States Patent and Trademark Office.  We also have registered “Equipment Lifecycle Services®,” the Equipment Lifecycle Services logo and “CHAMP®” with the United States Patent and Trademark Office.  United States service mark registrations are generally for a term of 10 years, renewable every 10 years if the mark is used in the regular course of business.

We have a domain name registration for UHS.com, which serves as our main website, and my.UHS.com and myservice.UHS.com, which are web-based tools that provide 24 hour on-demand access to equipment reports for all equipment outsourced or maintained by us.

We have developed a number of proprietary software programs to directly service or support our customers including the Asset Information Management System for Central Services (“AIMS/CS”), Resource for Equipment Documentation System (“REDS”) and Operator Error Identification System (“OEIS”).  AIMS/CS is a medical equipment inventory management system that allows UHS to track the location and usage of equipment we are managing at the customers location in our AMPP program. Our proprietary REDS and OEIS programs are specifically designed to help customers meet medical equipment documentation and reporting needs under applicable regulations and standards, such as those promulgated by the FDA and The Joint Commission.  We have also developed proprietary software tools that allow our employees to manage and maintain our extensive equipment fleet and serve our customers more effectively and efficiently.

While our proprietary software programs and tools are important, no one such item or group of such items is of material significance to us as a whole.

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MARKETING

We market our programs primarily through our direct sales force, which consisted of 145 professional sales representatives as of December 31, 2008.  Our direct sales force is organized into two regions and ten sales divisions.  We support our direct sales force with clinicians and solution specialists, who provide expert support to our AMPPs and CHAMPs and for our patient handling and wound care solutions.  Our national accounts team also supports our direct sales force through its focus on securing GPO, IDN and alternate care national and regional contracts.

We also market through our website, www.uhs.com, participation in numerous national and regional conventions and interaction with industry groups and opinion leaders.

In our marketing efforts, we primarily target key decision makers, such as administrators, chief executive officers, chief financial officers, chief medical officers, and chief nursing officers as well as directors and managers of functional departments, such as materials management, purchasing, pharmacy, biomedical services, and central supply. We also promote our programs and services to hospital, manufacturer, and alternate site provider groups and associations.

SEASONALITY/BUSINESS INTERRUPTION

Quarterly operating results are typically affected by seasonal factors.  Historically, our first and fourth quarters are the strongest, reflecting increased hospital census and patient acuity during the fall and winter months.  Our business can also be impacted by natural disasters, such as hurricanes and earthquakes, which affect our ability to transfer equipment to and from our customers and equipment recalls, which can cause equipment to be removed from market use.  We also see declines in our business in down economic cycles with high levels of unemployment. Our customers typically see weaker census and higher levels of indigent patients during these times, causing them to use fewer of our solutions.

REGULATORY MATTERS

Sarbanes-Oxley

There were no significant external costs incurred during the years ended December 31, 2008, 2007 and 2006, related to compliance with Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX”).  On June 26, 2008, the Securities and Exchange Commission (“SEC”) announced that the compliance date for non-accelerated filers (such as UHS) to include in their annual reports an auditor’s attestation report on internal control over financial reporting was extended to the first fiscal year ending on or after December 15, 2009.

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Regulation of Medical Equipment

Our customers are subject to documentation and safety reporting regulations and standards with respect to the medical equipment they use, including those established by the FDA, The Joint Commission and the NFPA. Some states and municipalities also have similar regulations.

Our REDS and OEIS programs (see description under the heading “Intellectual Property” in Item 1 of this Annual Report on Form 10-K) are specifically designed to help customers meet documentation and reporting needs under such regulations and standards. We also monitor changes in regulations and standards and work to accommodate the needs of customers by providing specific product and manufacturer information upon request. Manufacturers of medical equipment are subject to regulation by agencies and organizations such as the FDA, Underwriters Laboratories and the NFPA. We believe that all medical equipment we outsource conforms to these regulations.

The Safe Medical Devices Act of 1990 (“SMDA”), which amended the Food, Drug and Cosmetic Act (“FDCA”), requires manufacturers, user facilities and importers of medical devices to report deaths and serious injuries which a device has or may have caused or to which a device has or may have contributed.  In addition, the SMDA requires the establishment and maintenance of adverse event files and various other FDA reports. Manufacturers and importers are also required to report certain device malfunctions. We work with our customers to assist them in meeting their reporting obligations under the FDCA, including those requirements added by the SMDA.

As a distributor of medical devices, we are required by the FDCA to maintain device complaint records containing any incident information regarding the identity, quality, durability, reliability, safety, effectiveness or performance of a device. We are required to retain copies of these records for a period of two years from the date of inclusion of the record in the file or for a period of time equivalent to the expected life of the device, whichever is greater, even if we cease to distribute the device.  Finally, we are required to provide authorized FDA employees access to copy and verify these records upon their request. We have current compliance records regarding maintenance, repairs, modification and user-error with respect to all of our equipment.

Besides the FDA, a number of states regulate medical device distributors and wholesalers either through pharmacy or device distributor licensure. Currently, we hold such licenses in 14 states. Some licensure regulations and statutes in additional states may apply to our activities. Although our failure to possess such licenses in these states for our existing operations may subject us to certain monetary fines, we do not believe the extent of such fines, in the aggregate, would be material to our liquidity, financial condition or results of operation.

In addition, we are required to provide information to the manufacturer regarding the permanent disposal or any change in ownership of certain categories of medical

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outsourcing equipment. We believe our medical equipment tracking systems are in material compliance with these regulations.

The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) applies to certain covered entities, including health plans, health care clearinghouses and health care providers.  HIPAA regulations protect individually identifiable health information, including information in an electronic format, by, among other things, setting forth specific standards under which such information may be used and disclosed, providing patients rights to obtain and amend their health information and establishing certain administrative requirements for covered entities.

Because of our self-insured health plans, we are a covered entity under the HIPAA regulations.  Also, we may be obligated contractually to comply with certain HIPAA requirements as a business associate of various health care providers.  In addition, various state legislatures have enacted and may continue to enact additional privacy legislation that is not preempted by the federal law, which may impose additional burdens on us.  Moreover, other federal privacy legislation may be enacted.  Accordingly, we have made and, as new standards go into effect, we expect to continue to make administrative, operational and information infrastructure changes in order to comply with these requirements.

Third-Party Reimbursement

Our fees are paid directly by our customers rather than through direct reimbursement from third-party payors, such as Medicare or Medicaid.  We do not bill the patient, the insurer or other third-party payors directly for services provided for hospital or alternate site provider inpatients or outpatients.  Sometimes our customers are eligible to receive third-party reimbursement for our services. Consequently, the reimbursement policies of such third-party payors have a direct effect on the ability of health care providers to pay for our services and an indirect effect on our level of charges.  Also, in certain circumstances, third-party payors may take regulatory or other action against service providers even though the service provider does not receive direct reimbursement from third-party payors.

Hospitals and alternate site providers face 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 continue to place controls on the reimbursement and utilization of health care services. We believe that these payors have followed or will follow the government in limiting the services that are reimbursed and in exerting downward pressure on prices. In addition to promoting managed care plans, employers are increasingly self funding their benefit programs and shifting costs to employees through increased deductibles, co-payments and employee contributions.  Hospitals and health care facilities are also experiencing an increase in uncompensated care or “charity care,” which causes increased economic pressures on these organizations.  We believe that these cost reduction efforts will place additional pressures on health care providers’ operating

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margins and will encourage efficient equipment management practices such as the use of our outsourcing and AMPP solutions.

Liability and Insurance

Although we do not manufacture any medical equipment, our business entails the risk of claims related to the outsourcing, sale and service of medical equipment.  In addition, our instruction of hospital and alternate site provider employees with respect to the use of equipment and our professional consulting services are sources of potential claims.  We have not suffered a material loss due to a claim.  However, any such claim, if made, could have a material adverse effect on our business.  While we do not currently provide any services that require us to work directly with patients, expansion of services in the future could involve such activities and subject us to claims from patients.

We maintain a number of insurance policies, including commercial general liability coverage (product and premises liability insurance), automobile liability insurance, worker’s compensation insurance and professional liability insurance.  We also maintain excess liability coverage.  Our policies are subject to annual renewal.  We believe that our current insurance coverage is adequate.  Claims exceeding such coverage may be made and we may not be able to continue to obtain liability insurance at acceptable levels of cost and coverage.

ITEM 1A:  Risk Factors

Our business faces many risks.  Any of the risks discussed below, or elsewhere in this Form 10-K or our other filings with the SEC, could have a material impact on our business, financial condition or results of operations.  Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business operations.

Our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations under our indebtedness.

We have a significant amount of indebtedness which could have important consequences.

For example, it could:

·make it more difficult for us to satisfy our debt obligations;

·increase our vulnerability to general adverse economic, industry and competitive conditions;

·require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, research and development efforts and other general corporate purposes;

·limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

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·place us at a competitive disadvantage compared to our competitors that have less leverage;

·limit our ability to borrow additional funds;

·limit our ability to make investments in technology and infrastructure improvements; and

·limit our ability to make significant acquisitions.

Our ability to satisfy our debt obligations will depend on our future operating performance.  This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.  Our business may not continue to generate sufficient cash flow from operations and future borrowings may not be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.  If we are unable to make our interest payments or to repay our debt at maturity, we may have to obtain alternative financing, which may not be available to us.

If the patient census of our customers decreases, the revenues generated by our business could decrease.

Our operating results are dependent in part upon the amount and types of equipment necessary to service our customers’ needs, which are heavily influenced by the total number of patients our customers are serving at any time (which we refer to as “patient census”).  At times of lower patient census, our customers have a decreased need for our services on a supplemental or peak needs basis. Our operating results can vary depending on, for example, a pullback in consumers’ use of non-essential health care services, the timing and severity of the cold and flu season, local, regional or national epidemics, and the impact of national catastrophes, as well as other factors affecting patient census.

If we are unable to fund our significant cash needs, we may be unable to expand our business as planned or to service our debt.

We require substantial cash to operate our Medical Equipment Outsourcing programs and service our debt. Our outsourcing programs require us to invest a significant amount of cash in medical equipment purchases. To the extent that such expenditures cannot be funded from our operating cash flow, borrowings under our senior secured credit facility or other financing sources, we may not be able to grow as currently planned. We currently expect that over the next 12 months, we will invest approximately $60.0 million in new and pre-owned medical equipment and other capital expenditures. This estimate is subject to numerous assumptions, including revenue growth, the number of AMPP signings, and any significant changes in GPO contracts.  In addition, a substantial portion of our cash flow from operations must be dedicated to servicing our debt and there are significant restrictions on our ability to incur additional indebtedness under the Second Lien Senior Indenture and the credit agreement governing our senior secured credit facility.

Primarily because of our debt service obligations and debt refinancing charges and elevated depreciation and amortization charges we have incurred subsequent to the

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Transaction, we have had a history of net losses. If we consistently incur net losses, it could result in our inability to finance our business in the future. We had net income (loss) of $(23.5), $(16.1), $(47.5), and $0.1 million during the year ended December 31, 2008, seven months ended December 31, 2007, five months ended May 31, 2007, and year ended December 31, 2006, respectively. Our ability to use our United States federal income tax net operating loss carryforwards to offset our future taxable income may be limited. If we are limited in our ability to use our net operating loss carryforwards in future years in which we have taxable income, we will pay more current taxes than if we were able to utilize our net operating loss carryforwards without limitation, which could harm our results of operations and liquidity.

We may not be able to obtain funding on acceptable terms or at all under our existing credit facilities or otherwise because of the deterioration of the credit and capital markets. Thus, we may be unable to expand our business as planned or to service our debt.

Global financial markets and economic conditions have been, and continue to be, disrupted and volatile due to a variety of factors, including significant write-offs in the financial services sector and the current weak economic conditions. As a result, the cost of raising money in the debt and equity capital markets has increased substantially while the availability of funds from those markets has diminished significantly. In particular, as a result of concerns about the stability of financial markets and the solvency of lending counterparties, the cost of obtaining money from the credit markets generally has increased as many lenders and institutional investors have increased interest rates, enacted tighter lending standards, refused to refinance existing debt on similar terms or at all and reduced, or in some cases ceased, to provide funding to borrowers. In addition, lending counterparties under our existing revolving credit facilities may be unwilling or unable to meet their funding obligations. If funding is not available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come due.  Moreover, without adequate funding, we may be unable to execute our growth strategy, complete future acquisitions, or take advantage of other business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our revenues and results of operations.

We have risks related to our pension plan, which could impact our financial position.

The Company has a defined benefit pension plan covering certain current and former employees.  While benefits under the pension plan were frozen in 2002, funding obligations under our pension plan continues to be impacted by the performance of the financial markets.  If the financial markets do not provide the long-term returns that are expected, the likelihood of our being required to make contributions will increase. The equity markets can be, and recently have been, very volatile, and therefore our estimate of future contribution requirements can change dramatically in relatively short periods of time.

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If we are unable to change the manner in which health care providers traditionally procure medical equipment, we may not be able to achieve significant revenue growth.

We believe that the strongest competition to our outsourcing solutions is the direct purchase or lease of medical equipment, and self-management of that equipment. Many acute care hospitals and alternate site providers view outsourcing primarily as a means of meeting short-term or peak supplemental needs, rather than as a long-term, effective and cost efficient alternative to purchasing or leasing equipment. Many health care providers may continue to purchase or lease a substantial portion of their medical equipment and to manage and maintain it on their own.

Our competitors may engage in significant price competition or liquidate significant amounts of surplus equipment, thereby decreasing the demand for outsourcing services and possibly causing us to reduce the rates we charge for our services.

Our competition may engage in competitive practices that may undercut our pricing. In addition, a competitor may liquidate significant amounts of surplus equipment, thereby decreasing the demand for outsourcing services and possibly causing us to reduce the rates we may charge for our services.

We have relationships with certain key suppliers, and adverse developments concerning these suppliers could delay our ability to procure equipment or increase our cost of purchasing equipment.

We purchased medical equipment from over 175 manufacturers in 2008.  Our ten largest manufacturers of medical equipment accounted for approximately 66% of our direct medical equipment purchases in 2008. Adverse developments concerning key suppliers or our relationships with them could force us to seek alternative sources for our medical equipment or to purchase such equipment on unfavorable terms. A delay in procuring equipment or an increase in the cost to purchase equipment could limit our ability to provide equipment to our customers on a timely and cost-effective basis. If we are unable to have access to parts or if manufacturers do not provide access to equipment manuals or training, we may not be able to provide certain technical and professional services.

A substantial portion of our revenues comes from customers with which we do not have long-term commitments, and cancellations by or disputes with customers could decrease the amount of revenues we generate, thereby reducing our ability to operate and expand our business.

For the year ended December 31, 2008, approximately 63% of our outsourcing revenue was derived from customers or customers affiliated with a GPO with which we have contractual commitments. The source of the remaining 37% of revenue was from customers with no such contractual commitment. Our customers are generally not obligated to outsource our equipment under long-term commitments. In addition, many of our customers do not sign written agreements with us fixing the rights and obligations of the parties regarding matters such as billing, liability, warranty or use. Therefore, we

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face risks such as fluctuations in usage, inaccurate or false reporting of usage by customers and disputes over liabilities related to equipment use. We do not have written agreements with some of our AMPP customers for which we provide a substantial portion of the medical equipment that they use and provide substantial staffing resources. These arrangements could be terminated by the health care customer without notice or payment of any termination fee. A large number of such terminations may adversely affect our ability to generate revenue growth and sufficient cash flows to support our growth plans.

If we are unable to renew our contracts with GPOs or IDNs, we may lose existing customers, thereby reducing the amount of revenues we generate.

Our past revenue growth and our strategy for future growth depends, in part, on access to the new customers granted by our major contracts with GPOs and IDNs. In the past, we have been able to renew such contracts when they were up for renewal. If we are unable to renew our current GPO or IDN contracts, we may lose a portion of existing business with the customers who are members of such GPOs and IDNs.

Although we do not manufacture any medical equipment, our business entails the risk of claims related to the medical equipment that we outsource and service. We may not have adequate insurance to cover a claim, and it may be more expensive or difficult for us to obtain adequate insurance in the future.

We may be liable for claims related to the use of our medical equipment or to our maintenance or repair of a customer’s medical equipment. Any such claims, if made and upheld, could make our business more expensive to operate and therefore less profitable. We may be subject to claims exceeding our insurance coverage or we may not be able to continue to obtain liability insurance at acceptable levels of cost and coverage. If we are found liable for any significant claims that are not covered by insurance, our liquidity and operating results could be materially adversely affected. In addition, litigation relating to a claim could adversely affect our existing and potential customer relationships, create adverse public relations and divert management’s time and resources from the operation of the business.

Our growth strategy depends in part on our ability to successfully identify and manage our acquisitions and a failure to do so could impede our future revenue growth, thereby weakening our position in the industry with respect to our competitors.

As part of our growth strategy, we intend to pursue acquisitions or other strategic relationships within the health care industry that we believe will enable us to generate revenue growth and enhance our competitive position. Future acquisitions may involve significant cash expenditures that could impede our future revenue growth. In addition, our efforts to execute our acquisition strategy may be affected by our ability to identify suitable candidates and negotiate and close acquisitions. We regularly evaluate potential acquisitions. We may not be successful in acquiring other businesses, and the businesses

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we do acquire in the future may not ultimately produce returns that justify our related investment.

Acquisitions may involve numerous risks, including:

·difficulties assimilating personnel and integrating distinct business cultures;

·diversion of management’s time and resources from existing operations;

·potential loss of key employees or customers of acquired companies; and

·exposure to unforeseen liabilities of acquired companies.

If we are unable to continue to grow through acquisitions, our ability to generate revenue growth and enhance our competitive position may be impaired.

We depend on our sales professionals and sales specialists and may lose customers when any of our sales professionals or sales specialists leave us.

Our revenue growth has been supported by hiring and developing sales professionals and sales specialists and adding, through acquisitions, established sales professionals and sales specialists whose existing customers generally have become our customers. We have experienced and will continue to experience intense competition for these resources. The success of our programs depends on the relationships developed between us and our sales professionals and sales specialists and our customers.

Our cash flow fluctuates during the year because operating income as a percentage of revenue fluctuates with our quarterly operating results and we make semi-annual debt service payments.

Our results of operations have been and can be expected to be subject to quarterly fluctuations. We may experience increased revenues in the first and fourth quarters of the year, depending upon the timing and severity of the cold and flu season and the related increased hospital census and medical equipment usage during that season. Because a significant portion of our expenses are relatively fixed over these periods, our operating income as a percentage of revenue tends to increase during the first and fourth quarter of each year. If the cold and flu season is delayed by as little as one month, or is less severe than in prior periods, our quarterly operating results for a current period can vary significantly from prior periods. Our quarterly results can also fluctuate as a result of such other factors as the timing of acquisitions, new AMPP agreements or new office openings.

Changes in reimbursement rates and policies by third-party payors for health care items and services may reduce the rates that providers can pay for our services, thereby requiring us to reduce our rates or putting our ability to collect payments at risk.

Our health care provider customers that pay us directly for the services we provide to them rely on reimbursement from third-party payors for a substantial portion of their operating revenue. These third-party payors include both governmental payors such as

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Medicare and Medicaid and private payors such as insurance companies and managed care organizations. There are widespread efforts to control health care costs in the United States by all of these payor groups. These cost containment initiatives include non-payment for the management and treatment of certain hospital-acquired conditions and reimbursement policies based on fixed rates for a particular patient treatment that are unrelated to the providers’ actual costs and requiring health care providers to provide services on a discounted basis. With most states projecting sizeable budget shortfalls and many seeking federal assistance during the nation’s economic downturn, health care programs like Medicaid will face significant cost containment pressures and may cut services.  Reimbursement policies have a direct effect on our customers’ ability to pay us 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 the amounts or manner of reimbursements to health care providers may affect the financial strength of our customers and amount our customers are able to pay for our services.

In periods when significant health care reform initiatives were under consideration and uncertainty remained as to their likely outcome, our profits decreased as the cost of doing business increased. If other significant health care reform initiatives occur, they may have a similar, negative effect.

Because the regulatory and political environment for health care significantly influences the capital equipment procurement decisions of health care providers, our ability to generate profits has historically been adversely affected in periods when significant health care reform initiatives were under consideration and uncertainty remained as to their likely outcome.

A portion of our revenues are derived from home care providers and nursing homes, and these health care providers may pose additional credit risks.

Our nursing home and home care customers may pose additional credit risks since they are generally less financially sound than hospitals.  These customers continue to face cost pressures.  We may incur losses in the future due to the credit risks, including potential bankruptcy filings, associated with any of these customers.

Prolonged negative changes in domestic and global economic conditions may affect our customers and suppliers, which could harm our results of operations and financial position.

Our customers may be negatively impacted by downturns in general economic conditions and tighter capital and credit markets.  The current economic downturn and tightening of credit and capital markets could adversely affect our customers’ ability to pay for our services, resulting in decreased orders, slower payment cycles, increased bad debt and customer bankruptcies.  The impact of these circumstances on our customers, which is beyond our control, may take several forms including, but not limited to, decreased patient census, decreased number of non-essential patient procedures and services,

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increased uncompensated care and bad debt, increased difficulty in obtaining financing on favorable terms and tighter capital and operating budgets.  Many of our customers depend on investment income to supplement inadequate government reimbursement.  The recent disruption in the capital and credit markets has adversely affected the value of many investments, reducing our customers’ ability to access cash reserves to fund their operations.

Our suppliers may be negatively impacted by downturns in general economic conditions and tighter capital and credit markets.  If our key suppliers experience financial difficulty and are unable to deliver the equipment to us that we require, we could be forced to seek alternative sources for our medical equipment or to purchase such equipment on less favorable terms, or we could be unable to fulfill our requirements if we are unable to find alternative sources.  A delay in procuring equipment or an increase in the cost to purchase equipment could limit our ability to provide equipment to customers on a timely and cost-effective basis.  If we do not have continued access to parts or if manufacturers do not provide access to equipment manuals or training, we may not be able to provide certain technical and professional services.

All of these factors related to a general economic downturn, which are out of our control, could have a negative impact on our financial condition.

Consolidation in the health care industry may lead to a reduction in the outsourcing rates we charge, thereby decreasing our revenues.

In recent years, many acute care hospitals and alternate site providers have consolidated to create larger health care organizations. We believe this consolidation trend may continue. Any resulting consolidated health care organization may have greater bargaining power over us, which could lead to a reduction in the outsourcing rates that we are able to charge. A reduction in our outsourcing rates may decrease our revenues.

Our competitors may bundle products and services offered to customers, some of which we do not offer.

If competitors offer their products and services to customers on a combined basis with reduced prices, and we do not offer some of these products or cannot offer them on comparable terms, we may have a competitive disadvantage that will lower the demand for our services.

Our customers operate in a highly regulated environment. Regulations affecting them could cause us to incur additional expenses associated with compliance and licensing. We could be assessed fines and face possible exclusion from participation in state and federal health care programs if we violate laws or regulations applicable to our business.

The health care industry is required to comply with extensive and complex laws and regulations at the federal, state and local government levels. While the majority of these

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regulations do not directly apply to us, there are some that do, including the Food, Drug and Cosmetic Act (“FDCA”) and certain state pharmaceutical licensing requirements. Although we believe we are in compliance with the FDCA, if the FDA expands the reporting requirements under the FDCA, we may be required to comply with the expanded requirements and may incur substantial additional expenses in doing so. With respect to state requirements, we are currently licensed in 14 states and may be required to obtain additional licenses, permits and registrations as state requirements change. Our failure to possess such licenses for our existing operations may subject us to certain additional expenses.

In addition to the FDCA and state licensing requirements, we are impacted by federal and state laws and regulations aimed at protecting the privacy of individually identifiable health information, among other things, and detecting and preventing fraud, abuse and waste with respect to federal and state health care programs. Many of our customers require us to abide by their policies relating to patient privacy, state and federal anti-kickback acts, and state and federal false claim acts and whistleblower protections.

Given that our industry is heavily regulated, we may be subject to additional regulatory requirements. If our operations are found to be in violation of any governmental regulations to which we or our customers are subject, we may be subject to the applicable penalty associated with the violation. Any penalties, damages, fines or curtailment of our operations would significantly increase our costs of doing business, thereby leading to difficulty generating sufficient income to support our business. Also, if we are found to have violated certain federal or state laws or regulations regarding Medicare, Medicaid or other governmental funding sources, we could be subject to fines and possible exclusion from participation in federal and state health care programs.

Although we do not manufacture any medical equipment, we own a large fleet of medical equipment, which may be subject to equipment recalls or obsolescence.

We are required to incur significant expenditures in order to maintain a large and modern equipment fleet. Our equipment may be subject to recalls that could be expensive to implement. We may be required to incur additional costs to repair or replace the equipment at our own expense or we may choose to purchase incremental new equipment from a supplier not affected by the recall. Additionally, our relationship with our customers may be damaged if we cannot promptly replace the equipment that has been recalled.

Our success is dependent, in part, on our ability to respond effectively to changes in technology. Since we maintain a large fleet of equipment, we are subject to the risk of equipment obsolescence. If advancements in technology render a substantial portion of our equipment fleet obsolete, we may experience a decrease in demand for our products which could adversely affect our operating results and cause us to invest in new technology to maintain our market share and operating margins.

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We may incur increased costs that we cannot pass through to our customers.

Our customer agreements may include limitations on our ability to increase prices over the term of the agreement. On the other hand, we rely on subcontractors to provide some of the services and we do not always have fixed pricing agreements with these subcontractors. Therefore, we are at risk of incurring increased costs that we are unable to pass through to our customers.

We depend heavily on key management personnel and the departure of one or more of our key executives or a significant portion of our local hospital management personnel could harm our business.

The expertise and efforts of our senior executives and key members of our local hospital management personnel are critical to the success of our business. The loss of the services of one or more of our senior executives or of a significant portion of our local hospital management personnel could significantly undermine our management expertise and our ability to provide efficient, quality health care services at our facilities, which could harm our business.

Any failure of our management information systems could harm our business and results of operations.

We depend on our management information systems to actively manage our medical equipment fleet, control capital spending and provide fleet information, including rental history, condition and availability of our medical equipment. These functions enhance our ability to optimize fleet utilization and redeployment. The inability of our management information systems to operate as we anticipate could damage our reputation with our customers, disrupt our business or result in, among other things, decreased revenues and increased overhead costs. Any such failure could harm our business and results of operations.

There are inherent limitations in all internal control systems over financial reporting, and misstatements due to error or fraud may occur and not be detected.

While we have taken actions designed to address compliance with the internal control over financial reporting and disclosure controls and other requirements of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated by the SEC implementing these requirements, there are inherent limitations in our ability to control all circumstances.  Our management, including our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, does not expect that our internal control over financial reporting and disclosure controls will prevent all error and all fraud.  A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  In addition, the design of a control system must reflect the fact that there are resource constraints and the benefit of controls must be relative to their costs.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all

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control issues and instances of fraud, if any, in our Company have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes.  Further, controls can be circumvented by individual acts of some persons, by collusion of two or more persons, or by management override of the controls.  The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Over time, a control may be inadequate because of changes in conditions, such as growth of the Company or increased transaction volume, or the degree of compliance with the policies or procedures may deteriorate.  Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

The interests of our principal equity holder may not be aligned with the interests of our other security holders.

IPC beneficially owns securities representing approximately 96% of the voting equity interests of Parent, and therefore indirectly controls our affairs and policies. Circumstances may occur in which the interests of our principal equity holder could be in conflict with the interests of our other security holders.  In addition, our principal equity holder may have an interest in pursuing dividends, acquisitions, divestitures, capital expenditures or other transactions that, in its judgment, could enhance its equity investment, even though these transactions might involve risks to our other security holders.

ITEM 1B:  Unresolved Staff Comments

None.

ITEM 2:  Properties

As of December 31, 2008, we operated 84 full service district offices and six technical service Centers of Excellence.  We lease our district offices, averaging approximately 5,900 square feet, and our Centers of Excellence.  None of our offices are dedicated to a single business segment.  Our corporate office is located at a 41,000 square foot leased facility in Edina, Minnesota.

ITEM 3:  Legal Proceedings

From time to time, we may become involved in litigation arising out of operations in the normal course of business.  As of December 31, 2008, we were not a party to any pending legal proceedings the adverse outcome of which could reasonably be expected to have a material adverse effect on our operating results, financial position, or cash flows.

ITEM 4:  Submission of Matters to a Vote of Security Holders

None.

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PART II

ITEM 5:  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

As of March 1, 2009, Parent owns all 1,000 shares of our common stock, par value $.01 per share. There is no established public trading market for our common stock, and during 2008 and 2007, we did not declare or pay a cash dividend on any class of our common stock.  Historically, we have paid no cash dividends.  Our debt instruments contain certain restrictions on our ability to pay cash dividends on our common stock (see the information regarding our Notes and senior secured credit facility contained under the caption “Liquidity and Capital Resources” in Item 7 of this Annual Report on Form 10-K).

We did not repurchase any of our equity securities during 2008.

ITEM 6:  Selected Financial Data

The selected financial data is presented below under the captions “Statement of Operations Data,” “Other Financial Data,” “Other Operating Data” and “Balance Sheet Data” for and as of the periods presented below.  The selected financial data presented below is qualified in its 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 Annual Report on Form 10-K, including the information contained under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this Annual Report on Form 10-K.

In connection with the Transaction, the Company incurred significant indebtedness and is highly leveraged (see “Liquidity and Capital Resources” under Item 7 to this Annual Report on Form 10-K.)  In addition, the purchase price paid in connection with the Acquisition has been allocated to state the acquired assets and liabilities at fair value.  The accounting adjustments increased the carrying value of our property and equipment and inventory, established intangible assets for our customer relationships, supply agreement, trade names and trademarks, technology database and non-compete agreements and revalued our long-term benefit plan obligations, among other things.  Subsequent to the Transaction, interest expense, non-cash depreciation and amortization charges have significantly increased.  As a result, our Successor financial statements are not comparable to our Predecessor financial statements.  For a further description of the Transaction see Item 7 to this Annual Report on Form 10-K.

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				Seven			Five
				Months			Months
	Year Ended			Ended			Ended
	December 31,			December 31,			May 31,			Years Ended December 31,
	2008			2007			2007			2006		2005			2004
(in thousands)	(Successor)			(Successor)			(Predecessor)			(Predecessor)		(Predecessor)			(Predecessor)
Statement of Operations Data:
Total revenues	$	289,119		$	156,454		$	107,522		$	225,075	$	215,904		$	199,600
Cost of medical equipment outsourcing, sales and service	191,930			106,422			62,696			130,872		127,049			113,783
Gross margin	97,189			50,032			44,826			94,203		88,855			85,817
Selling, general and administrative:
Transaction and related costs	—			306			26,891			—		—			—
Intangible asset impairment charge	4,000			—			—			—		—			—
Other selling, general and administrative	85,166			48,647			28,692			61,940		58,455			57,713
Total selling, general and administrative	89,166			48,953			55,583			61,940		58,455			57,713
Operating income (loss)	8,023			1,079			(10,757		)	32,263		30,400			28,104
Interest expense	46,878			26,322			13,829			31,599		31,127			30,508
Loss on extinguishment of debt	—			1,041			22,396			—		—			—
Income (loss) before income taxes	(38,855		)	(26,284		)	(46,982		)	664		(727		)	(2,404		)
Provision (benefit) for income taxes	(15,359		)	(10,188		)	492			612		842			1,188
Net income (loss)	$	(23,496	)	$	(16,096	)	$	(47,474	)	$	52	$	(1,569	)	$	(3,592	)

				Seven			Five
				Months			Months
	Year Ended			Ended			Ended
	December 31,			December 31,			May 31,			Years Ended December 31,
	2008			2007			2007			2006			2005			2004
(dollars in thousands)	(Successor)			(Successor)			(Predecessor)			(Predecessor)			(Predecessor)			(Predecessor)
Other Financial Data:
Net cash provided by (used in) operating activities	$	56,249		$	(4,495	)	$	34,318		$	48,871		$	43,963		$	37,966
Net cash used in investing activities	(71,395		)	(370,870		)	(48,060		)	(51,711		)	(40,631		)	(65,150		)
Net cash provided by (used in) financing activities	$	27,152		$	375,365		$	13,742		$	2,840		$	(3,332	)	$	27,184
Other Operating Data (as of end of period):
Medical equipment (approximate number of owned outsourcing units)	211,000			194,000			185,000			173,000			161,000			150,000
District offices	84			80			79			79			75			75
Number of outsourcing hospital customers	4,125			3,875			3,800			6,900			6,300			6,250
Number of total outsourcing customers	8,150			7,450			7,200
Depreciation and amortization	$	85,823		$	48,813		$	22,823		$	45,454		$	46,327		$	42,097
Intangible asset impairment charge	4,000			—			—			—			—			—
EBITDA(1)(2)	97,846			48,851			(10,330		)	77,717			74,984			68,459

	As of December 31,				As of December 31,
	2008		2007		2006			2005			2004
(in thousands)	(Successor)		(Successor)		(Predecessor)			(Predecessor)			(Predecessor)
Balance Sheet Data:
Working capital (3)	$	22,754	$	18,778	$	20,913		$	19,379		$	17,198
Total assets	877,725		878,752		265,006			249,185			246,407
Total debt	531,343		497,335		310,191			300,480			297,302
Shareholders’ equity (deficiency)	188,451		223,695		(92,981		)	(96,799		)	(93,058		)

(1)EBITDA is defined as earnings before interest expense, income taxes, depreciation and amortization.  Management understands that some industry analysts and investors consider EBITDA as a supplementary non-GAAP financial measure useful in analyzing a company’s ability to service debt.  EBITDA, however, is not a measure of financial performance under Generally Accepted Accounting Principals (“GAAP”) and should not be considered as an alternative to, or more meaningful than, net income as a measure of operating performance or to cash flows from operating, investing or financing activities or as a measure of liquidity.  Since EBITDA is not a measure determined in accordance with GAAP and is thus susceptible to varying interpretations and calculations, EBITDA, as presented, may not be comparable to other similarly titled measures of other companies.  EBITDA does not represent an amount of funds that is available for management’s discretionary use.  See note 2 below for a reconciliation of net cash provided by operating activities to EBITDA.

(2)The following is a reconciliation of net cash provided by operating activities to EBITDA:

31

				Seven			Five
				Months			Months
	Year Ended			Ended			Ended
	December 31,			December 31,			May 31,			Years Ended December 31,
	2008			2007			2007			2006			2005			2004
(in thousands)	(Successor)			(Successor)			(Predecessor)			(Predecessor)			(Predecessor)			(Predecessor)
Net cash provided by (used in) operating activities	$	56,249		$	(4,495	)	$	34,318		$	48,871		$	43,963		$	37,966
Changes in operating assets and liabilities	3,601			34,502			(27,805		)	678			2,327			2,245
Other non-cash expenses	6,477			2,710			(31,164		)	(4,043		)	(3,275		)	(3,448		)
Provision (benefit) for income taxes	(15,359		)	(10,188		)	492			612			842			1,188
Interest expense	46,878			26,322			13,829			31,599			31,127			30,508
EBITDA	$	97,846		$	48,851		$	(10,330	)	$	77,717		$	74,984		$	68,459

(3)Represents total current assets (excluding Cash and cash equivalents) less total current liabilities (excluding Current portion of long-term debt).

Segment Information

			Year Ended December 31, 2008
			(Successor)
(in thousands)	Medical Equipment Outsourcing		Technical and Professional Services		Medical Equipment Sales and Remarketing		Corporate and Unallocated		Total
Revenues	$	223,676	$	45,225	$	20,218	$	—	$	289,119
Cost of revenue	82,030		32,676		15,473		—		130,179
Medical equipment depreciation	61,751		—		—		—		61,751
Gross margin	$	79,895	$	12,549	$	4,745	$	—	$	97,189
Total assets	$	432,643	$	86,559	$	18,603	$	339,920	$	877,725

			Seven Months Ended December 31, 2007
			(Successor)
(in thousands)	Medical Equipment Outsourcing		Technical and Professional Services		Medical Equipment Sales and Remarketing		Corporate and Unallocated		Total
Revenues	$	119,808	$	26,437	$	10,209	$	—	$	156,454
Cost of revenue	43,104		19,855		9,005		—		71,964
Medical equipment depreciation	34,458		—		—		—		34,458
Gross margin	$	42,246	$	6,582	$	1,204	$	—	$	50,032
Total assets	$	447,240	$	91,856	$	18,746	$	320,910	$	878,752

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			Five Months Ended May 31, 2007
in thousands			(Predecessor)
	Medical Equipment Outsourcing		Technical and Professional Services		Medical Equipment Sales and Remarketing		Corporate and Unallocated		Total
Revenues	$	84,855	$	14,800	$	7,867	$	—	$	107,522
Cost of revenue	27,694		10,124		6,366		—		44,184
Medical equipment depreciation	18,512		—		—		—		18,512
Gross margin	$	38,649	$	4,676	$	1,501	$	—	$	44,826

			Year Ended December 31, 2006
in thousands			(Predecessor)
	Medical Equipment Outsourcing		Technical and Professional Services		Medical Equipment Sales and Remarketing		Corporate and Unallocated		Total
Revenues	$	176,932	$	30,445	$	17,698	$	—	$	225,075
Cost of revenue	58,987		21,068		13,387		—		93,442
Medical equipment depreciation	37,430		—		—		—		37,430
Gross margin	$	80,515	$	9,377	$	4,311	$	—	$	94,203
Total assets	$	39,395	$	1,793	$	3,843	$	219,975	$	265,006

Segment assets for the three business segments (excluding Corporate and Unallocated) primarily include goodwill and intangible assets, which is consistent with the Company’s reporting to its Chief Operating Decision Maker.  Other assets are not allocated to the three business segments.  Thus, assets included in Corporate and Unallocated contain all other Company assets.

Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

We are a leading nationwide provider of medical equipment outsourcing and lifecycle solutions to the United States health care industry. Our customers include national, regional and local acute care hospitals, alternate site providers (such long term acute care hospitals, skilled nursing facilities, specialty hospitals, large physician clinics, and home care providers) and medical equipment manufacturers.  We provide our customers solutions across the spectrum of the equipment life cycle as a result of our position as one of the industry’s largest purchasers and outsourcers of medical equipment.  We currently own or manage over 530,000 pieces of medical equipment. Our diverse medical equipment outsourcing customer base includes more than 4,125 acute care hospitals and approximately 4,025 alternate site providers.  We also have relationships with more than 200 medical equipment manufacturers and all of the nation’s largest group purchasing organizations (“GPOs”) and many of the integrated delivery networks (“IDNs”).  All of our solutions leverage our nationwide network of 84 offices and our more than 65 years of experience managing and servicing all aspects of medical equipment.  Our fees are paid directly by our customers rather than from direct reimbursement from third-party payors, such as private insurers, Medicare, or Medicaid.  We commenced operations in 1939, originally incorporated in Minnesota in 1954 and reincorporated in Delaware in 2001.

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On May 31, 2007, UHS Holdco, Inc. (“Parent”) acquired all of the outstanding capital stock of the Company for approximately $712.0 million in cash less debt, tender premium and accrued interest and capitalized leases per the terms of the Agreement and Plan of Merger, dated as of April 15, 2007, by and among the Company, Parent and Parent’s wholly owned subsidiary, Merger Sub, and related documents which resulted in the occurrence of the events outlined in Note 3 to our audited financial statements in Part IV of this Annual Report on Form 10-K which we collectively refer to as the “Transaction” or the “Acquisition.”  Parent is owned by affiliates of Irving Place Capital Merchant Manager III, L.P. (formerly known as Bear Stearns Merchant Manager III, L.P.) and certain members of our management, whom we collectively refer to as the “equity investors.” Parent and Merger Sub are corporations that were formed, for the purpose of completing the Acquisition, by Bear Stearns Merchant Banking, which was affiliated with Bear Stearns & Co. Inc. and which became an independent firm on November 1, 2008, changing its name to Irving Place Capital (“IPC”).

In conjunction with the Acquisition, the Company initiated a cash tender offer to purchase its $260.0 million outstanding aggregate principal amount of its 10.125% Senior Notes due 2011, which the Company completed for $235.0 million of such notes on May 31, 2007, and Merger Sub issued $230.0 million in aggregate principal amount of its Floating Rate Notes due 2015 and $230.0 million in aggregate principal amount of its PIK Toggle Notes due 2015 (The PIK Toggle Notes and the Floating Rate Notes are collectively referred to as the “Notes”).  Concurrently with the closing of the Acquisition, Merger Sub merged with and into the Company, which was the surviving corporation and the Company assumed Merger Sub’s obligations with respect to the Notes and related second lien senior indenture dated as of May 31, 2007, between us and Wells Fargo Bank, National Association, as trustee (“Second Lien Senior Indenture”).

In 2007, the Acquisition and the allocation of the purchase price to the opening balance sheet accounts of the Successor were recorded as of the beginning of the first day of our new accounting period (June 1, 2007).

Although the Company continued as the surviving legal entity after the Acquisition, the accompanying information presents our results preceding the Acquisition (“Predecessor”) and the periods subsequent to the Acquisition (“Successor”).  All references to the year ended December 31, 2008 and seven months ended December 31, 2007 refer to our Successor results.  All references to the five months ended May 31, 2007 and year ended December 31, 2006 refer to our Predecessor results.

As one of the nation’s leading medical equipment lifecycle services companies, we design and offer comprehensive solutions for our customers that help reduce capital and operating expenses while increasing equipment and staff productivity and support improved patient safety and outcomes.

We report our financial results in three segments to reflect how we manage our business. Our reporting segments consist of Medical Equipment Outsourcing, Technical and Professional Services, and Medical Equipment Sales and Remarketing. We evaluate the

34

performance of our reporting segments based on gross margin and gross margin, before purchase accounting adjustments. The accounting policies of the individual reporting segments are the same as those of the entire company.  Our revenue, profits, and assets for our reporting segments for the prior five years are described in “Item 6 — Selected Financial Data.”

We present the non-GAAP financial measure gross margin, before purchase accounting adjustments, because we use this measure to monitor and evaluate the performance of our business and believe that the presentation of this measure will enhance users’ ability to analyze trends in our business and evaluate our performance relative to other companies in our industry.  A reconciliation of the non-GAAP financial measure to its equivalent Generally Accepted Accounting Principals (“GAAP”) measure is included in the respective tables.

CRITICAL ACCOUNTING POLICIES

Although we underwent significant ownership and organizational changes in 2007, as a result of the Transaction, our critical accounting policies have remained consistent between Predecessor and Successor.

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain 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. Management bases these estimates on historical experience and other assumptions believed to be reasonable under the circumstances.  However, actual results could differ from these estimates. Management believes the critical accounting policies and areas that require more significant judgments and estimates used in the preparation of our consolidated financial statements to be:

·allowance for doubtful accounts;

·useful lives assigned to long-lived and intangible assets;

·recoverability of long-lived and intangible assets, including goodwill;

·measurement of our pension benefit obligation;

·self-insurance reserves for worker’s compensation, employee health care and auto insurance plans;

·provisions for inventory and equipment obsolescence;

·income tax accrual estimates; and

·various other commitments and contingencies.

We estimate the allowance for doubtful accounts considering a number of factors, including:

·historical experience;

·aging of the accounts receivable; and

35

·specific information obtained by us on the condition and the current creditworthiness of our customers.

If the financial conditions of our customers were to deteriorate and affect the ability of our customers to make payments on their accounts, we may be required to increase our allowance by recording additional bad debt expense.  Likewise, should the financial condition of our customers improve and result in payments or settlements of previously reserved amounts, we may be required to record a reduction in bad debt expense to reverse the recorded allowance.

Depreciation is recognized using the straight-line method over the estimated useful life of the long-lived asset.  We estimate useful lives based on historical data and industry trends. We periodically reassess the estimated useful lives of our long-lived assets. Changes to estimated useful lives would impact the amount of depreciation expense recorded in earnings.

Amortization is recognized using the straight-line and sum-of-years-digits methods over the estimated useful life of the intangible asset.  We estimate useful lives based on historical data and industry trends. We periodically reassess the estimated useful lives of our intangible assets. Changes to estimated useful lives would impact the amount of amortization expenses recorded in earnings and potentially require us to record an impairment charge.

For indefinite lived intangible assets, including goodwill, we review for impairment annually and upon the occurrence of certain events. For long-lived assets and amortizable intangible assets, an impairment is evaluated when an indicator exists, based on the sum of undiscounted estimated future cash flows expected to result from use of the assets compared to its carrying value.  For goodwill, an impairment is evaluated based on the discounted fair value of each reporting unit.  In conjunction with the Transaction, we determined the fair value of each of our reporting units and the resulting goodwill, and as a result we did not perform any further goodwill impairment tests in 2007 as there were no indicators of impairment.  No goodwill impairment has been recognized in 2008, 2007 or 2006.  We annually review for impairment our trade names that have indefinite lives and are not amortized.  Our review is based on a hypothetical royalty value associated with the present value of estimated future cash flows of our Medical Equipment Outsourcing and Technical and Professional Services segments.  In the fourth quarter of 2008 we recognized a $4.0 million impairment loss related to our Technical and Professional Service segment trade names.

The measurement of our pension benefit obligation is dependent on a variety of assumptions determined by management and used by our actuaries. These assumptions affect the amount and timing of future contributions and expenses.

The assumptions used in developing the required estimates include discount rate, expected return or earnings on assets, retirement rates and mortality rates.  We assume no changes in projected salary costs as the benefits under the plan were frozen in 2002.  Our

36

discount rate assumption is determined annually based on interest rates for high quality corporate bonds with maturities that correspond with the timing of our benefit obligation.  In determining our pension obligations as of December 31, 2008, our discount rates decreased to 6.1 percent from 6.5 percent at December 31, 2007.

The expected return on plan assets reflects asset allocations, investment strategies and the views of investment managers over a long-term perspective. Retirement and mortality rates are based on anticipated future plan experience. The effects of actual results differing from our assumptions are accumulated and amortized over future periods and, therefore, generally affect our recognized expense in future periods.  Our unrecognized actuarial loss on our pension, net of tax, was $4.4 million at December 31, 2008.  Significant differences in actual experience or significant changes in assumptions may materially affect pension obligations.

We estimate our liability for worker’s compensation and auto self-insurance plans by applying insurance industry standard loss development factors to the Company’s experienced claims information.  Significant changes in claims activity would have a direct impact on the amount of expense we recognize in association with these self-insurance programs.  Self-insurance costs related to our employee health care are accrued based upon the aggregate of the liability for reported claims and estimated liability for claims development and incurred but not reported.

We maintain a provision for inventory obsolescence to reflect the potential for equipment and supply obsolescence due to equipment recalls, new product introductions, manufacturer defects and other events which may impact the value of inventory items.  We determine this provision by analyzing inventory use regularly and assigning reserve percentages based upon inventory turnover and manufacturer activities related to new product introductions.  Significant product recalls and/or next generation technology introductions may cause a portion of our inventory to become obsolete.  Such activity would lead to increased expense related to inventory obsolescence.

Judgment, uncertainty, and estimates are significant aspects of our income tax accrual process that accounts for the effects of current and deferred income taxes. Uncertainty associated with the application of tax statutes and regulations and the outcomes of tax audits and appeals require that judgment and estimates be made in the accrual process and in the calculation of our Effective Tax Rate (“ETR”).

Our ETR is also highly impacted by assumptions.  ETR calculations are revised based on the best available year-end tax assumptions (income levels, deductions, credits, etc.); adjusted in the following year after returns are filed, with the tax accrual estimates being trued-up to the actual amounts claimed on the tax returns; and further adjusted after examinations by taxing authorities have been completed.

Accounting for Uncertainty in Income Taxes — an interpretation of Financial Accounting Standards Board (“FASB”) Statement No. 109 (“FIN No. 48”), has impacted the income tax accrual process in that the new accounting rule requires that only tax

37

benefits that meet the “more likely than not” recognition threshold can be recognized or continue to be recognized.  The change in the unrecognized tax benefits needs to be reasonably estimated based on evaluation of the nature of uncertainty, the nature of events that could cause the change and an estimate of the range of reasonably possible changes.  At any period end, and as new developments occur, management will use prudent business judgment to unrecognize appropriate amounts of tax benefits.  Unrecognized tax benefits can be recognized as issues are favorably resolved and loss exposures decline.  As required, we adopted FIN No. 48 as of January 1, 2007.

As disputes with the IRS and state tax authorities are resolved over time, we may need to adjust our unrecognized tax benefits to the updated estimates needed to satisfy tax and interest obligations for the related issues. These adjustments may be favorable or unfavorable.

In the normal course of business, we make estimates of potential loss accruals related to legal, tax, missing equipment and service obligations.  These accruals require the use of management’s judgment on the outcome of various issues.  Management’s estimates for these items are based on the best available evidence including historical data, but due to changes in facts and circumstances, the ultimate outcomes of these accruals could be different than management’s estimates.

PREDECESSOR ACQUISITIONS

As part of our growth strategy, we regularly review and evaluate potential acquisition opportunities.

On April 1, 2007, we completed the acquisition of customer contracts and other assets of the ICMS division of Intellamed, Inc. (“Intellamed”), located in Bryan, Texas.  The purchase price was $14.6 million including direct costs and the assumption of certain liabilities, taking into account certain adjustments and a holdback.  The asset purchase agreement governing this acquisition provided for additional consideration to be paid if certain revenue targets are met during the two years following this acquisition.  We have not recorded any such additional consideration and will not unless we consider it probable of being paid.

We financed the foregoing acquisition with borrowings under our Amended Credit Agreement (see “Liquidity and Capital Resources” below).

RESULTS OF OPERATIONS

The following table provides information on the percentages of certain items of selected financial data compared to total revenues.

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			Percent of Total Revenues
			Seven Months		Five Months
	Year Ended		Ended		Ended		Year Ended
	December 31,		December 31,		May 31,		December 31,
	2008		2007		2007		2006
	(Successor)		(Successor)		(Predecessor)		(Predecessor)
Revenue
Medical equipment outsourcing	77.4	%	76.6	%	78.9	%	78.6	%
Technical and professional services	15.6		16.9		13.8		13.5
Medical equipment sales and remarketing	7.0		6.5		7.3		7.9
Total revenues	100.0	%	100.0	%	100.0	%	100.0	%
Cost of Revenue
Cost of medical equipment outsourcing	28.4		27.6		25.8		26.2
Cost of technical and professional services	11.2		12.7		9.4		9.4
Cost of medical equipment sales and remarketing	5.4		5.8		5.9		6.0
Movable medical equipment depreciation	21.4		22.0		17.2		16.6
Total costs of medical equipment outsourcing, technical and professional services and medical equipment sales and remarketing	66.4		68.1		58.3		58.2
Gross margin	33.6		31.9		41.7		41.8
Selling, general and administrative	29.4		31.1		26.7		27.5
Transaction and related costs	—		0.2		25.0		—
Intangible asset impairment charge	1.4		—		—		—
Operating income (loss)	2.8		0.6		(10.0	)	14.3
Interest expense	16.2		16.8		12.9		14.0
Loss on extinguishment of debt	—		0.7		20.8		—
Income (loss) before income taxes	(13.4	)	(16.9	)	(43.7	)	0.3
Provision (benefit) for income taxes	(5.3	)	(6.5	)	0.5		0.3
Net income (loss)	(8.1	)%	(10.4	)%	(44.2	)%	—	%

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Results of Operations for the Year Ended December 31, 2008 (Successor) compared to the Seven Months Ended December 31, 2007 (Successor) and Five Months Ended May 31, 2007 (Predecessor)

Medical Equipment Outsourcing Segment – Manage & Utilize

				Seven Months			Five Months
	Year Ended			Ended			Ended
	December 31,			December 31,			May 31,
	2008			2007			2007
(in thousands)	(Successor)			(Successor)			(Predecessor)
Total revenue	$	223,676		$	119,808		$	84,855
Cost of revenue	82,030			43,104			27,694
Medical equipment depreciation	61,751			34,458			18,512
Gross margin	$	79,895		$	42,246		$	38,649
Gross margin %	35.7		%	35.3		%	45.5		%
Gross margin	$	79,895		$	42,246		$	38,649
Purchase accounting adjustments, primarily non-cash charges related to step-up in carrying value of medical equipment	15,906			9,889			—
Gross margin, before purchase accounting adjustments	$	95,801		$	52,135		$	38,649
Gross margin %, before purchase accounting adjustments	42.8		%	43.5		%	45.5		%

Total revenue in the Medical Equipment Outsourcing segment was $223.7, $119.8, and $84.9 million for the year ended December 31, 2008, seven months ended December 31, 2007, and five months ended May 31, 2007, respectively.  During the year ended December 31, 2008, we experienced increased revenues driven by organic and competitive takeaways in our acute care and Asset Management Partnership Program (“AMPP”) customer base and incremental business from new and existing technology, both owned and managed.

Total cost of revenue in the segment was $82.0, $43.1, and $27.7 million for the year ended December 31, 2008, seven months ended December 31, 2007, and five months ended May 31, 2007, respectively.  Cost of revenue in this segment relates primarily to employee related expenses, equipment repair and maintenance charges related to our movable medical equipment fleet, occupancy and freight charges.  Cost of revenue for the year ended December 31, 2008 and seven months ended December 31, 2007 include $1.0 and $1.1 million, respectively, of charges relating to losses on disposals of equipment which was revalued in conjunction with the Transaction.  During the year ended December 31, 2008, we experienced increased freight, employee, and vehicle related expenses, a portion of which related to building our infrastructure for new business opportunities.

Medical equipment depreciation was $61.8, $34.5, and $18.5 million for the year ended December 31, 2008, seven months ended December 31, 2007, and five months ended May 31, 2007, respectively.  Medical equipment depreciation for the year ended December 31, 2008 and seven months ended December 31, 2007 include $14.7 and $8.6

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million, respectively, of charges relating to purchase accounting adjustments.  In May 2007, we determined that certain pieces of respiratory equipment in our medical equipment fleet were impaired as defined by Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Disposal of Long-Lived Assets, and we wrote-off all $0.9 million of this equipment’s remaining net book value.

Gross margin percentage for the Medical Equipment Outsourcing segment was 35.7%, 35.3%, and 45.5% for the year ended December 31, 2008, seven months ended December 31, 2007, and five months ended May 31, 2007, respectively.  Gross margin percentage for the year ended December 31, 2008 and seven months ended December 31, 2007 was negatively impacted by purchase accounting adjustments relating primarily to our medical equipment fleet.

Gross margin percentage, before purchase accounting adjustments was 42.8%, 43.5%, and 45.5% for the year ended December 31, 2008, seven months ended December 31, 2007, and five months ended May 31, 2007, respectively.

Technical and Professional Services Segment – Plan & Acquire; Maintain & Repair

				Seven Months			Five Months
	Year Ended			Ended			Ended
	December 31,			December 31,			May 31,
	2008			2007			2007
(in thousands)	(Successor)			(Successor)			(Predecessor)
Total revenue	$	45,225		$	26,437		$	14,800
Cost of revenue	32,676			19,855			10,124
Gross margin	$	12,549		$	6,582		$	4,676
Gross margin %	27.7		%	24.9		%	31.6		%
Gross margin	$	12,549		$	6,582		$	4,676
Purchase accounting adjustments, primarily non-cash charges related to favorable lease commitments	27			24			—
Gross margin, before purchase accounting adjustments	$	12,576		$	6,606		$	4,676
Gross margin %, before purchase accounting adjustments	27.8		%	25.0		%	31.6		%

Total revenue in the Technical and Professional Services segment was $45.2, $26.4, and $14.8 million for the year ended December 31, 2008, seven months ended December 31, 2007, and five months ended May 31, 2007, respectively.  Revenue for the Successor periods benefited from the acquisition of the ICMS division of Intellamed on April 1, 2007, and increased manufacturer service activity, partially offset by continued sales force attention on converting new customers in our Medical Equipment Outsourcing segment as well as selected contract terminations.

Total cost of revenue in the segment was $32.7, $19.9, and $10.1 million for the year ended December 31, 2008, seven months ended December 31, 2007, and five months ended May 31, 2007, respectively.  Cost of revenue consists primarily of employee related expenses, vendor expenses and occupancy charges.

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Gross margin percentage for the Technical and Professional Services segment was 27.7%, 24.9%, and 31.6% for the year ended December 31, 2008, seven months ended December 31, 2007, and five months ended May 31, 2007, respectively.  Gross margin percentage will fluctuate based on the variability of third party vendor expenses in our Customized Healthcare Asset Management Programs and supplemental service programs.

Medical Equipment Sales and Remarketing Segment – Redeploy & Remarket

				Seven Months			Five Months
	Year Ended			Ended			Ended
	December 31,			December 31,			May 31,
	2008			2007			2007
(in thousands)	(Successor)			(Successor)			(Predecessor)
Total revenue	$	20,218		$	10,209		$	7,867
Cost of revenue	15,473			9,005			6,366
Gross margin	$	4,745		$	1,204		$	1,501
Gross margin %	23.5		%	11.8		%	19.1		%
Gross margin	$	4,745		$	1,204		$	1,501
Purchase accounting adjustments, primarily non-cash charges related to step-up in carrying value of inventories and medical equipment	842			979			—
Gross margin, before purchase accounting adjustments	$	5,587		$	2,183		$	1,501
Gross margin %, before purchase accounting adjustments	27.6		%	21.4		%	19.1		%

Total revenue in the Medical Equipment Sales and Remarketing segment was $20.2, $10.2, and $7.9 million for the year ended December 31, 2008, seven months ended December 31, 2007, and five months ended May 31, 2007, respectively.

Total cost of revenue in the segment was $15.5, $9.0, and $6.4 million for the year ended December 31, 2008, seven months ended December 31, 2007, and five months ended May 31, 2007, respectively.  Cost of revenue in this segment consists primarily of cost of inventory and equipment sold and occupancy charges.  During the year ended December 31, 2008 and seven months ended December 31, 2007, purchase accounting adjustments of $0.8 and $1.0 million, respectively, primarily related to the increase in the carrying value of medical equipment and inventory, impacted the cost of revenue.

Gross margin percentage for the Medical Equipment Sales and Remarketing segment was 23.5%, 11.8%, and 19.1% for the year ended December 31, 2008, seven months ended December 31, 2007, and five months ended May 31, 2007, respectively.  Purchase accounting adjustments impacted the gross margin percentage for the year ended December 31, 2008 and seven months ended December 31, 2007.  Margins during each of the seven and five month 2007 periods were negatively impacted by larger individual sales with lower margins.

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Gross margin percentage, before purchase accounting adjustments, for the Medical Equipment Sales and Remarketing segment was 27.6%, 21.4%, and 19.1% for the year ended December 31, 2008, seven months ended December 31, 2007, and five months ended May 31, 2007, respectively.  Margins and activity in this segment will fluctuate based on the transactional nature of the business.

Selling, General and Administrative, Transaction and Related Costs, Intangible asset Impairment Charges, Interest Expense, and Loss on Extinguishment of Debt

			Seven Months		Five Months
	Year Ended		Ended		Ended
	December 31,		December 31,		May 31,
	2008		2007		2007
(in thousands)	(Successor)		(Successor)		(Predecessor)
Selling, general and administrative	$	85,166	$	48,647	$	28,692
Transaction and related costs	—		306		26,891
Intangible asset Impairment charge	4,000		—		—
Interest expense	46,878		26,322		13,829
Loss on extinguishment of debt	—		1,041		22,396

Selling, General and Administrative

Selling, general and administrative expense was $85.2, $48.6, and $28.7 million for the year ended December 31, 2008, seven months ended December 31, 2007, and five months ended May 31, 2007, respectively.  Selling, general and administrative expenses consist primarily of employee-related expenses, professional fees, occupancy charges, bad debt expense, depreciation and amortization.  Expenses during the year ended December 31, 2008 and seven months ended December 31, 2007 include $15.7 and $9.4 million, respectively, of charges related to the amortization of our intangible assets which were recorded at fair value in connection with the Transaction and non-cash stock-based compensation expense related to the 2007 Stock Option Plan of Parent of $2.5 and $2.4 million, respectively.  Expenses during the five months ended May 31, 2007 include expense related to our 2003 Stock Option Plan of $1.2 million.  Selling, general and administrative expense as a percentage of total revenue was 29.4%, 31.1%, and 26.7% for the year ended December 31, 2008, seven months ended December 31, 2007, and five months ended May 31, 2007 respectively.

Transaction and Related Costs

We incurred $0.3 and $26.9 million of expenses in connection with the Transaction during the seven months ended December 31, 2007 and five months ended May 31, 2007, respectively.  During the seven months ended December 31, 2007, these expenses consisted primarily of accounting and legal fees.  During the five months ended May 31, 2007, these expenses consisted primarily of accounting, legal, investment banking advisory and restructuring expenses totaling $13.7 million, expensed IPC (formerly known as Bear Stearns Merchant Banking) fees of $6.5 million and stock-based compensation expense related to the accelerated vesting of options under our 2003 Stock Option Plan of $6.7 million.

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Impairment Charge

In the fourth quarter of 2008 we recognized a $4.0 million impairment loss related to our Technical and Professional Service segment trade names.  Our review was based on an hypothetical royalty value associated with the present value of estimated future cash flows of our Technical and Professional Services segment.

Interest Expense

Interest expense was $46.9, $26.3, and $13.8 million for the year ended December 31, 2008, seven months ended December 31, 2007, and five months ended May 31, 2007, respectively.  Interest expense during the year ended December 31, 2008 and seven months ended December 31, 2007 includes interest charges related to the increased debt issued in connection with the Transaction, partially offset by lower average interest rates.  Interest expense includes amortization of deferred financing fees associated with our debt of $2.4, $1.4, and $0.7 million for the year ended December 31, 2008, seven months ended December 31, 2007, and five months ended May 31, 2007.

Loss on Extinguishment of Debt

During the seven months ended December 31, 2007, we incurred $1.0 million of expense related to the purchase of $15.0 million of our 10.125% Senior Notes, due 2011.  The expense consisted of a call premium of $0.7 million and the write-off of $0.3 million of unamortized deferred financing costs.

During the five months ended May 31, 2007, we incurred $22.4 million of expense related to the purchase of $235.0 million of our 10.125% Senior Notes and the termination of our Amended Credit Agreement in connection with the Transaction.  The expense consisted of call premiums of $16.1 million related to our 10.125% Senior Notes and the write-off of $6.3 million of unamortized deferred financing costs related to our 10.125% Senior Notes and Amended Credit Agreement.

Income Taxes

Income tax (benefit) expense was $(15.4), $(10.2), and $0.5 million for the year ended December 31, 2008, seven months ended December 31, 2007, and five months ended May 31, 2007, respectively.  The Company moved from a net deferred tax asset position prior to the Transaction, where tax expense related primarily to minimum state taxes due to valuation allowances established for net operating losses not recognized, to a net deferred tax liability position after the Transaction.  Management believes the valuation allowance is no longer necessary as we determined that it was more likely than not that the benefits of these deferred tax assets will be realized.

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Net Income (Loss)

Net income (loss) was $(23.5), $(16.1), and $(47.5) million for the year ended December 31, 2008, seven months ended December 31, 2007, and five months ended May 31, 2007, respectively.  Net loss for the year ended December 31, 2008 and seven months ended December 31, 2007 was impacted by Transaction related purchase accounting adjustments and interest associated with our Notes, partially offset by strong revenues in our Medical Equipment Outsourcing Segment and income tax benefit.  Net loss for the year ended December 31, 2008 was further impacted by a $4.0 million intangible asset impairment charge related our Technical and Professional Service segment trade name. Net loss for the five months ended May 31, 2007, was impacted by $26.9 million of Transaction and related costs and $22.4 million of loss on the extinguishment of debt.

EBITDA

Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) was $97.8, $48.9, and $(10.3) million for the year ended December 31, 2008, seven months ended December 31, 2007, and five months ended May 31, 2007, respectively.  EBITDA for the year ended December 31, 2008 was negatively impacted by purchasing accounting adjustments related to the transaction, offset by increased activity in our Medical Equipment Outsourcing segment.  EBITDA for the seven months ended December 31, 2007 was primarily impacted by purchase accounting adjustments related to the Transaction and loss on the extinguishment of debt.  EBITDA for the five months ended May 31, 2007 was primarily impacted by Transaction and related expenses and loss on the extinguishment of debt.

EBITDA is defined as earnings before interest expense, income taxes, depreciation and amortization.  Management understands that some industry analysts and investors consider EBITDA as a supplementary non-GAAP financial measure useful in analyzing a company’s ability to service debt.  EBITDA, however, is not a measure of financial performance under GAAP and should not be considered as an alternative to, or more meaningful than, net income as a measure of operating performance or to cash flows from operating, investing or financing activities or as a measure of liquidity.  Since EBITDA is not a measure determined in accordance with GAAP and is thus susceptible to varying interpretations and calculations, EBITDA, as presented, may not be comparable to other similarly titled measures of other companies.  EBITDA does not represent an amount of funds that is available for management’s discretionary use.

For a reconciliation of EBITDA to net cash provided by operating activities, see note (2) under the caption “Selected Financial Data” in Item 6 of this Annual Report on Form 10-K.

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Results of Operations for the Seven Months Ended December 31, 2007 (Successor) and Five Months Ended May 31, 2007 (Predecessor) compared to the Year Ended December 31, 2006 (Predecessor)

Medical Equipment Outsourcing Segment – Manage & Utilize

	Seven Months			Five Months
	Ended			Ended			Year Ended
	December 31,			May 31,			December 31,
	2007			2007			2006
(in thousands)	(Successor)			(Predecessor)			(Predecessor)
Total revenue	$	119,808		$	84,855		$	176,932
Cost of revenue	43,104			27,694			58,987
Medical equipment depreciation	34,458			18,512			37,430
Gross margin	$	42,246		$	38,649		$	80,515
Gross margin %	35.3		%	45.5		%	45.5		%
Gross margin	$	42,246		$	38,649		$	80,515
Purchase accounting adjustments, primarily non-cash charges related to step-up in carrying value of medical equipment	9,889			—			—
Gross margin, before purchase accounting adjustments	$	52,135		$	38,649		$	80,515
Gross margin %, before purchase accounting adjustments	43.5		%	45.5		%	45.5		%

Total revenue in the Medical Equipment Outsourcing segment was $119.8, $84.9 and $176.9 million for the seven months ended December 31, 2007, five months ended May 31, 2007 and year ended December 31, 2006, respectively.  During the seven months ended December 31, 2007 and five months ended May 31, 2007, we were successful in adding approximately 250 and 300 outsourcing customers, respectively, through organic and competitive takeaway in our acute care and AMPP customer base.  During each of the five and seven month 2007 periods, we also generated incremental business from new and existing technology in our fleet.

Total cost of revenue in the segment was $43.1, $27.7 and $59.0 million for the seven months ended December 31, 2007, five months ended May 31, 2007 and year ended December 31, 2006, respectively.  Cost of revenue in this segment relates primarily to employee related expenses, equipment repair and maintenance charges related to our movable medical equipment fleet, occupancy and freight charges.  Cost of revenue for the seven months ended December 31, 2007 includes $1.1 million of charges relating to losses on disposals of equipment which was revalued in conjunction with the Transaction.  During each of the five and seven month 2007 periods, we experienced robust rental demand from new and existing customers and incurred additional repair and maintenance and other expenses associated with increased rental activity.

Medical equipment depreciation was $34.5, $18.5 and $37.4 million for the seven months ended December 31, 2007, five months ended May 31, 2007 and year ended December 31, 2006, respectively.  During each of the five and seven month 2007 periods, we

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experienced increased medical equipment purchases to meet customer demand.  Medical equipment depreciation for the seven months ended December 31, 2007 includes $8.6 million of charges relating to purchase accounting adjustments.  In May 2007, we determined that certain pieces of respiratory equipment in our medical equipment fleet were impaired as defined by SFAS No. 144, and we wrote-off all $0.9 million of this equipment’s remaining net book value.

Gross margin percentage for the Medical Equipment Outsourcing segment was 35.3%, 45.5% and 45.5% for the seven months ended December 31, 2007, five months ended May 31, 2007 and year ended December 31, 2006, respectively.  Gross margin percentage for the seven months ended December 31, 2007 was negatively impacted by purchase accounting adjustments relating primarily to our medical equipment fleet.  During each of the five and seven month 2007 periods, lower pricing related to new GPO contracts, higher labor costs and increased depreciation had a negative impact on margins.

Gross margin percentage, before purchase accounting adjustments was 43.5%, 45.5% and 45.5% for the seven months ended December 31, 2007, five months ended May 31, 2007 and year ended December 31, 2006, respectively.  During each of the five and seven month 2007 periods, lower pricing related to new GPO contracts, higher labor costs and increased depreciation had a negative impact on margins.

Technical and Professional Services Segment – Plan & Acquire; Maintain & Repair

	Seven Months			Five Months
	Ended			Ended			Year Ended
	December 31,			May 31,			December 31,
	2007			2007			2006
(in thousands)	(Successor)			(Predecessor)			(Predecessor)
Total revenue	$	26,437		$	14,800		$	30,445
Cost of revenue	19,855			10,124			21,068
Gross margin	$	6,582		$	4,676		$	9,377
Gross margin %	24.9		%	31.6		%	30.8		%
Gross margin	$	6,582		$	4,676		$	9,377
Purchase accounting adjustments, primarily non-cash charges related to favorable lease commitments	24			—			—
Gross margin, before purchase accounting adjustments	$	6,606		$	4,676		$	9,377
Gross margin %, before purchase accounting adjustments	25.0		%	31.6		%	30.8		%

Total revenue in the Technical and Professional Services segment was $26.4, $14.8 and $30.4 million for the seven months ended December 31, 2007, five months ended May 31, 2007 and year ended December 31, 2006, respectively.  Revenue for the seven months ended December 31, 2007 and five months ended May 31, 2007 include results from our acquisition of the assets of the ICMS division of Intellamed on April 1, 2007 and were negatively impacted due to continued sales force attention on converting new

47

customers in our Medical Equipment Outsourcing segment as well as selected contract terminations.

Total cost of revenue in the segment was $19.9, $10.1 and $21.1 million for the seven months ended December 31, 2007, five months ended May 31, 2007 and year ended December 31, 2006, respectively.  Cost of revenue consists primarily of employee related expenses, vendor expenses and occupancy charges.  Cost of revenue for the seven months ended December 31, 2007 and five months ended May 31, 2007 include additional employee related and vendor expenses related to our acquisition of the assets of the ICMS division of Intellamed on April 1, 2007.

Gross margin percentage for the Technical and Professional Services segment was 24.9%, 31.6% and 30.8% for the seven months ended December 31, 2007, five months ended May 31, 2007 and year ended December 31, 2006, respectively.  The decline for the seven months ended December 31, 2007 is primarily attributable to lower gross margin percentage results from the acquisition of the assets of the ICMS division of Intellamed.

Medical Equipment Sales and Remarketing Segment – Redeploy & Remarket

	Seven Months			Five Months
	Ended			Ended			Year Ended
	December 31,			May 31,			December 31,
	2007			2007			2006
(in thousands)	(Successor)			(Predecessor)			(Predecessor)
Total revenue	$	10,209		$	7,867		$	17,698
Cost of revenue	9,005			6,366			13,387
Gross margin	$	1,204		$	1,501		$	4,311
Gross margin %	11.8		%	19.1		%	24.4		%
Gross margin	$	1,204		$	1,501		$	4,311
Purchase accounting adjustments, primarily non-cash charges related to step-up in carrying value of inventories and medical equipment	979			—			—
Gross margin, before purchase accounting adjustments	$	2,183		$	1,501		$	4,311
Gross margin %, before purchase accounting adjustments	21.4		%	19.1		%	24.4		%

Total revenue in the Medical Equipment Sales and Remarketing segment was $10.2, $7.9 and $17.7 million for the seven months ended December 31, 2007, five months ended May 31, 2007 and year ended December 31, 2006, respectively.  Robust rental demand diverted equipment for sale to our Medical Equipment Outsourcing segment during each of the five and seven month 2007 periods.

Total cost of revenue in the segment was $9.0, $6.4 and $13.4 million for the seven months ended December 31, 2007, five months ended May 31, 2007 and year ended December 31, 2006, respectively.  Cost of revenue in this segment consists primarily of cost of inventory and equipment sold and occupancy charges.  During the seven months ended December 31, 2007, purchase accounting adjustments of $1.0 million, primarily

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related to the increase in the carrying amount of inventory ($0.2 million) and medical equipment ($0.8 million), impacted the cost of revenue.

Gross margin percentage for the Medical Equipment Sales and Remarketing segment was 11.8%, 19.1% and 24.4% for the seven months ended December 31, 2007, five months ended May 31, 2007 and year ended December 31, 2006, respectively.  The impact of purchase accounting adjustments impacted gross margin percentage for the seven months ended December 31, 2007.  Margins during each of the five and seven month 2007 periods, were negatively impacted by larger individual sales with lower margins.

Gross margin percentage, before purchase accounting adjustments, for the Medical Equipment Sales and Remarketing segment was 21.4%, 19.1% and 24.4% for the seven months ended December 31, 2007, five months ended May 31, 2007 and year ended December 31, 2006, respectively.  Margins and activity in this segment will fluctuate based on the transactional nature of the business.

Selling, General and Administrative, Transaction and Related Costs and Interest Expense

	Seven Months		Five Months
	Ended		Ended		Year Ended
	December 31,		May 31,		December 31,
	2007		2007		2006
(in thousands)	(Successor)		(Predecessor)		(Predecessor)
Selling, general and administrative	$	48,647	$	28,692	$	61,940
Transaction and related costs	306		26,891		—
Interest expense	26,322		13,829		31,599
Loss on extinguishment of debt	1,041		22,396		—

Selling, General and Administrative

Selling, general and administrative expense was $48.6, $28.7 and $61.9 million for the seven months ended December 31, 2007, five months ended May 31, 2007 and year ended December 31, 2006, respectively.  Selling, general and administrative expenses consist primarily of employee-related expenses, professional fees, occupancy charges, bad debt expense, depreciation and amortization.  Expenses during the seven months ended December 31, 2007 include $9.4 million of charges related to the amortization of our intangible assets which were recorded at fair value in connection with the Transaction and non-cash stock-based compensation expense related to the 2007 Stock Option Plan of Parent of $2.4 million.  Expenses during the five months ended May 31, 2007 and year ended December 31, 2006 include expense related to our 2003 Stock Option Plan of $1.2 and $1.6 million, respectively.  Selling, general and administrative expense as a percentage of total revenue was 31.1%, 26.7% and 27.5% for the seven months ended December 31, 2007, five months ended May 31, 2007 and year ended December 31, 2006, respectively.

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Transaction and Related Costs

We incurred $0.3 and $26.9 million of expenses in connection with the Transaction during the seven months ended December 31, 2007 and five months ended May 31, 2007, respectively.  During the seven months ended December 31, 2007, these expenses consisted primarily of accounting and legal fees.  During the five months ended May 31, 2007, these expenses consisted primarily of accounting, legal, investment banking advisory and restructuring expenses totaling $13.7 million, expensed IPC fees of $6.5 million and stock-based compensation expense related to the accelerated vesting of options under our 2003 Stock Option Plan of $6.7 million.

Interest Expense

Interest expense was $26.3, $13.8 and $31.6 million for the seven months ended December 31, 2007, five months ended May 31, 2007 and year ended December 31, 2006, respectively.  Interest expense during the seven months ended December 31, 2007 includes interest charges related to the increased debt issued in connection with the Transaction, partially offset by lower average interest rates.  Interest expense includes amortization of deferred financing fees associated with our debt of $1.4, $0.7, and $1.7 million for the seven months ended December 31, 2007, five months ended May 31, 2007, and year ended December 31, 2006.

Loss on Extinguishment of Debt

During the seven months ended December 31, 2007, we incurred $1.0 million of expense related to the purchase of $15.0 million of our 10.125% Senior Notes, due 2011.  The expense consisted of a call premium of $0.7 million and the write-off of $0.3 million of unamortized deferred financing costs.

During the five months ended May 31, 2007, we incurred $22.4 million of expense related to the purchase of $235.0 million of our 10.125% Senior Notes and the termination of our Amended Credit Agreement in connection with the Transaction.  The expense consisted of call premiums of $16.1 million related to our 10.125% Senior Notes and the write-off of $6.3 million of unamortized deferred financing costs related to our 10.125% Senior Notes and Amended Credit Agreement.

Income Taxes

Income tax (benefit) expense was $(10.2), $0.5 and $0.6 million for the seven months ended December 31, 2007, five months ended May 31, 2007 and year ended December 31, 2006, respectively.  The Company moved from a net deferred tax asset position prior to the Transaction, where tax expense related primarily to minimum state taxes due to valuation allowances established for net operating losses not recognized, to a net deferred tax liability position after the Transaction.  Management believes the valuation allowance is no longer necessary as we determined that it was more likely than not that the benefits of these deferred tax assets will be realized.

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Net Income (Loss)

Net income (loss) was $(16.1), $(47.5) and $0.1 million for the seven months ended December 31, 2007, five months ended May 31, 2007 and year ended December 31, 2006, respectively.  Net loss for the seven months ended December 31, 2007 was impacted by Transaction related purchase accounting adjustments and interest associated with our Notes, partially offset by robust revenues in our Medical Equipment Outsourcing Segment and income tax benefit.  Net loss for the five months ended May 31, 2007, was impacted by $26.9 million of Transaction and related costs and $22.4 million of loss on the extinguishment of debt.

EBITDA

Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) was $48.9, $(10.3) and $77.7 million for the seven months ended December 31, 2007, five months ended May 31, 2007 and year ended December 31, 2006, respectively.  EBITDA for the seven months ended December 31, 2007 was primarily impacted by purchase accounting adjustments related to the Transaction and loss on the extinguishment of debt.  EBITDA for the five months ended May 31, 2007 was primarily impacted by Transaction and related expenses and loss on the extinguishment of debt.  Each of the seven and five month 2007 periods benefited from robust customer demand in our Medical Equipment Outsourcing segment.

EBITDA is defined as earnings before interest expense, income taxes, depreciation and amortization.  Management understands that some industry analysts and investors consider EBITDA as a supplementary non-GAAP financial measure useful in analyzing a company’s ability to service debt.  EBITDA, however, is not a measure of financial performance under GAAP and should not be considered as an alternative to, or more meaningful than, net income as a measure of operating performance or to cash flows from operating, investing or financing activities or as a measure of liquidity.  Since EBITDA is not a measure determined in accordance with GAAP and is thus susceptible to varying interpretations and calculations, EBITDA, as presented, may not be comparable to other similarly titled measures of other companies.  EBITDA does not represent an amount of funds that is available for management’s discretionary use.

For a reconciliation of EBITDA to net cash provided by operating activities, see note (2) under the caption “Selected Financial Data” in Item 6 of this Annual Report on Form 10-K.

LIQUIDITY AND CAPITAL RESOURCES

Financing Structure. Our major sources of funds are comprised of $230.0 million PIK Toggle Notes, $230.0 million Floating Rate Notes, $135.0 million senior secured credit facility, $9.9 million 10.125% Senior Notes, and $12.4 million of vehicle leases.  In connection with the Transaction, we purchased $235.0 million of our 10.125% Senior Notes and terminated our Amended Credit Agreement.

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PIK Toggle Notes. On May 31, 2007, Merger Sub issued $230.0 million aggregate original principal amount of 8.50% / 9.25% PIK Toggle Notes (the “PIK Toggle Notes”) under the Second Lien Senior Indenture (see “Second Lien Senior Indenture” below).  At the closing of the Transaction, as the surviving corporation in the Acquisition, we assumed all the obligations of Merger Sub under the Second Lien Senior Indenture.

For any interest payment period through June 1, 2011, the Company may, at its option, elect to pay cash interest, PIK interest or 50% cash interest and 50% PIK interest.  Cash interest on the PIK Toggle Notes accrues at the rate of 8.50% per annum.  PIK interest on the PIK Toggle Notes accrues at the rate of 9.25% per annum.  After June 1, 2011, the Company is required to make all interest payments on the PIK Toggle Notes entirely as cash interest.  All PIK Toggle Notes mature on June 1, 2015. Interest on the PIK Toggle Notes is payable semiannually in arrears on each June 1 and December 1.  As of December 31, 2008, we intend to make future payments in the form of cash interest.

We may redeem some or all of the PIK Toggle Notes at any time prior to June 1, 2011, at a price equal to 100% of the principal amount thereof, plus the applicable premium (as defined by the Second Lien Senior Indenture), plus accrued and unpaid interest, if any, to the date of redemption.  In addition, on or before June 1, 2010, we may redeem up to 40% of the aggregate principal amount of the PIK Toggle Notes with the net proceeds of certain equity offerings.

Except as noted above, we cannot redeem the PIK Toggle Notes until June 1, 2011.  Thereafter we may redeem some or all of the PIK Toggle Notes at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest, if any, on the PIK Toggle Notes redeemed, to the applicable redemption date, if redeemed during the 12-month period beginning on June 1 of the years indicated below, subject to the rights of noteholders:

Year	Percentage
2011	104.250	%
2012	102.125	%
2013 and thereafter	100.000	%

Upon the occurrence of a change of control, each holder of the PIK Toggle Notes has the right to require the Company to repurchase some or all of such holder’s PIK Toggle Notes at a price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, and PIK Interest, if any, to the date of purchase.

Floating Rate Notes.  On May 31, 2007, Merger Sub issued $230.0 million aggregate original principal amount of Floating Rate Notes (the “Floating Rate Notes”) under the Second Lien Senior Indenture (see “Second Lien Senior Indenture” below).  Interest on the Floating Rate Notes is reset for each semi-annual interest period and is calculated at the current LIBOR rate plus 3.375%.  At December 31, 2008, our LIBOR-based rate was 5.943%, which includes the credit spread noted above.  Interest on the Floating Rate

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Notes is payable semiannually, in arrears, on each June 1 and December 1.  At the closing of the Transaction, as the surviving corporation in the Acquisition, we assumed all the obligations of Merger Sub under the Second Lien Senior Indenture.  The Floating Rate Notes mature on June 1, 2015.

We may redeem some or all of the Floating Rate Notes at any time prior to June 1, 2009, at a price equal to 100% of the principal amount thereof, plus the applicable premium (as defined by the Second Lien Senior Indenture), plus accrued and unpaid interest, if any, to the date of redemption.  In addition, on or before June 1, 2009, we may redeem up to 40% of the aggregate principal amount of the Floating Rate Notes with the net proceeds of certain equity offerings.

Except as noted above, we cannot redeem the Floating Rate Notes until June 1, 2009.  Thereafter we may redeem some or all of the Floating Rate Notes at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest, if any, on the Floating Rate Notes redeemed, to the applicable redemption date, if redeemed during the 12-month period beginning on June 1 of the years indicated below, subject to the rights of noteholders:

Year	Percentage
2009	102.000	%
2010	101.000	%
2011 and thereafter	100.000	%

Upon the occurrence of a change of control, each holder of the Floating Rate Notes has the right to require the Company to repurchase some or all of such holder’s Floating Rate Notes at a price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase.

Interest Rate Swap. In June 2007, we entered into an interest rate swap agreement for $230.0 million, which has the effect of converting our $230.0 million of Floating Rate Notes to fixed interest rates.  The effective date for the interest rate swap agreement was December 2007 and the expiration date is May 2012.

The interest rate swap agreement qualifies for cash flow hedge accounting under SFAS 133, Accounting for Derivative Instruments and Hedging Activities.  Both at inception and on an on-going basis, we must perform an effectiveness test.  In accordance with SFAS 133, the fair value of the interest rate swap agreement at December 31, 2008 is included as a cash flow hedge on our balance sheet.  The change in fair value was recorded as a component of accumulated other comprehensive loss on our balance sheet, net of tax, since the instrument was determined to be an effective hedge at December 31, 2008.  We do not expect any amounts to be reclassified into current earnings in the future due to ineffectiveness.

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As a result of our interest rate swap agreement, we expect the effective interest rate on our $230.0 million Floating Rate Notes to be 9.065% from December 2007 through May 2012.

Second Lien Senior Indenture.  Our PIK Toggle Notes and Floating Rate Notes (collectively the “Notes”) are guaranteed, jointly and severally, on a second priority senior secured basis, by certain of our future domestic subsidiaries.  We do not currently have any subsidiaries.  The Notes are our second priority senior secured obligations and rank:

·equal in right of payment with all of our existing and future unsecured and unsubordinated indebtedness, and effectively senior to any such unsecured indebtedness to the extent of the value of collateral;

·senior in right of payment to all of our and our guarantor’s existing and future subordinated indebtedness;

·effectively junior to our senior secured credit facility and other obligations that are secured by first priority liens on the collateral securing the Notes or that are secured by a lien on assets that are not part of the collateral securing the Notes, in each case, to the extent of the value of such collateral or assets; and

·structurally subordinated to any indebtedness and other liabilities (including trade payables) of any of our future subsidiaries that are not guarantors.

The Second Lien Senior Indenture governing the Notes contains covenants that limit our and our guarantors’ ability, subject to certain definitions and exceptions, and certain of our future subsidiaries’ ability to:

·incur additional indebtedness;

·pay cash dividends or distributions on our capital stock or repurchase our capital stock or subordinated debt;

·issue redeemable stock or preferred stock;

·issue stock of subsidiaries;

·make certain investments;

·transfer or sell assets;

·create liens on our assets to secure debt;

·enter into transactions with affiliates; and

·merge or consolidate with another company.

Senior Secured Credit Facility.  In connection with the Transaction, the Company and Parent entered into a new first lien senior secured asset-based revolving credit facility providing for loans in an amount of up to $135.0 million pursuant to a credit agreement, dated as of May 31, 2007, with a group of financial institutions.  We refer to this credit facility as the “senior secured credit facility.” The senior secured credit facility is available for working capital and general corporate purposes, including permitted investments, capital expenditures and debt repayments, on a fully revolving basis, subject to the terms and conditions set forth in the credit documents in the form of revolving loans, swing line loans and letters of credit.

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The senior secured credit facility provides financing of up to $135.0 million, subject to a borrowing base calculated on the basis of certain of our eligible accounts receivable, inventory and equipment.  As of December 31, 2008, we had $84.6 million of availability under our senior secured credit facility based on a borrowing base of $135.0 million less borrowings of $49.0 million and after giving effect to $1.4 million used for letters of credit.

The senior secured credit facility matures on May 31, 2013.  Our obligations under the senior secured credit facility are secured by a first priority security interest in substantially all of our assets, excluding a pledge of our and Parent’s capital stock, any joint ventures and certain other exceptions.  Our obligations under the senior secured credit facility are unconditionally guaranteed by our Parent.

The senior secured credit facility provides that we have the right at any time to request up to $50.0 million of additional commitments, but the lenders are under no obligation to provide any such additional commitments, and any increase in commitments will be subject to customary conditions precedent, such as an absence of any default or events of default.  If we were to request any such additional commitments and the existing lenders or new lenders were to agree to provide such commitments, the senior secured credit facility size could be increased to up to $185.0 million, but our ability to borrow would still be limited by the amount of the borrowing base.

Borrowings under the senior secured credit facility accrue interest (including a credit spread varying with facility usage):

·at a per annum rate equal to 0.50% above the rate announced from time to time by the agent as the “prime rate” payable quarterly in arrears; and

·at a per annum rate equal to 1.50% above the adjusted LIBOR rate used by the agent, for the respective interest rate period determined at our option, payable in arrears upon cessation of the interest rate period elected.

At December 31, 2008, we had a one-month LIBOR-based rate and a six-month LIBOR-based rate which were accruing interest at rates of 2.461% and 4.765%, respectively, which in each case includes the credit spread noted above.  As of December 31, 2008, we had no outstanding balances under our prime rate based agreement.

Overdue principal, interest and other amounts will bear interest at a rate per annum equal to 2% in excess of the applicable interest rate.  The applicable margins of the senior secured credit facility will be subject to adjustment based upon leverage ratios.  The senior secured credit facility also provides for customary letter of credit fees, closing fees, unused line fees and other fees.

The senior secured credit facility requires our compliance with various affirmative and negative covenants.  Pursuant to the affirmative covenants, we and Parent will, among other things, deliver financial and other information to the agent, provide notice of certain events (including events of default), pay our obligations, maintain our properties,

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maintain the security interest in the collateral for the benefit of the agent and the lenders and maintain insurance.

Among other restrictions, and subject to certain definitions and exceptions, the senior secured credit facility restricts our ability to:

·incur indebtedness;

·create or permit liens;

·declare or pay dividends and certain other restricted payments;

·consolidate, merge or recapitalize;

·acquire or sell assets;

·make certain investments, loans or other advances;

·enter into transactions with affiliates;

·change our line of business; and

·enter into hedging transactions.

The senior secured credit facility also contains a financial covenant that is calculated if our available borrowing capacity is less than $15.0 million for a certain period.  Such covenant consists of a minimum ratio of trailing four-quarter EBITDA to cash interest expense, as defined in the credit agreement dated May 31, 2007.

The senior secured credit facility specifies certain events of default, including among others, failure to pay principal, interest or fees, violation of covenants, inaccuracy of representations or warranties, bankruptcy events, certain ERISA-related events, cross-defaults to other material agreements, change of control events, and invalidity of guarantees or security documents.  Some events of default will be triggered only after certain cure periods have expired, or will provide for materiality thresholds.  If such a default occurs, the lenders under the senior secured credit facility would be entitled to take various actions, including all actions permitted to be taken by a secured creditor and the acceleration of amounts due under the senior secured credit facility.

10.125% Senior Notes.  The 10.125% Senior Notes (“Senior Notes”) mature on November 1, 2011.  Interest on the Senior Notes accrues at the rate of 10.125% per annum and is payable semiannually on each May 1 and November 1.

On May 17, 2007, we entered into a supplemental indenture to the Indenture governing our Senior Notes, dated as of October 17, 2003, between the Company and Wells Fargo Bank, National Association, as trustee.  The Indenture governs the terms of the Senior Notes.  The supplemental indenture amended the Indenture.

The amendments set forth in the supplemental indenture (the “Amendments”) became operative after the Company purchased all of its Senior Notes validly tendered and not withdrawn pursuant to its tender offer and consent solicitation.  As of May 11, 2007, holders of Senior Notes representing an amount greater than a majority of the principal amount of outstanding Senior Notes had validly tendered their Senior Notes and

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consented to the execution of the supplemental indenture.  The Amendments eliminated from the Indenture:

·requirements to file reports with the Securities and Exchange Commission (“SEC”);

·requirements to pay taxes;

·limitations on the Company to use defenses against usury;

·the limitation on restricted payments;

·the limitation on payment of dividends and other payment restrictions affecting subsidiaries;

·limitations on incurrence of indebtedness and issuance of preferred stock;

·limitations on asset sales and requirements to repurchase the Senior Notes with excess proceeds thereof;

·limitations on affiliate transactions;

·limitations on liens;

·limitations on the businesses in which the Company and its subsidiaries may engage;

·requirements to preserve corporate existence;

·requirements to purchase the Senior Notes upon a change of control;

·limitation on the issuance of guarantees of indebtedness;

·limitations on the payments for consent from holders of Senior Notes;

·limitations on mergers, consolidation and sale of assets with respect to the Company;

·limitations on mergers or consolidation of, or transfer of assets of, guarantors; and

·certain events of default.

In May 2007, in connection with the Transaction, we tendered for all of our outstanding Senior Notes, pursuant to their terms.  On May 31, 2007, $235.0 million of our Senior Notes were purchased.  We paid $253.1 million, including a call premium of $16.1 million and accrued interest of $2.0 million to complete the purchase.  We used proceeds from the issuance of our Notes to redeem a portion of our Senior Notes.

On June 13, 2007, we purchased an additional $15.1 million of our remaining Senior Notes, pursuant to their terms.  We paid $15.9 million of cash including a call premium of $0.7 million and accrued interest of $0.1 million to complete the purchase.

The Company has the right to redeem some or all of the remaining $9.9 million of Senior Notes at the redemption prices (expressed as a percentage of principal amount) set forth below, plus accrued and unpaid interest, if any, if redeemed during the 12-month period beginning on November 1 of the years indicated below, subject to the rights of the noteholders:

Year	Percentage
2008	102.531	%
2009 and thereafter	100.000	%

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Termination of Our Amended Credit Agreement.  In connection with the Transaction, we repaid all outstanding balances and terminated our Amended Credit Agreement.

Liquidity

Our principal sources of liquidity are expected to be cash flows from operating activities and borrowings under our senior secured credit facility, which matures in May 2013.  It is anticipated that our principal uses of liquidity will be to fund capital expenditures related to purchases of medical equipment, provide working capital, meet debt service requirements and finance our strategic plans.

We require substantial cash to operate our Medical Equipment Outsourcing programs and service our debt.  Our outsourcing programs require us to invest a significant amount of cash in medical equipment purchases.  To the extent that such expenditures cannot be funded from our operating cash flow, borrowing under our senior secured credit facility or other financing sources, we may not be able to conduct our business or grow as currently planned.  We currently expect that over the next 12 months, we will invest approximately $60.0 million in new medical equipment and other capital expenditures. This estimate is subject to numerous assumptions, including revenue growth and the number of AMPP signings.

If we are unable to generate sufficient cash flow from operations in order to service our debt, we will be forced to take actions such as reducing or delaying capital expenditures, selling assets, restructuring or refinancing our debt, electing to pay PIK interest on our PIK Toggle Notes, or seeking additional equity capital.  This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.  If we are unable to repay our debt at maturity, we may have to obtain alternative financing, which may not be available to us.

The following table sets forth selected historical information regarding our cash flows:

				Seven Months			Five Months
	Year Ended			Ended			Ended			Year Ended
	December 31,			December 31,			May 31,			December 31,
	2008			2007			2007			2006
(in thousands)	(Successor)			(Successor)			(Predecessor)			(Predecessor)
Net cash provided by (used in) operating activities	$	56,249		$	(4,495	)	$	34,318		$	48,871
Net cash used in investing activities	(71,395		)	(370,870		)	(48,060		)	(51,711		)
Net cash provided by financing activities	27,152			375,365			13,742			2,840

Net cash provided by (used in) operating activities was $56.2, $(4.5), $34.3, and $48.9 million for the year ended December 31, 2008, seven months ended December 31, 2007, five months ended May 31, 2007, and year ended December 31, 2006, respectively.  During the seven months ended December 31, 2007, net cash used in operating activities was impacted primarily by the payment of accrued expenses related to the Transaction.

Net cash used in investing activities was $71.4, $370.9, $48.1, and $51.7 million for the year ended December 31, 2008, seven months ended December 31, 2007, five months

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ended May 31, 2007, and year ended December 31, 2006, respectively.  During the seven months ended December 31, 2007, net cash used in investing activities was primarily comprised of $335.1 million used for the Acquisition of Universal Hospital Services, Inc. by Parent.  During the five months ended May 31, 2007, net cash used in investing activities was impacted by $14.6 million for the acquisition of the assets of the ICMS division of Intellamed.

Net cash provided by financing activities was $27.2, $375.4, $13.7, and $2.8 million for the year ended December 31, 2008, seven months ended December 31, 2007, five months ended May 31, 2007, and year ended December 31, 2006, respectively.  During the seven months ended December 31, 2007, net cash provided by financing activities benefited from the issuance of our Notes and cash equity contributions of $460.0 and $239.8 million, respectively and, partially offset by cash outlays related to the purchase of certain Predecessor debt.

Off-Balance Sheet Arrangements

As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (“SPEs”), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.   As of December 31, 2008, we do not have any SPE transactions.

Contractual Obligations.  The following is a summary as of December 31, 2008, of our future contractual obligations:

	Payments due by period
(in thousands)									2014 and
Contractual Obligations	Total		2009		2010-2011		2012-2013		beyond
Long-term debt principal obligations	$	531,343	$	3,555	$	15,525	$	51,156	$	461,107
Interest on Senior Notes	3,021		1,007		2,014		—		—
Interest on Notes (1)	200,049		40,400		80,799		49,525		29,325
Interest on capital lease obligations	953		396		400		124		33
Operating lease obligations	27,344		5,702		8,778		6,916		5,948
Purchase obligations	8,560		8,560		—		—		—
Pension obligations (2)	360		360		—		—		—
Unrecognized tax positions (3)	2,100		—		—		—		—
Total contractual obligations	$	773,730	$	59,980	$	107,516	$	107,721	$	496,413

(1)

In June 2007, we entered into an interest rate swap agreement that is accounted for as a cash flow hedge. The interest rate swap agreement is effective from December 2007 to May 2012. Interest rates through the interest rate swap agreement period were prepared using our expected effective interest rate. Interest rates subsequent to the termination date of the interest rate swap agreement have not been included as we cannot reasonably estimate future interest payments (See “Interest Rate Swap” above). If the interest rate on our $230.0 million of Floating Rate Notes was 5.943%, after the expiration of the swap, interest payments on these Floating Rate Notes would be $13.7 million annually.

(2)

While our pension liability at December 31, 2008 was approximately $7.8 million, we cannot reasonably estimate required payments beyond 2009 due to changing actuarial and market conditions.

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(3) We cannot reasonably determine the exact timing of payments related to our unrecognized tax positions.

Based on the level of operating performance expected in 2009, we believe our cash from operations, together with additional borrowings under our senior secured credit facility, will meet our liquidity needs for the foreseeable future, exclusive of any borrowings that we may make to finance potential acquisitions.  However, if during that period or thereafter we are not successful in generating sufficient cash flows from operations or in raising additional capital when required in sufficient amounts and on terms acceptable to us, our business could be adversely affected.  As of December, 31, 2008, we had $84.6 million of unused borrowing availability under our senior secured credit facility based on a borrowing base of $135.0 million less borrowings of $49.0 million and after giving effect to $1.4 million used for letters of credit.  On March 11, 2009 we drew an additional $31.0 million from our senior secured credit facility to, among other things, pre-borrow for our upcoming interest payments on our Floating Rate Notes and PIK Toggle Notes, which are due on June 1, 2009.

Our levels of borrowing are further restricted by the financial covenants set forth in our senior secured credit facility agreement and the Second Lien Senior Indenture governing our Notes, which covenants are summarized above.  As of December 31, 2008, the Company was in compliance with all covenants under the senior secured credit facility.

Our expansion and acquisition strategy may require substantial capital. Sufficient funding for future acquisitions may not be available under our existing revolving credit facility, and we may not be able to raise any necessary additional funds through bank financing or the issuance of equity or debt securities on terms acceptable to us, if at all.

RECENT ACCOUNTING PRONOUNCEMENTS

Standards Adopted

In February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, which permits entities to elect to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value.  This election is irrevocable.  The provisions of SFAS No. 159 are effective for fiscal years beginning after November 15, 2007.  We adopted the provisions of SFAS No. 159 on January 1, 2008.  We did not elect the fair value option for any assets or liabilities.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements.  SFAS No. 157, which establishes a consistent framework for measuring fair value and expands disclosures on fair value measurements. Considerable judgment may be required in interpreting market data used to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that could be realized in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value.  SFAS No. 157 was effective for the Company starting in fiscal 2008 with respect to financial

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assets and liabilities. The impact of the initial adoption of SFAS No. 157 in 2008 had no impact on our financial statements.

Financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2008 are summarized in the following table by type of inputs applicable to the fair value measurements:

	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant		Total
	Indentical		Observable		Unobservable		as of
(in thousands)	Assets		Inputs		Inputs		December 31,
Description	(Level 1)		(Level 2)		(Level 3)		2008
Short term investments	$	—	$	1,500	$	—	$	1,500
Loss on swap contract	—		27,167		—		27,167
	$	—	$	28,667	$	—	$	28,667

A description of the inputs used in the valuation of assets and liabilities is summarized in the following table:

Level 1 – Inputs represent unadjusted quoted prices for identical assets or liabilities exchanged in active markets.

Level 2 – Inputs include directly or indirectly observable inputs other than Level 1 inputs such as quoted prices for similar assets or liabilities exchanged in active or inactive markets; quoted prices for identical assets or liabilities exchanged in inactive markets; other inputs that are considered in fair value determinations of the assets or liabilities, such as interest rates and yield curves that are observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks and default rates; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 – Inputs include unobservable inputs used in the measurement of assets and liabilities. Management is required to use its own assumptions regarding unobservable inputs because there is little, if any, market activity in the assets or liabilities or related observable inputs that can be corroborated at the measurement date. Measurements of nonexchange traded derivative contract assets and liabilities are primarily based on valuation models, discounted cash flow models or other valuation techniques that are believed to be used by market participants. Unobservable inputs require management to make certain projections and assumptions about the information that would be used by market participants in pricing assets or liabilities.

With respect to non-financial assets and liabilities, SFAS No. 157 is effective for the Company starting in fiscal 2009. We have not determined the impact of the adoption of the non-financial asset and liability provisions SFAS No. 157 on our financial statements.

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Standards Issued Not Yet Adopted

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, which establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) is to be applied prospectively to business combinations for which the acquisition date is on or after the beginning of an entity’s fiscal year that begins on or after December 15, 2008. Beginning January 1, 2009 we will apply the provisions of SFAS No. 141(R) to our accounting for applicable business combinations.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities. SFAS No. 161 expands disclosures but does not change accounting for derivative instruments and hedging activities.  Pursuant to the transition provisions of SFAS No. 161, the Company will adopt SFAS No. 161 in fiscal year 2009 and will present the required disclosures in the prescribed format on a prospective basis. SFAS No. 161 will not impact the Company’s financial statements as its requirements relate only to disclosure.

FORWARD LOOKING STATEMENTS

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

We believe statements in this Annual Report on Form 10-K looking forward in time involve risks and uncertainties.  The following factors, among others, could adversely affect our business, operations and financial condition causing our actual results to differ materially from those expressed in any forward-looking statements:

·our history of net losses and substantial interest expense;

·our need for substantial cash to operate and expand our business as planned;

·our substantial outstanding debt and debt service obligations;

·restrictions imposed by the terms of our debt;

·a decrease in the number of patients our customers are serving;

·our ability to effect change in the manner in which health care providers traditionally procure medical equipment;

·the absence of long-term commitments with customers;

·our ability to renew contracts with GPOs and IDNs;

·changes in reimbursement rates and policies by third-party payors;

·the impact of health care reform initiatives;

·the impact of significant regulation of the health care industry and the need to comply with those regulations;

·the effect of prolonged negative changes in domestic and global economic conditions;

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·difficulties or delays in our continued expansion into certain of our businesses/geographic markets and developments of new businesses/geographic markets;

·additional credit risks in increasing business with home care providers and nursing homes;

·impacts of equipment product recalls or obsolescence;

·increases in vendor costs that cannot be passed through to our customers; and

·the risk factors as set forth in Item 1A.

We undertake no obligation, and specifically decline any obligation, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  In light of these risks, uncertainties and assumptions, the forward-looking events included in this Annual Report on Form 10-K might not occur.

ITEM 7A:  Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk arising from adverse changes in interest rates and fuel costs.  We do not enter into derivatives or other financial instruments for speculative purposes.

Interest Rates

We use both fixed and variable rate debt as sources of financing.  As of December 31, 2008, we had approximately $531.3 million of total debt outstanding, of which $49.0 million was bearing interest at variable rates approximating 3.4%.  Based on variable debt levels at December 31, 2008 and 2007, a 1.0 percentage point change in interest rates on variable rate debt would have resulted in annual interest expense fluctuating approximately $0.5 and $0.2 million, respectively.

In June 2007, we entered into an interest rate swap agreement for $230.0 million, which has the effect of converting our $230.0 of Floating Rate Notes to fixed interest rates.  The effective date for the interest rate swap agreement was December 2007 and the expiration date is May 2012.

The interest rate swap agreement qualifies for cash flow hedge accounting under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.  Both at inception and on an on-going basis, we must perform an effectiveness test.  In accordance with SFAS No. 133, the fair value of the interest rate swap agreement at December 31, 2008 is included as a cash flow hedge on our balance sheet.  The change in fair value was recorded as a component of accumulated other comprehensive loss, net of tax, on our balance sheet since the instrument was determined to be an effective hedge at December 31, 2008.  We do not expect any amounts to be reclassified into current earnings in the future due to ineffectiveness.  As a result of our interest rate swap agreement, we expect the effective interest rate on our $230.0 million Floating Rate Notes to be 9.065% from December 2007 through May 2012.

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Fuel Costs

We are exposed to market risks related to changes in the price of gasoline used to fuel our fleet of delivery and sales vehicles.  A hypothetical 10% increase in the average December 2008 and December 2007 prices of unleaded gasoline, assuming gasoline usage levels for the years then ended, would lead to an annual increase in fuel costs of approximately $0.2 and $0.3 million, respectively.

Pension

Our pension obligations are also affected by market risk.  Continued distress in the financial markets may impact the fair value of debt and equity securities in our pension trust.

Other Market Risk

As of December 31, 2008, we have no other material exposure to market risk.

ITEM 8:  Financial Statements and Supplementary Data

The following table sets forth certain unaudited quarterly financial data for 2008 and 2007.  In our opinion, this unaudited information has been prepared on the same basis as the audited information and includes all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the information set forth therein.  The operating results for any one quarter are not necessarily indicative of results for any future period.

Selected Quarterly Finanancial Information

(Unaudited)

	Year Ended December 31, 2008 (Successor)
	Quarter Ended
(dollars in thousands)	March 31			June 30			September 30			December 31
Total revenues	$	75,444		$	71,684		$	70,979		$	71,012
Gross margin	$	28,395		$	23,580		$	21,912		$	23,302
Gross margin %	37.6		%	32.9		%	30.9		%	32.8		%
Net loss	$	(3,186	)	$	(6,054	)	$	(7,110	)	$	(7,146	)
Net cash provided by operating activities	18,898			9,373			22,724			5,254
Net cash used in investing activities	(29,031		)	(13,872		)	(8,748		)	(19,744		)
Net cash (used in) provided by financing activities	$	10,133		$	4,850		$	(14,327	)	$	26,496

	Year Ended December 31, 2007
	Quarter			Two Months			Month			Quarter			Quarter
	Ended			Ended			Ended			Ended			Ended
	March 31			May 31			June 30			September 30			December 31
(dollars in thousands)	(Predecessor)			(Predecessor)			(Successor)			(Successor)			(Successor)
Total revenues	$	63,549		$	43,973		$	21,602		$	65,183		$	69,669
Gross margin	$	27,774		$	17,052		$	7,316		$	20,985		$	21,731
Gross margin %	43.7		%	38.8		%	33.9		%	32.2		%	31.2		%
Net income (loss)	$	3,190		$	(50,664	)	$	(2,548	)	$	(6,907	)	$	(6,641	)
Net cash provided by (used in) operating activities	19,286			15,032			(26,013		)	20,877			$	641
Net cash used in investing activities	(22,062		)	(25,998		)	(337,689		)	(11,196		)	$	(21,985	)
Net cash (used in) provided by financing activities	$	2,776		$	10,966		$	367,185		$	(13,164	)	$	21,344

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The Report of the Independent Registered Public Accounting Firm, Financial Statements, and Schedules are set forth in Part IV, Item 15 of this Annual Report of Form 10-K.

ITEM 9:  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

On June 5, 2007, the audit committee of the board of directors dismissed PricewaterhouseCoopers LLP (“PwC”) as our independent registered public accounting firm.

During the fiscal year ended December 31, 2006 and through June 5, 2007, there were no disagreements with PwC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to PwC’s satisfaction, would have caused PwC to make reference thereto in its report regarding the Company’s financial statements for such years.

During the fiscal year ended December 31, 2006 and through June 5, 2007, there were no “reportable events,” as that term is defined under Item 304(a)(1)(v) of Regulation S-K or any “disagreements,” as that term is defined under Item 304(a)(1)(iv) of Regulation S-K.

The report of PwC on the financial statements of the Company for the fiscal year ended December 31, 2006 did not contain any adverse opinion or disclaimer of opinion, and such report was not qualified or modified as to uncertainty, audit scope or accounting principle.

On June 20, 2007, we engaged Deloitte & Touche LLP (“Deloitte”) as our new independent registered public accounting firm.  During the fiscal year ended December 31, 2006 and through June 19, 2007, the Company has not consulted with Deloitte regarding issues of the type described in Item 304(a)(2) of Regulation S-K.

ITEM 9A(T):  Controls and Procedures

Evaluation of Disclosure Controls and Procedures.  Our management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rule 13a-15(e) of the Securities Exchange Act of 1934.  As of the end of the period covered by this report, we performed an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based upon, and as of the date of that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that our Company files or submits to the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

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Management’s Annual Report on Internal Control over Financial Reporting.  Our management is responsible for establishing and maintaining adequate internal control over financial reporting.  Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of our principal executive and principal financial officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States.  Such internal control includes those policies and procedures that:

·pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets;

·provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors; and

·provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2008.  In making this assessment, it used the criteria set forth in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that, as of December 31, 2008, our internal control over financial reporting is effective based on those criteria.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this annual report.

/s/ Gary D. Blackford	/s/ Rex T. Clevenger
Gary D. Blackford	Rex T. Clevenger
Chairman of the Board and	Executive Vice President and
Chief Executive Officer	Chief Financial Officer

Changes in Internal Controls over Financial Reporting. There were no changes in our internal controls over financial reporting during the quarter ended December 31, 2008, that have materially affected, or were reasonably likely to materially affect, our internal controls over financial reporting.

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ITEM 9B:  Other Information

None.

PART III

ITEM 10:  Directors, Executive Officers and Corporate Governance

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth the ages and the current positions of our executive officers and directors as of March 1, 2009.

Name	Age	Position
Gary D. Blackford	51	Chairman of the Board and Chief Executive Officer
Rex T. Clevenger	51	Executive Vice President and Chief Financial Officer
Timothy W. Kuck	51	Executive Vice President and Chief Operating Officer
Jeffrey L. Singer	47	Executive Vice President, Sales
Diana J. Vance-Bryan	52	Senior Vice President and General Counsel
Walter T. Chesley	54	Senior Vice President, Human Resources and Development
William Heintze	50	Senior Vice President, National Accounts
David Lawson	52	Senior Vice President, Information and Strategic Resources
Scott M. Madson	48	Vice President, Controller, and Chief Accounting Officer
Barry P. Schochet	57	Director
Bret D. Bowerman	32	Director
David Crane	52	Director
John D. Howard	56	Director
Kevin L. Roberg	57	Director
Mark M. McKenna	60	Director
Robert Juneja	38	Director
David E. Dovenberg	64	Advisory Audit Committee Member

Gary D. Blackford has been Chairman of the Board of Directors and Chief Executive Officer since 2007.  Prior thereto, Mr. Blackford had been President, Chief Executive Officer and a member of the Board of Directors since 2002.  Before joining us, Mr. Blackford was Chief Executive Officer for Curative Health Services, Inc., from 2001 to 2002 and, prior to that, for Shop for School.com, Inc., from 1999 to 2001.  He also served as Chief Operating Officer of ValueRx, Inc., from 1994 to 1996 and as Chief Operating Officer and Chief Financial Officer of MedIntell Systems Corporation from 1993 to 1994.  He currently serves on the Board of Directors of Wright Medical Group, Inc.  Mr. Blackford holds a Bachelor of Business Administration degree from The University of Iowa, a Juris Doctor degree from Creighton University and received a Certified Public Accountant certificate.

Rex T. Clevenger joined us in 2004 as Senior Vice President and Chief Financial Officer and became Executive Vice President and Chief Financial Officer in 2007. He has over 30 years of financial operations and capital markets experience, including extensive capital attraction, corporate finance and planning roles as Senior Vice President, Finance for Reliant Resources, Inc. (now Reliant Energy, Inc.), an electricity and energy services

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company, in Houston from 2000 to 2004, and with privately held Koch Industries, Inc in Wichita and Singapore from 1994 to 2000. He also worked in various corporate, commercial and investment banking roles in Houston and New York from 1982 to 1994, and as a Certified Public Accountant for Arthur Andersen LLP from 1979 until 1982. He is a graduate of the University of Missouri and holds a Bachelor of Science degree in Business Administration.

Timothy W. Kuck was named Executive Vice President and Chief Operating Officer in 2007. Mr. Kuck had served as Senior Vice President of Operations since 2005 and from 2004 to 2005 served as Vice President of Operations for our central region. He has over 20 years of progressive managerial growth in sales, operation, finance and corporate administration. Prior to joining us, Mr. Kuck held the positions of Regional Vice President (1999-2003) and Chief Financial Officer and Secretary (1997-1999) at G&K Services, Inc., a provider of branded identity apparel and facility service programs.  Between the years of 1995-1997 at First Data Corporation, a transaction processing company that acquired Employee Benefit Plans, Inc. in 1995, he held the titles of President of EBPLife Insurance Company and Senior Vice President of First Health Group Corp., a provider of health benefits services. During Mr. Kuck’s pre-acquisition tenure at Employee Benefit Plans, he held the positions of Chief Financial Officer and Secretary (1993-1995), President of EBPLife Insurance Company (1993-1997) and General Counsel and Secretary (1991-1993). Mr. Kuck also was an attorney at Popham, Haik, Schnobrich & Kaufman, Ltd., in Minneapolis, Minnesota from 1984 to 1991. Mr. Kuck holds a Juris Doctor degree from the University of Minnesota Law School and a Bachelor of Arts degree from Augustana College in South Dakota. Mr. Kuck also received a Certified Public Accountant certification.

Jeffrey L. Singer was named Executive Vice President, Sales in 2008.  Prior to that time Mr. Singer had been the Executive Vice President, Sales & Marketing since 2007 and had served as Senior Vice President, Asset Optimization since 2003.  From 1999 to 2003, he was Vice President, Purchasing and Logistics and from 1998 to 1999, he was Vice President of Alternate Care-West. Mr. Singer was Chief Executive Officer of Home Care Instruments, Inc., a medical device company acquired by UHS in 1998 (“HCI”), and held various other positions at HCI from 1986 to 1991. He holds a Bachelor of Science degree in Marketing and Logistics from the University of Missouri.

Diana Vance-Bryan joined us in 2006 as Senior Vice President and General Counsel.  She has over 20 years of legal experience, primarily in the health care sector.  From 2004 to 2006, Ms. Vance-Bryan served as Vice President and General Counsel of Novartis Nutrition Corporation, a leading manufacturer of medical nutrition products, which was acquired by Nestlè in 2007.  Prior to joining Novartis Nutrition Corporation and re-joining Novartis, Ms. Vance-Bryan was a shareholder in the Twin Cities law firm of Briggs and Morgan, P.A. from 2003 through 2004. Ms. Vance-Bryan is a graduate of Mercy Hospital School of Nursing, received a Bachelor of Science degree in nursing from The University of Iowa College of Nursing and a Juris Doctor degree from The University of Iowa College of Law.

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Walter T. Chesley joined us in 2003 as Senior Vice President, Human Resources and Development. He has over 25 years of human resources experience, most recently with Children’s Hospitals and Clinics, the largest pediatric health care provider in the upper Midwest, where he was Vice President, Human Resources and Chief Administrative Officer from 2000 to 2003.  From 1997 to 2000, Mr. Chesley was Vice President, Human Resources for Ceridian Corporation, a leading provider of human resources management, payroll outsourcing, tax filing and benefits administration services. Prior to that, he was Assistant Vice President of the Dun & Bradstreet Corporation and Reuben H. Donnelley directory publishing division. Mr. Chesley has a Bachelor of Science degree in Communications and Public Relations from Boston University and a Juris Doctor degree from the American University Washington College of Law.

William S. Heintze joined us in 2004 as the Senior Vice President of National Accounts and is responsible for managing our national and large customer relationships, including GPOs and IDNs.  From 2000 to 2004, Mr. Heintze was Vice President of National Accounts at Medline Industries, a privately-held national manufacturer and distributor of health care supplies and services.  From 1989 to 2000, he worked for Sage Products Inc., a provider of patient cleansing products, where he held titles of Regional Sales Manager, Director of Alternate Care Sales, and Director of National Accounts.  Mr. Heintze has over 25 years of sales and marketing experience and holds a Bachelor of Business Administration Degree from The University of Iowa.

David G. Lawson has been the Senior Vice President of Information and Strategic Resources since 2007.  Prior to that time, Mr. Lawson had been the Senior Vice President of Technology, Professional Services, Marketing and Facilities since 2002.  He has over 30 years of technology experience, 20 of those in the health care/financial services industries with ValueRx, Inc., EBP Health Plans, Inc., North Central Life Insurance Co., Norwest Technical Services, Inc., a computer and technology division of what is now Wells Fargo Bank, and Curative Health Services, Inc.  He was Chief Administrative Officer of Curative Health Services, Inc. from 2001 to 2002.  Prior to that, he was Chief Operating Officer and Chief Technology Officer for Shop for School.com, Inc. from 1999 to 2001.  Prior to that, he was Chief Information Officer of ValueRx, Inc. from 1995 to 1998.   Early in his career he spent four years as a management consultant with Deloitte & Touche LLP and five years with Best Products Limited, a national catalog showroom retailer.  He holds a Bachelor of Science degree in Hospital Administration from Concordia College.

Scott M. Madson joined us in 2006 as Controller and Chief Accounting Officer and was named Vice President in 2008. He has over 20 years of accounting and financial management experience, most recently with Nextel Partners, Inc., a wireless telecommunications provider and predecessor to Sprint Nextel Corporation, where he was the Controller from 2004 to 2006. From 1998 to 2004, Mr. Madson was Director of Financial Accounting with RBC Dain Rauscher, Inc., a Minneapolis, Minnesota-based securities brokerage and investment banking firm and predecessor to RBC Wealth Management. Prior to that, he held financial reporting and internal audit managerial positions at RBC Dain Rauscher as well as audit positions with Deloitte & Touche LLP.

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Mr. Madson received a Certified Public Accountant certificate and received a Bachelor of Science degree in accounting from the University of Minnesota.

Barry P. Schochet has served as a director and as a member of our audit committee since 2008.  Mr. Schochet currently is President and Chief Executive Officer of BPS Health Ventures, LLC, a health care consulting and equity investment firm, a position he has held since 2005.  From 1995 until 2005, he served in several executive capacities at Tenet Healthcare Corporation, including Vice Chairman.  Through its subsidiaries, Tenet owns and operates acute care hospitals and related health care services.  He also has served as the hospital division president for National Medical Enterprises (now Tenet Healthcare Corporation) and as Chief Executive Officer of Cypress Community Hospital in Pompano Beach, Florida.  Mr. Schochet serves as a board member of Broadlane, Inc., and as an advisor to Tri Cap Technology Group and The Beryl Companies.  Mr. Schochet holds a Master’s degree in hospital administration from George Washington University and a Bachelor’s degree in zoology from the University of Maine.

Bret D. Bowerman has been a director and a member of our audit committee since 2007. Mr. Bowerman is a Vice President of Irving Place Capital (formerly known as BSMB).  When with BSMB, Mr. Bowerman held the position of Senior Associate.  Prior to joining BSMB in 2007, Mr. Bowerman worked as a Research Analyst at investment manager GoldenTree Asset Management from 2006 to 2007 and from 2001 to 2003 he worked as an Associate at the private equity firm DB Capital Partners. Mr. Bowerman holds a Master of Business Administration degree from the Wharton School of the University of Pennsylvania and a Bachelor of Arts degree in Economics from Washington & Lee University.

David Crane has been a director and as a member of the compensation committee since 2008.  Mr. Crane currently serves as Executive Chairman of NewHope Bariatrics, Inc.  NewHope Bariatrics, in partnership with physicians, owns and manages ambulatory surgery centers dedicated to meeting the needs of the morbidly obese patient.  In addition, Mr. Crane is former President and Chief Executive Officer of MedCath, Inc., serving in such capacity from 2000 to 2003.  MedCath is a healthcare provider primarily focused on the development and operation of physician-owned heart hospitals throughout the United States.  Mr. Crane also served as a director of MedCath and, from 1989 to 1999, as its Chief Operating Officer.  Prior to his tenure at MedCath, Mr. Crane served from 1985 to 1989 as Chief Operating Officer of MediVision, Inc., a privately held company that developed and managed ophthalmic ambulatory surgery centers and physician practices nationally. MediVision was sold to Medical Care International in 1989.  Mr. Crane serves as a senior advisor of Irving Place Capital, a director of NewHope Bariatrics, Inc. and Alveolus Inc. and is on the Board of Trustees of the Charlotte Latin School.  Mr. Crane served as a director of Orion HealthCorp, Inc. until January 2008 and from November 2003 until August 2007, Mr. Crane served as a director of Pediatric Services, Inc.  Mr. Crane holds a Master of Business Administration degree from Harvard Business School and a Bachelor of Arts degree from Yale College.

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John D. Howard became a director in 2007. Mr. Howard has served since November 2008 as Chief Executive Officer of Irving Place Capital formerly Bear Stearns Merchant Banking (“BSMB”), a leading institutional private equity firm focused on making equity investments in middle-market companies.  Prior to November 2008, Mr. Howard was the founder and Chief Executive Officer of BSMB and a Senior Managing Director of the investment bank Bear, Stearns & Co. Inc.  From 1990 until 1995, Mr. Howard was the co-CEO of Vestar Capital Partners, a private investment firm specializing in management buyouts, from 1984 to 1989 Mr. Howard was a Senior Vice President and Partner of Wesray Capital Corporation, an investment firm.  He currently serves on the board of directors of New York & Company, Inc., Stuart Weitzman Holdings, LLC, Aéropostale, Inc., Balducci’s Food Lover’s Market, and Multi Packaging Solutions Company.  Additionally, Mr. Howard is a member of the Advisory Board of the Yale School of Management as well as a trustee of Mount Sinai Hospital. Mr. Howard holds a Master of Business Administration degree from the Yale School of Management and a Bachelor of Arts degree from Trinity College.

Kevin L. Roberg has been a director and has served as chairman of the audit committee since 2007.  Mr. Roberg is the founder and managing partner of Kelsey Capital Management, a private investment firm, and is a general partner with the Menlo Park, California-based healthcare venture capital firm Delphi Ventures.  Mr. Roberg is also a director of Thomas and Betts Corporation, Snap Fitness, Inc., Ryan Companies US, Inc., JLJ Medical Devices International LLC, Novologix, Inc., Yale Mechanical Inc., Lake Air Metal Products, LLC, Vivius, Inc., and ProStaff, Inc.  In addition to his duties at Kelsey Capital and Delphi Ventures, Mr. Roberg has held a variety of executive positions in the staffing and healthcare field.  From 2007 to 2008, Mr. Roberg served as interim Chairman and CEO of ProStaff, Inc., following the death of its founder.  From 1995 to 1998, Mr. Roberg served as President and Chief Executive Officer of ValueRx.  In 1995, until it was acquired by ValueRx, Inc., Mr. Roberg served as President and Chief Executive Officer of Medintell Systems Corporation, a pharmaceutical information management company.  From 1994 to 1995, Mr. Roberg served as president of Western Health Plans and president of PRIMExtra, Inc. for EBP Health Plans, Inc. a third-party administrator.  Mr. Roberg received a Bachelor of Science degree from The University of Iowa.

Mark M. McKenna has served as a director and as a member of our compensation committee since 2008.  Mr. McKenna has over 30 years of health care industry experience. Mr. McKenna retired as the President and Chief Executive Officer of Novation, LLC, a health care services company, in 2006. He had served as the President of Novation since 1999.  Mr. McKenna serves as a director of SterilMed, Inc., Suture Express, Inc., LifeNexus, Inc., and The MED Group and on the Board of Advisors for The Beryl Companies. Mr. McKenna holds a Master of Business Administration degree from Suffolk University and a Bachelor of Science degree in Business Administration from Boston College.

Robert Juneja has been a director and has served as chairman of our compensation committee since 2007. Mr. Juneja is a Senior Managing Director and Partner of Irving

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Place Capital (formerly BSMB).  When with BSMB Mr. Juneja held the title of Partner and was a Senior Managing Director of Bear, Stearns & Co. Inc. since 2007.  Mr. Juneja joined BSMB in 2000 and focused on investments in financial services and health care services. Prior to joining BSMB, Mr. Juneja was Vice President of Corporate Development at Destia Communications. Mr. Juneja serves on the board of directors of Manifold Capital Corp., Alter Moneta Holdings, Caribbean Financial Group, Cavalry Investments Holdings and Churchill Financial Holdings. Mr. Juneja holds a Master of Business Administration degree from the Wharton School of the University of Pennsylvania and a Bachelor of Arts degree in Mathematics from the University of Michigan.

David E. Dovenberg has served as an advisory member on our audit committee since June 2008. Mr. Dovenberg had been Non-Executive Chairman of the Board since 2004 and was Chairman of the Board between 2001 and 2004. Mr. Dovenberg was our President and Chief Executive Officer from 1998 to 2002. He joined us in 1988 as Vice President, Finance and Chief Financial Officer and served in this role until 1998. Prior to joining us, 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.  He holds a Master’s degree in Economics from the University of Minnesota and a Bachelor of Arts degree from Gustavus Adolphus College.

MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors

Each director is expected to devote sufficient time, energy and attention to ensure diligent performance of his or her duties.  Our board met five times during 2008, three of which occurred subsequent to the election of our directors, David Crane, Mark McKenna, and Barry Schochet, on March 13, 2008.  All of our current directors attended 75 percent or more of the meetings of our board and various committees that occurred during their term of service during 2008, except for Barry Schochet, who attended two of the three board of directors meetings held after he was elected to the board.  We believe that Kevin Roberg, Mark McKenna and Barry Schochet are independent as defined under the current rules of The NASDAQ Stock Market LLC (“NASDAQ”) and the New York Stock Exchange (“NYSE”).  John Howard, Robert Juneja and Bret Bowerman, the Irving Place Capital Directors, are not considered to be independent, because each is associated with IPC and Parent, David Crane is not considered to be independent, because he serves as a senior advisor to IPC, and Mr. Blackford is not considered to be independent, because he serves as chairman of the board and chief executive officer of Parent.

Under a securityholders agreement among Parent, IPC/UHS, L.P. and IPC/UHS Co-Investment Partners, L.P., which are both affiliates of IPC (together, “IPC/UHS”), Gary D. Blackford and Kathy Blackford (together, “Blackford”) and certain other securityholders of Parent (referred to, with Blackford, as the “Parent Securityholders”), IPC/UHS, the Parent Securityholders and their respective permitted transferees have

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agreed to vote all of their Parent securities so that the following individuals are elected to our board of directors and continue to serve on the board:

·three representatives (the “Irving Place Capital Directors”) designated by the holders of at least a majority of the common stock and common stock equivalents included in the Parent securities issued or issuable to IPC/UHS or any permitted transferees of IPC/UHS, and

·the chief executive officer of the Company, currently Gary Blackford, provided that Mr. Blackford is entitled to remain as a director following the termination of his employment with the Company so long as (i) he continues to own at least 50% of the Parent securities owned by him as of the date of the securityholders agreement, and (ii) he is not employed by, or consulting for, any competitor of the Company or any of its subsidiaries.

In addition, the Parent Securityholders have agreed to vote all of their Parent securities so that any committee of the Company will include at least two IPC Directors, and, for so long as he is a director, our chief executive officer, unless he waives this right or unless our board of directors desires to exclude officers from such committee.

John Howard, Robert Juneja and Bret Bowerman are the current IPC Directors designated to serve on our board of directors.  Mr. Bowerman also serves on our audit committee, and Mr. Juneja also serves on our compensation committee.

Committees of the Board of Directors

Audit Committee

Our audit committee members are Kevin Roberg, Bret Bowerman and Barry Schochet.  Mr. Schochet was elected to the committee on July 1, 2008.  David Dovenberg serves as an advisor to the audit committee but is not a member of the committee and does not vote on matters before the committee.  Mr. Roberg is the chairman. The audit committee met four times during 2008, with all then active members present.  The audit committee, among other things:

·reviews the results of the independent registered public accounting firm’s annual audit and its required communication on any significant adjustments, management judgments and estimates, new accounting policies and disagreements with management;

·reviews and discusses with management and our independent registered public accounting firm our quarterly financial statements and our audited financial statements, and approves the filing of the audited annual financial statements included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission;

·reviews and oversees the performance of our independent registered public accounting firm;

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·reviews written disclosures and the letter from the independent accountant required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the audit committee concerning independence, and discusses with the independent accountant the independent accountant’s independence;

·approves the fees and other significant compensation to be paid to the independent auditors, and pre-approves all permissible non-audit services to be performed by the independent auditors;

·reviews the adequacy of our system of internal accounting controls;

·reviews and periodically reassesses the audit committee charter;

·discusses with the independent auditors the annual financial statements, the results of its audit and the matters required to be communicated to audit committees in accordance with Statement on Auditing Standards No. 61, Communication with Audit Committees;

·oversees the preparation of and approves the report of the audit committee for inclusion in the Company’s Annual Report on Form 10-K for filing with the SEC.

·oversees the application of the Company’s related person transaction policy and its code of business conduct and ethics;

·assesses whether management has a review system in place that is reasonably designed to satisfy legal requirement with respect to the Company’s financial statements, reports and other financial information disseminated to governmental organizations and the public;

·reviews the types of issues reported to the Company Hotline, which is a reporting system used by employees to pose questions about, or report violation or suspected violations of the Company’s code of business conduct and ethics, and periodically review with Company’s counsel reports made to the Company’s Hotline;

·reviews the valuation of the Company in connection with Parent’s determination of the exercise price of stock option awards; and

·conducts periodic self-evaluations of its performance.

Under current NASDAQ and NYSE rules, our current audit committee would not be deemed to be comprised solely of independent directors since Mr. Bowerman is an Irving Place Capital Director and is associated with IPC and Parent.  We believe that Mr. Roberg and Mr. Schochet are independent directors under current NASDAQ and NYSE rules.

Our board has determined that Mr. Roberg, who is chairman of the audit committee, qualifies as an “audit committee financial expert” as that term is defined under Item 407(d)(5) of Regulation S-K.

Compensation Committee

Our compensation committee consists of Robert Juneja, David Crane, and Mark McKenna.  Mr. Crane and Mr. McKenna were elected to the committee on July 1, 2008.

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The compensation committee met two times during 2008, with all then active members present.  The compensation committee, among other things:

·assists the board in overseeing the Company’s management compensation policies and practices, including evaluating annually the performance of the Company’s executive officers and determining and approving the compensation of our executive officers (including our Chief Executive Officer);

·reviews and approves equity compensation programs for employees;

·reviews the objectives of the Company’s management compensation programs, and reviews and authorizes any employment, compensation, benefit or severance arrangement with any executive officer (current or former);

·prepares or oversees the preparation of and approves the Compensation Discussion and Analysis required by the rules of the Securities and Exchange Commission;

·retains consultants or experts as it deems necessary in the performance of its responsibilities;

·produces an annual compensation committee report for inclusion in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission;

·determines the annual compensation to be paid to the named executive officers; and

·makes regular reports to the board of directors concerning executive compensation.

Under current NASDAQ and NYSE rules, our current compensation committee would not be deemed to be comprised solely of independent directors, because Mr. Juneja is an Irving Place Capital Director associated with IPC and Parent and Mr. Crane is associated with IPC. We believe that Mr. McKenna is independent under current NASDAQ and NYSE rules.

LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS

Delaware law and our certificate of incorporation and bylaws provide that we shall, under certain circumstances and subject to certain limitations, indemnify any person made or threatened to be made a party to a proceeding by reason of that person’s former or present official capacity with us against judgments, penalties, fines, settlements and reasonable expenses. Any such person also is entitled, subject to limitations, to payment or reimbursement of reasonable expenses in advance of the final disposition of the proceeding.

Pursuant to provisions of the Delaware General Corporation Law, we have adopted provisions in our certificate of incorporation that provide that our directors shall not be personally liable to us or our stockholders for monetary damages for a breach of fiduciary duty as a director, subject to certain exceptions.

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At present, we are aware of no pending litigation or proceeding involving any of our directors, officers, employees or agents where indemnification will be required or permitted. We are not aware of any threatened litigation or proceeding that might result in a claim for indemnification.

CODE OF BUSINESS CONDUCT AND ETHICS

We have adopted a code of conduct and ethics for all employees, directors and officers, including our chief executive officer, chief financial officer and chief accounting officer. Our code of conduct and ethics can be found at our internet website, www.uhs.com.  We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of our code of conduct and ethics by posting such information on our website at the address specified above.

ITEM 11:  Executive Compensation

COMPENSATION DISCUSSION AND ANALYSIS

Introduction

In this compensation discussion and analysis we discuss our compensation program, including our compensation philosophy and objectives and each component of compensation for our chief executive officer, chief financial officer, and the other individuals included in the Summary Compensation Table below (collectively, the “named executive officers”).

We are a privately held company, and from May 2007 (shortly after the Transaction occurred) until July 2008, Robert Juneja was the sole member of our compensation committee.  The compensation paid to our named executive officers for fiscal 2008 was determined by the compensation committee in March 2008 in consultation with our chief executive officer, and recommended to our board of directors for final approval, which also occurred in March 2008.  The compensation committee has the authority to retain an independent compensation consultant to assist in making recommendations regarding executive officer compensation, but did not do so in 2008.

David Crane and Mark McKenna were elected to the compensation committee on July 1, 2008, and currently serve on the committee with Mr. Juneja.  We expect that compensation for our named executive officers for future years, including fiscal 2009, will be determined by the compensation committee.

Compensation Philosophy and Objectives

We strive to ensure that we are able to attract and retain talented employees and reward performance.  We also believe that the most effective executive compensation program is one that is designed to reward the achievement of specific annual and long-term strategic goals of our company.  Accordingly, our compensation committee (and our board, in

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approving the compensation committee’s recommendation) evaluates both performance and compensation to ensure both that the compensation provided to key executives is fair and reasonable, and that it remains competitive relative to the compensation paid to similarly situated executives of other health care services companies. To these ends, our compensation committee and board of directors have determined that our executive compensation program for our named executive officers should include base salary, annual performance-based incentive and long-term equity (stock option) compensation that rewards performance as measured against established goals, and competitive health, dental and other benefits.

Overview of Compensation Program and Process

We have structured our compensation program to motivate the named executive officers to achieve the business goals set by us, and to reward them for achieving these goals.  In furtherance of this, our compensation committee conducts an annual review of our total compensation program to achieve the following goals:

·provide fair, reasonable and competitive compensation;

·link compensation with our business plans;

·reward  achievement of both company and individual performance; and

·attract and retain talented executives who are critical to our success.

We believe that these goals reflect the importance of pay for performance by providing our named executive officers with an opportunity to earn compensation for above average performance.  The compensation for each named executive officer includes (i) a base salary that we believe is competitive with salary levels for similarly situated executives of our peer companies, adjusted for our size and private company status, and (ii) incentive compensation that is contingent upon achievement of specific corporate and individual objectives.

Management has a role in the compensation process. Gary Blackford, our chief executive officer, reports to the compensation committee with respect to company performance and that of each named executive officer, including himself.  He also makes compensation recommendations regarding the annual base salary and performance-based incentive compensation for each officer.  The compensation committee may, but is not required to, consider these recommendations in making its own compensation decisions and recommendations to the board of directors.

In 2008 the compensation committee considered certain elements of total compensation against a group of publicly traded companies in the same or related industries (the “Peer Group”).  It is difficult to identify a true peer group that includes our company because our competitors vary among our business segments and the size and scope of activities of our competitors and other participants in the healthcare industry varies widely.  Accordingly, the Peer Group is made up of a variety of companies that our compensation committee has determined are reasonable to include based on industry sector, and sensitivity to similar marketplace trends.  In past years the Peer Group has been reviewed

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and updated annually by our board of directors, in consultation with our chief executive officer.  As of December 31, 2008, the Peer Group consisted of the following companies:

·Hill-Rom Holdings, Inc. and Kinetic Concepts, Inc., our two biggest competitors in our Medical Equipment Outsourcing segment;

·Lifepoint Hospitals, Inc., Community Health Systems, Inc. and Kindred Healthcare, Inc., each of which operates acute care hospitals;

·Universal Health Services, Inc., which operates acute care hospitals, behavioral health facilities, and ambulatory centers;

·Cardinal Health, Inc., a supplier of certain of our products; and

·Alliance Imaging, Inc., an outsourced, diagnostic imaging services company.

In fiscal 2008 our compensation committee reviewed the compensation, including base salary and incentive compensation, paid to executives in the Peer Group, and considered the performance evaluations and recommendations presented by Mr. Blackford in determining the appropriate compensation for each named executive officer.  Due to the greater breadth of responsibilities held by our chief executive officer, his total compensation is higher than the other named executive officers.  In approving the compensation for our named executive officers, including our chief executive officer, our board of directors considered the recommendations of our compensation committee, as well as our company’s performance and the need to attract, retain, and motivate our executives.

In December 2008, our compensation committee reviewed compensation information for the Peer Group companies based on the filings made by those companies with the Securities and Exchange Commission, as compiled into a report provided to us by Towers Perrin.  The compensation committee acknowledged that the companies comprising the Peer Group are appropriate given the factors discussed above (including industry sector, capital intensity, and sensitivity to similar marketplace trends).  We expect that our compensation committee will continue to review compensation information with respect to the Peer Group in determining the compensation to be paid to our named executive officers for fiscal 2009.

2008 Executive Compensation Components

For fiscal 2008 the principal components of compensation for our named executive officers were base salary and annual performance-based incentive compensation.  Each named executive officer also has severance and/or change of control benefits, and is eligible to participate in our long-term savings plan and the broad-based benefit and welfare plans that are available to our employees in general.  One of our named executive officers also participates in our Employees’ Pension Plan (the “Pension Plan”), which was frozen on December 31, 2002 and under which no additional participants were permitted after that date.  In addition, the named executive officers are eligible to receive stock option awards from Parent under its stock option plan.  Although these awards are determined solely by Parent, our compensation committee considers the option awards in

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assessing each named executive officer’s compensation package and whether such package is consistent with our compensation program philosophy and objectives.

We do not have an established formula or target for allocating between cash and non-cash compensation, or between short-term and long-term incentive compensation.  Instead, our goal is to ensure that the compensation we pay is sufficient to attract and retain executive officers, and to reward them for performance that meets the goals set by our compensation committee.

Setting Executive Compensation

The compensation committee recommends, and our board of directors approves, the total compensation for our named executive officers based on a consideration of the following factors:

·the scope of responsibility of each named executive officer;

·market data provided by our human resources and finance departments or outside consultants;

·an assessment of the positions of similarly situated executives within the Peer Group and internal comparisons to the compensation received by those executives;

·internal review of each named executive officer’s compensation, both individually and relative to other named executive officers;

·individual performance of each named executive officer, which is assessed based on factors such as fulfillment of job responsibilities, the financial and operating performance of the activities directed by each named executive officer, experience and potential;

·the total compensation paid to each named executive officer in past years (including long-term equity (stock option) compensation awarded by Parent under its stock option plan);

·performance evaluations for each named executive officer, delivered by Mr. Blackford; and

·Mr. Blackford’s recommendations regarding the annual base salary and performance-based incentive compensation for each named executive officer.

Base Salary

We provide our named executive officers with a base salary to compensate them for services rendered.  Salary levels are typically considered in March of each year as part of our performance review process and upon a promotion or other change in job responsibility.  Merit-based increases to salaries of the named executive officers are based on the compensation committee’s assessment of the individual’s performance.

Base salary ranges are determined for each named executive officer based on his or her position and responsibility and utilizing our compensation committee’s knowledge and expertise regarding the market, with reference to market data regarding Peer Group

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compensation as provided by our human resources and finance departments or outside consultants.  Base salary ranges are designed so that salary opportunities for a given position will be targeted at the midpoint of the base salary established for each range.

In March 2008, the compensation committee determined to increase the base salaries of each of the named executive officers based on the compensation committee’s assessment of the individual’s performance.  The increases were also approved by our board of directors and became effective in March of 2008.

Annual Performance-Based Incentive Compensation

The annual performance-based incentive compensation component is offered through the Executive Incentive Program (the “EIP”), an annual cash incentive program that provides our executive officers with an opportunity to earn annual incentive awards based on the Company’s financial performance and the executive officers’ achievement of individual objectives.  Under the EIP, our named executive officers can earn incentive awards that are based on a percentage of base salary, with the percentage for each officer (other than our chief executive officer, whose percentage is specified in his employment agreement with us) set at a level the compensation committee has determined is consistent with his or her level of accountability and impact on our operations.  The percentage of base salary for our named executive officers varies from 65% to 85% of base salary.  In setting the percentage of base salary for each executive officer (other than our chief executive officer), the compensation committee considers the incentive compensation paid to executives in the Peer Group.

The corporate financial objective under the EIP relates to earnings before interest, income tax, depreciation and amortization (“EBITDA”), as adjusted for stock-based compensation, transaction and related expenses, loss on extinguishment of debt, other, and board of director expenses (“Adjusted EBITDA”).  The minimum, target and maximum levels for achievement of the corporate financial objective are proposed each year by our chief executive officer and in March 2008 the minimum, target and maximum levels for achievement of the corporate financial objective for 2008 EIP awards were determined by our compensation committee and recommended to our board of directors for final approval, which also occurred in March 2008.  Awards are based on the achievement of the objective for the current year, calculated by comparing actual and target Adjusted EBITDA for that fiscal year.  For the 2008 EIP awards to each officer (other than our chief executive officer), each 1% directional variance to target has a ten times multiplier effect on the amount of the potential EIP award with bookends at 110% and 93% of target, correlating to a multiplier effect to incentive levels of 200% to 30%, respectively. (The bookends for the potential EIP award for our chief executive officer, as specified in his employment agreement, are 110% and 90% of target and his potential payment ranges from 0 to 170% of target.)  Executive officers participating in the EIP receive no payment under the EIP, unless the Company achieves the minimum performance level (93% of target for executive officers, except our chief executive officer for whom it is 90% of target).  Executive officers (other than our chief executive officer) receive a payment ranging from 30% to 100% of the target award opportunity if the Company achieves a performance level ranging from 93% to 100% of target, and a

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payment ranging from 100% up to 200% of the target award opportunity if the Company achieves a performance level ranging from 100% to 110% of target.

Management understands that some industry analysts and investors consider EBITDA as a supplementary non-GAAP financial measure useful in analyzing a company’s ability to service debt.  EBITDA, however, is not a measure of financial performance under GAAP and should not be considered as an alternative to, or more meaningful than, net income as a measure of operating performance, or to cash flows from operating, investing or financing activities, or as a measure of liquidity.  Since EBITDA is not a measure determined in accordance with GAAP and is thus susceptible to varying interpretations and calculations, EBITDA may not be comparable to other similarly titled measures of other companies.  EBITDA does not represent an amount of funds that is available for management’s discretionary use.  Adjusted EBITDA is included because certain compensation plans are based upon this measure.

The named executive officers earn 50% of the actual EIP award based on actual Adjusted EBITDA results versus target.  The remaining 50% of the actual Adjusted EBITDA results versus target is earned based on attainment of each named executive officer’s specific annual and quarterly objectives, which are tied to the executive officer’s specific areas of responsibility, and to leadership competencies.

For fiscal 2008 the compensation committee reviewed the Company’s performance against the corporate financial objective, and reviewed the achievement of each executive officer’s individual objectives on the basis of the performance evaluation delivered by Mr. Blackford.  Awards were determined by the compensation committee based on these results.

During the past five years, the Company achieved performance in excess of the target two times, but did not achieve the maximum performance level.  The payout percentage in the past five years ranged between approximately 67% and 164% of the participant’s target award opportunity. Generally, the minimum, target and maximum levels for achievement of the corporate financial objective are set so that the relative difficulty of achieving the target is consistent from year to year.

Awards granted to named executive officers under the EIP in March 2009 for performance in 2008 are reflected in the “Non-equity Incentive Plan” column of the Summary Compensation Table on page 86.  The Company expects to pay the EIP award in March 2009.

Taking into consideration current economic conditions and the impact such conditions are having on the value of equity compensation and equity holdings, the compensation committee determined in December 2008 to revise the terms of the potential 2009 EIP awards for executive officers (other than our chief executive officer whose potential 2009 EIP award is governed by his employment agreement) so that each 1% directional variance to target has a five times multiplier effect on the amount of the potential EIP

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award with bookends at 110% and 93% of target, correlating to a multiplier effect to incentive levels of 150% to 65%, respectively.

Severance and/or Change of Control Benefits

The Company has adopted an Executive Severance Pay Plan that provides for severance benefits for certain of our senior executive officers, including Timothy Kuck, Jeffrey Singer and Diana Vance-Bryan, who are named executive officers.  In addition, we have entered into employment agreements with Gary Blackford, our chief executive officer, and Rex Clevenger, our chief financial officer.  These employment agreements provide for severance and/or change of control benefits for Mr. Blackford and Mr. Clevenger.  Severance and/or change in control benefits serve several purposes and are designed to:

·aid in the attraction and retention of the executives as a competitive practice;

·keep the executives focused on running the business, impartial and objective when confronted with transactions that could result in a change of control; and

·encourage our executives to act in the best interest of our stockholder in evaluating transactions.

For a detailed discussion of the foregoing, please refer to the caption “Potential Payments Upon Termination or Change in Control” below.

Long-Term Savings Plan and Other Benefits

The Company has adopted a Long-Term Savings Plan, which is a tax-qualified retirement savings plan pursuant to which all employees, including the named executive officers, are able to contribute to the plan the lesser of up to 60% of their annual salary or the limit prescribed by the Internal Revenue Service (“IRS”) on a pre-tax basis.  The Company will match 50% of up to 6% of base pay that is contributed to the Long-Term Savings Plan, subject to the limits prescribed by the IRS, excluding any catch-up contributions.  Matching contributions and any earnings on the matching contributions are vested in accordance with the following schedule:

Years of	Vesting
Service	Percentage
Less than 1	—
1	33	%
2	66	%
3	100	%

Long-Term Equity Incentive (Stock Option) Compensation

Following the Transaction, a new stock option plan was adopted by Parent, and all outstanding awards under our former equity-based compensation plan (whether or not then vested or exercisable) were cancelled.  Holders of vested options received in consideration for the cancellation of their vested options an amount equal to the product of:

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·the number of shares of common stock issuable upon the exercise of such vested options, and

·the per share merger consideration in the Transaction minus the exercise price for such vested options, less withholding taxes.

The 2007 Stock Option Plan of Parent (“2007 Stock Option Plan”) provides for the award of stock options to the named executive officers and is designed to:

·enhance the link between the creation of stockholder value and long-term executive incentive compensation;

·provide an opportunity for increased equity ownership of Parent by executives; and

·maintain competitive levels of total compensation.

Stock option award levels vary among participants based on their positions within the Company.   Consistent with past practice, broad-based stock option awards were granted in June of 2007, following a change in control of the Company, which occurred in connection with the Transaction.  Thereafter, options are expected to be granted at approximately the same time each year during the first quarter and are granted to individuals who were newly hired or who were promoted or who increased their job responsibilities during the past 12-month period.  None of the named executive officers received a grant of options in 2008.  The exercise price of stock option awards under the 2007 Stock Option Plan is equal to the fair market value of Parent’s common stock on the grant date as determined by the compensation committee of Parent and approved by the board of directors of Parent.  For a detailed discussion of the new stock option plan, see discussion under the heading “2007 Stock Option Plan” below.

Retirement Plans

Effective December 31, 2002, benefit accruals under our Pension Plan were frozen for all participants and no new participants have been or will be permitted to enter the Pension Plan after that date. Mr. Singer is the only named executive officer who participates in the Pension Plan.

Under the Pension Plan, all employees who attained age 21 and who completed one year of service prior to December 31, 2002, were eligible to participate in the Pension Plan.  Additional service or compensation changes of participants after that date are not considered for purposes of computing participant accrued benefit.  However, accumulated service after December 31, 2002 continues to be taken into account for purposes of determining a participant’s vested interest and entitlement to an early retirement subsidy and certain death benefits.

Participants earn the right to receive certain benefits upon termination of employment, including retirement at the normal retirement age of 65 or upon early retirement on or after age 55.  Normal retirement benefits are calculated as more particularly illustrated

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below.  Benefits vest according to the following schedule and are 100% vested at normal retirement.

Years of	Vesting
Service	Percentage
Less than 3	—
3	20	%
4	40	%
5	60	%
6	80	%
7	100	%

The formulas below provide an illustration as to how the retirement benefits are calculated.

Normal Retirement

First Formula

		Average		Years of		Social		Monthly
1.6%	X	Monthly	X	Credited	-	Security	=	Benefit
		Pay (1)		Service (up		Offset
				to 25)

Second Formula

Years of Credited Service X $6.00 = Monthly Benefit

(1) Average monthly pay primarily includes base salary and EIP awards.

Early retirement benefits are determined generally in the same manner as described above for normal retirement benefit, but are adjusted to reflect the actuarially determined adjusted payout period.

Other Benefits

Our named executive officers are eligible to participate in the same broad-based benefit and welfare plans that are made available to our employees in general.  In addition, if Mr. Blackford elects not to participate in our group health plan, but rather obtains health coverage directly though an insurer approved by the board of directors, we will reimburse Mr. Blackford for the reasonable cost of such coverage in accordance with the terms of his employment agreement with us.

TAX AND ACCOUNTING IMPLICATIONS

Deductibility of Executive Compensation

The compensation committee reviews and considers the Company’s deductibility of executive compensation.  We believe that compensation paid under our EIP is generally 100% deductible for federal income tax purposes, except that potential  “excess parachute

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payments” exist with respect to our named executive officers.  Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), provides that the Company may not deduct compensation paid in connection with a change of control that is treated as an excess parachute payment. In certain circumstances, the compensation committee may elect to approve compensation that is not fully deductible to ensure competitive levels of compensation for our executive officers.  For 2008, we believe that all executive officer compensation paid will be fully deductible.

Accounting for Stock-Based Compensation

Beginning January 1, 2006, we began accounting for our stock-based compensation, namely, stock options issued under the 2003 Stock Option Plan and 2007 Stock Option Plan, as required by SFAS 123(R).

While Parent established the 2007 Stock Option Plan, compensation expense related to service provided by the Company’s employees, including the named executive officers, is recognized in the Company’s Statements of Operations with an offsetting Payable to Parent liability.

COMPENSATION COMMITTEE REPORT

The compensation committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on this review and discussion, recommended to the board of directors that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K.

THE COMPENSATION COMMITTEE

Robert Juneja

David Crane

Mark McKenna

EXECUTIVE COMPENSATION

The following tables and accompanying narrative disclosure should be read in conjunction with the Compensation Discussion and Analysis.

SUMMARY COMPENSATION TABLE

The table below sets forth the total compensation awarded to, earned by or paid to the named executive officers for our 2008, 2007, and 2006 fiscal years.

The named executive officers were not entitled to receive payments which would be characterized as “Bonus” payments for the years ended December 31, 2008, 2007, or 2006, except for Mr. Clevenger and Ms. Vance-Bryan who each received a cash bonus payment in 2007 in connection with the Transaction.  Amounts listed under the “Non-Equity Incentive Plan Compensation” column were determined in accordance with the

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“2008 Executive Incentive Plan Targets,” filed as Exhibit 10.21 to the Annual Report on Form 10-K, for the year ended December 31, 2008, as approved by the compensation committee of our board of directors.  The non-equity incentive plan compensation is expected to be paid in March 2009.

										Change in
										Pension
										Value and
								Non-Equity		Non-Qualified
								Incentive		Deferred
						Option		Plan		Compensation		All Other
Name and		Salary		Bonus		Awards		Compensation		Earnings		Compensation		Total
Principal Position	Year	($)		($) (1)		($) (2)		($) (3)		($) (4)		($) (5)		($)
Gary D. Blackford	2008	$	446,206	$	—	$	1,007,355	$	379,275	N/A		$	6,693	$	1,839,529
Chairman of the Board and	2007	$	423,385	$	—	$	2,865,500	$	590,200	N/A		$	32,963	$	3,912,048
Chief Executive Officer (6)	2006	$	391,923	$	—	$	507,272	$	393,100	N/A		$	5,878	$	1,298,173
Rex T. Clevenger	2008	$	324,089	$	—	$	208,418	$	243,067	N/A		$	6,900	$	782,474
Executive Vice President	2007	$	310,522	$	75,000	$	588,944	$	381,900	N/A		$	7,749	$	1,364,115
and Chief Financial Officer	2006	$	297,105	$	—	$	89,607	$	270,000	N/A		$	6,600	$	663,312
Timothy W. Kuck	2008	$	234,518	$	—	$	173,682	$	164,163	N/A		$	6,900	$	579,263
Executive Vice President	2007	$	223,592	$	—	$	774,363	$	256,700	N/A		$	6,708	$	1,261,363
and Chief Operating Officer	2006	$	213,069	$	—	$	87,508	$	188,000	N/A		$	4,185	$	492,762
Jeffrey L. Singer	2008	$	224,682	$	—	$	173,682	$	157,277	$	6,193	$	6,740	$	568,574
Executive Vice President,	2007	$	211,692	$	—	$	478,801	$	243,000	$	—	$	6,351	$	939,844
Sales and Marketing	2006	$	194,082	$	—	$	68,495	$	175,000	$	—	$	5,823	$	443,400
Diana Vance-Bryan	2008	$	204,098	$	—	$	86,840	$	138,300	N/A		$	6,123	$	435,361
Senior Vice President and	2007	$	195,554	$	25,000	$	425,171	$	208,500	N/A		$	5,866	$	860,091
General Counsel

(1)The amounts in the “Bonus” column reflect a cash bonus payment made in connection with the Transaction to certain of our named executive officers.

(2)The amounts in the “Option Awards” column reflect the dollar amount recognized for financial statement reporting purposes for the years ended December 31, 2008, 2007, and 2006, respectively, in accordance with SFAS No. 123(R) of awards pursuant to the 2003 Stock Option Plan and the 2007 Stock Option Plan.  The expense includes amounts from awards granted before 2008.  Assumptions used in the calculation of these amounts are included in Note 10 to our audited financial statements for the fiscal year ended December 31, 2008 set forth in Part IV, Item 15 of this Annual Report on Form 10-K.  As a result of the Transaction, unvested options granted under our Predecessor 2003 Stock Option Plan became fully vested and accelerated expense was recorded in accordance with SFAS 123(R) in 2007. A reconciliation of 2007 Option award expense is included below.

					2007 Stock
	2003 Stock Option Plan				Option Plan
	Recurring		Accelerated		Recurring		Total Option
Name	Expense		Expense		Expense		Award Expense
Gary D. Blackford	$	263,893	$	1,594,252	$	1,007,355	$	2,865,500
Rex T. Clevenger	42,281		338,245		208,418		588,944
Timothy W. Kuck	54,830		545,851		173,682		774,363
Jeffrey L. Singer	39,296		265,823		173,682		478,801
Diana Vance-Bryan	23,826		314,505		86,840		425,171

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(3)The amounts in the “Non-Equity Incentive Plan Compensation” column reflect the cash awards to the named executive officers under the EIP, which is discussed in detail on page 80 under the caption “Annual Performance-Based Incentive Compensation.”

(4)The amount in the “Change in Pension Value and Non-Qualified Deferred Compensation Earnings” column for Mr. Singer, the only named executive officer covered by the Pension Plan, reflects the change in the present value of Mr. Singer’s benefits under the Pension Plan using interest rate and mortality rate assumptions consistent with those used in our audited financial statements and includes amounts which Mr. Singer may not be entitled to receive because such amounts are not vested.  The amount shown for Mr. Singer does not include declines of $2,875 and $1,865 in the present value of the benefit provided under the Pension Plan for 2007 and 2006, respectively.  The Pension Plan is discussed in detail on page 83 under the caption “Retirement Plans.”

(5)The amounts in the “All Other Compensation” column reflect our contributions for all of the named executive officers, except for the 2007 amounts for Mr. Blackford(6), to the Long-Term Savings Plan, discussed in detail on page 82 under the caption “Long-Term Savings Plan and Other Benefits.”

(6)The amount in the “All Other Compensation” column for Mr. Blackford in 2007 reflects legal fees incurred by us for Mr. Blackford in connection with the Transaction of $26,612 and our contribution to the Long-Term Savings Plan of $6,351.

2008 GRANTS OF PLAN-BASED AWARDS

		Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1)
	Grant	Threshold		Target		Maximum
Name	Date	($)		($)		($)
Gary D. Blackford	N/A	$	—	$	379,275	$	758,550
Rex T. Clevenger	N/A	$	—	$	243,067	$	486,134
Timothy W. Kuck	N/A	$	—	$	164,163	$	328,326
Jeffrey L. Singer	N/A	$	—	$	157,277	$	314,554
Diana Vance-Bryan	N/A	$	—	$	132,664	$	265,328

(1)The amounts shown under “Estimated Future Payments Under Non-Equity Incentive Plan Awards” reflect the minimum, target and maximum payment levels, respectively, under the Company’s EIP which is discussed in detail on page 80.  These amounts are based on the named executive officer’s base salary and position for the year ending and as of December 31, 2008.  The 2008 EIP payout is included in the “Non-Equity Incentive Plan Compensation” column in the Summary Compensation Table.

(2)No equity or option awards were granted to the name executive officers during fiscal year 2008.

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OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2008 (1)

	OPTION AWARDS (2)
Name	Grant Date	Number of  Securities  Underlying  Unexercised  Options (#)  Exercisable	Number of  Securities  Underlying  Unexercised  Options (#)  Unexercisable	Equity Incentive  Plan Awards:  Number of  Securities  Underlying  Unexercised  Unearned Options  (#)	Option  Exercise  Price ($)		Option  Expiration  Date
Gary D. Blackford	6/18/2007	4,833,140	4,833,430	4,833,430	$	1.00	6/17/2017
Rex T. Clevenger	6/18/2007	999,960	1,000,020	1,000,020	$	1.00	6/17/2017
Timothy W. Kuck	6/18/2007	833,300	833,350	833,350	$	1.00	6/17/2017
Jeffrey L. Singer	6/18/2007	833,300	833,350	833,350	$	1.00	6/17/2017
Diana Vance-Bryan	6/18/2007	416,650	416,675	416,675	$	1.00	6/17/2017

(1)All outstanding equity awards are option awards granted under Parent’s 2007 Stock Option Plan, discussed in detail on page 82 under the caption “Long-Term Equity Incentive (Stock Option) Compensation.”

(2)Half of the options granted under the 2007 Stock Option Plan for our named executive officers vest over a six-year period of service with 16.66% vesting on December 31 of each year of the six-year period with such unvested options included in the “Number of Securities Underlying Unexercised Options Unexercisable” column.  The remaining half of the options vest over a six-year period, subject to the Company’s attainment of certain performance objectives, with 16.66% vesting on December 31 of each year of the six-year period with such unvested options included in the “Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options” column.  The 2007 Stock Option Plan is discussed in detail under the caption “2007 Stock Option Plan” below.

2008 PENSION BENEFITS

The table below shows the actuarial present value of accumulated benefits payable to Jeffrey Singer, the only participating named executive officer, including the number of years of service credited to him, under our Pension Plan determined using interest rate and mortality rate assumptions consistent with those used in our financial statements.  Information regarding our Pension Plan is discussed under the caption “Retirement Plans” on page 83.

Name (1)	Plan Name	Number of  Years of  Credited Service  (#)	Present Value  of Accumulated  Benefit ($)(3)		Payments  During Last  Fiscal Year ($)
Gary D. Blackford (1)	N/A	N/A	N/A		N/A
Rex T. Clevenger (1)	N/A	N/A	N/A		N/A
Timothy W. Kuck (1)	N/A	N/A	N/A		N/A
Jeffrey L. Singer	UHS Employees’ Pension Plan	4.4	$	37,930	$	—
Diana Vance-Bryan (1)	N/A	N/A	N/A		N/A

(1)Mr. Blackford, Mr. Clevenger, Mr. Kuck, and Ms. Vance-Bryan are not eligible to participate in our Pension Plan.

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(2)Includes amounts which the named executive officer may not currently be entitled to receive because the amount is not vested.

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

POTENTIAL PAYMENTS UNDER EMPLOYMENT AGREEMENTS

In connection with the Transaction, IPC negotiated new employment agreements between the Company and each of Mr. Blackford and Mr. Clevenger.  The employment agreements were amended and restated on December 31, 2008, to comply with Section 409A of the Internal Revenue Code (“Code”).  Section 409A of the Code imposes certain requirements on nonqualified deferred compensation plans and arrangements.  Final regulations under Section 409A became effective on January 1, 2009.  The terms of the amended and restated employment agreements, as they related to the possible payments upon termination of each of the aforementioned named executive officers, are summarized below and are economically equivalent to the benefits Mr. Blackford and Mr. Clevenger were entitled to before, with the timing of payments and certain other provisions modified to comply with Section 409A.  The amounts shown below assume that termination of employment was effective as of December 31, 2008, include amounts earned through that date, and are estimates of the amounts which would be paid out to the named executive officers upon their termination. The actual amounts paid can only be determined at the time of each named executive officer’s separation from us.

Gary D. Blackford – Employment Agreement

The following termination and Change of Control payments are payable under Mr. Blackford’s employment agreement, contingent upon Mr. Blackford or his representative executing and delivering a release of all claims against the Company and all present and former directors, officers, agents, representatives, executives, successors and assignees of the Company and its direct or indirect owners within 45 days of the date of termination, provided 15 days have elapsed since such execution without any revocation thereof by Mr. Blackford or his representative.

Payments Made Upon Death or Disability

In the event of death or disability, Mr. Blackford or his legal representative will receive, on the 61st day following termination, a lump sum payment consisting of the following:

·100% of his current base salary;

·$11,350 intended for health and welfare benefits;

·earned and unpaid EIP compensation for the calendar year ending prior to the date of termination, if any; and

The Company also will pay Mr. Blackford or his legal representative Mr. Blackford’s pro rata EIP award for the calendar year in which his employment terminates, at the time the Company pays EIP awards to other senior executives for that same calendar year.

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Additionally, Mr. Blackford will receive accrued vested benefits through any benefit plan, program or arrangement of the Company at the times specified therein.

 “Disability” means the named executive officer becomes physically or mentally disabled, whether totally or partially, either permanently or so that the named executive officer is unable substantially and competently to perform his duties for 180 days during any twelve-month period during the term of his employment agreement.

Payments Made Upon Termination Without Cause or Resignation For Good Reason

If we terminate Mr. Blackford’s employment without Cause or he resigns for Good Reason, Mr. Blackford will receive, on the 61st day following termination, a lump sum payment consisting of the following:

·185% of his current base salary;

·$11,350 intended for health and welfare benefits; and

·earned and unpaid bonus for the calendar year ending prior to the date of termination, if any.

The Company also will pay Mr. Blackford his pro rata EIP award for the calendar year in which his employment terminates, at the time the Company pays EIP awards to other senior executives for that same calendar year.  Additionally, Mr. Blackford will receive accrued vested benefits through any benefit plan, program or arrangement of the Company at the times specified therein.

“Cause” means:

·the commission by the named executive officer of a felony for which he is convicted; or

·the material breach by the named executive officer of his agreements or obligations under his employment agreement described in a written notice to the named executive officer that is not capable of being cured or has not been cured within 30 days after receipt.

Mr. Blackford will have “Good Reason” for termination if other than for Cause any of the following has occurred:

·Mr. Blackford’s base salary or EIP target percentage has been reduced, other than in connection with an across-the-board reduction, not to exceed 5% of the then current base salary, of approximately the same percentage in executive compensation to executive employees imposed by our board of directors in response to negative financial results or other adverse circumstances affecting us;

·our board of directors establishes an unachievable and commercially unreasonable adjusted EBITDA target that we must achieve for the named executive officer to receive an EIP under his employment agreement and Mr. Blackford provides written notice of his objection to the board of directors within ten business days;

·Mr. Blackford is not elected or re-elected to the board of directors;

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·we have reduced or reassigned a material portion of Mr. Blackford’s duties, have diminished his title, have required Mr. Blackford to relocate outside the greater Minneapolis area, have relocated our corporate headquarters outside the greater Minneapolis area or have removed or relocated outside the greater Minneapolis area a material number of our employees or senior management, in each case without Mr. Blackford’s written consent; or

·we have breached in any material respect the employment agreement of Mr. Blackford.

Payments Made Upon Termination for Cause or Resignation Without Good Reason

If we terminate Mr. Blackford’s employment under his employment agreement for Cause or Mr. Blackford resigns without Good Reason, all of Mr. Blackford’s rights to payments, other than payment for services already rendered and any other benefits otherwise due, cease upon the date of termination.

Payments Made Upon a Change of Control

In the event of the termination without Cause or resignation for Good Reason of Mr. Blackford at any time within six months before, or twenty-four months following, a Change of Control, or the termination of employment by Mr. Blackford for any reason during the 30-day period following the six month anniversary of the Change of Control, and notwithstanding and in lieu of amounts provided for resignation without Cause or for resignation for Good Reason, Mr. Blackford will receive, on the 61st day following termination, a lump sum payment consisting of the following:

·285% of his current base salary;

·$11,350 intended for health and welfare benefits; and

·earned and unpaid bonus for the calendar year ending prior to the date of termination, if any.

However, if Mr. Blackford’s employment terminates within six months prior to a Change in Control due to termination by the Company without Cause or due to termination by Mr. Blackford for Good Reason, then Mr. Blackford will receive payments in accordance with the provisions noted under the heading “Payments Made Upon Termination Without Cause or Resignation For Good Reason,” and within 30 days following the Change in Control, Mr. Blackford will receive an additional lump sum payment equal to the difference between the payment already received and the amount  required under the Change in Control provisions noted above.

The Company also will pay Mr. Blackford his pro rata EIP award for the calendar year in which his employment terminates, at the time the Company pays EIP awards to other senior executives for that same calendar year.  Additionally, Mr. Blackford will receive accrued vested benefits through any benefit plan, program or arrangement of the Company at the times specified therein.

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If any payment or benefit received or to be received by Mr. Blackford in connection with a Change in Control of us constitutes a “parachute payment,” within the meaning of Section 280G(b)(2) of the Code which would be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then Mr. Blackford will receive from us an additional cash payment (the “Gross-Up Payment”) so that, after payment by Mr. Blackford of all taxes, including income taxes (and any related interest and penalties imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up Payment, Mr. Blackford retains an amount of the Gross-Up Payment equal to the Excise Tax imposed on the parachute payments.  The Gross-Up Payment will be paid to Mr. Blackford or deposited with the government as withholding in a lump sum payment no later than 90 days following the date on which Mr. Blackford is required to pay the Excise Tax, but in no event later than the end of the tax year following the tax year in which Mr. Blackford submits the Excise Tax to the government.

“Change of Control” means (i) when any “person” (as defined in Section 13(d) and 14(d) of the Securities Exchange Act of 1934 (“Exchange Act”)) (other than the Company, IPC Manager III, L.P. (formerly known as Bear Stearns Merchant Banking Manager III, L.P.) or its affiliates, 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 stockholder or stockholders, as the case may be, of the Company, in substantially the same proportions as their ownership of stock of the Company), acquires, in a single transaction or a series of transactions (whether by merger, consolidation, reorganization or otherwise), (A) “beneficial ownership” (as defined in Rule 13d-3 under the Exchange Act) 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), or (B) substantially all or all of the assets of the Company and its Subsidiaries on a consolidated basis or (ii) a merger, consolidation, reorganization or similar transaction of the Company with a “person” (as defined above) if, following such transaction, the holders of a majority of the Company’s outstanding voting securities in the aggregate immediately prior to such transaction do not own at least a majority of the outstanding voting securities in the aggregate of the surviving corporation immediately after such transaction. “Subsidiary” means any corporation in an unbroken chain of corporations beginning with the Company if, at the time of a Change of Control, 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.

The following table shows the potential payments upon a termination or Change of Control of us pursuant to Mr. Blackford’s employment agreement.

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Gary D. Blackford

Chairman of the Board and Chief Excecutive Officer

			For Good
			Reason or		Change of
			Without		Contol
	Death or		Cause		Related
	Disability		Termination		Termination
Executive Benefits and	on		on		on
Payments Upon Separation	12/31/2008		12/31/2008		12/31/2008
Compensation:
Non-Equity Incentive Plan	$	379,275	$	379,275	$	379,275
Stock Options	—		—		—
Benefits and Perquisites:
Health and Welfare Benefits	11,350		11,350		11,350
Severance Payments	451,440		835,164		1,286,604
Total	$	842,065	$	1,225,789	$	1,677,229

Rex Clevenger – Employment Agreement

The following termination and Change of Control payments are payable under Mr. Clevenger’s employment agreement, contingent upon Mr. Clevenger or his representative executing and delivering a release of all claims against the Company and all present and former directors, officers, agents, representatives, executives, successors and assignees of the Company and its direct or indirect owners within 45 days of the date of termination, provided 15 days have elapsed since such execution without any revocation thereof by Mr. Clevenger or his representative.

Payments Made Upon Death or Disability

In the event of death or disability, Mr. Clevenger or his legal representative will receive, on the 61st day following termination, a lump sum payment consisting of the following:

·100% of his current base salary;

·$11,350 intended for health and welfare benefits; and

·earned and unpaid bonus for the calendar year ending prior to the date of termination, if any.

Additionally, Mr. Clevenger will receive accrued vested benefits through any benefit plan, program or arrangement of the Company at the times specified therein.

“Disability” means the named executive officer becomes physically or mentally disabled, whether totally or partially, either permanently or so that the named executive officer is unable substantially and competently to perform his duties for 180 days during any twelve-month period during the term of his employment agreement.

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Payments Made Upon Termination Without Cause or Resignation For Good Reason

If we terminate Mr. Clevenger’s employment without Cause or he resigns for Good Reason, Mr. Clevenger will receive, on the 61st day following termination, a lump sum payment consisting of the following:

·175% of his current base salary;

·$11,350 intended for health and welfare benefits; and

·earned and unpaid bonus for the calendar year ending prior to the date of termination, if any.

The Company also will pay Mr. Clevenger his pro rata EIP award for the calendar year in which his employment terminates, at the time the Company pays EIP awards to other senior executives for that same calendar year.  Additionally, Mr. Clevenger will receive accrued vested benefits through any benefit plan, program or arrangement of the Company at the times specified therein.

“Cause” means:

·the commission by the named executive officer of a felony for which he is convicted; or

·the material breach by the named executive officer of his agreements or obligations under his employment agreement described in a written notice to the named executive officer that is not capable of being cured or has not been cured within 30 days after receipt.

Mr. Clevenger will have “Good Reason” for termination if, other than for Cause, any of the following has occurred:

·Mr. Clevenger’s base salary or EIP target percentage has been reduced, other than in connection with an across-the-board reduction, not to exceed 5% of the then current base salary, of approximately the same percentage in executive compensation to executive employees imposed by our board of directors in response to negative financial results or other adverse circumstances affecting us;

·our board of directors establishes an unachievable and commercially unreasonable adjusted EBITDA target that we must achieve for the named executive officer to receive an EIP under his employment agreement and Mr. Clevenger provides written notice of his objection to the board of directors within ten business days;

·we have reduced or reassigned a material portion of Mr. Clevenger’s duties, have diminished his title, have required Mr. Clevenger to relocate outside the greater Minneapolis, Minnesota area, have relocated our corporate headquarters outside the greater Minneapolis area or have removed or relocated outside the greater Minneapolis area a material number of our employees or senior management, in each case without Mr. Clevenger’s written consent; or

·we have breached, in any material respect, the employment agreement of Mr. Clevenger.

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Payments Made Upon Termination for Cause or Resignation Without Good Reason

If we terminated Mr. Clevenger’s employment under his employment agreement for Cause or he resigns without Good Reason, all of Mr. Clevenger’s rights to payments, other than payment for services already rendered and any other benefits otherwise due, cease upon the date of termination.

Payments Made Upon a Change of Control

In the event of the termination without Cause or resignation for Good Reason of Mr. Clevenger at any time within six months before, or twenty-four months following, a Change of Control and notwithstanding and in lieu of amounts provided for resignation without Cause or for resignation for Good Reason, Mr. Clevenger is entitled to receive, on the 61st day following termination, a lump sum payment consisting of the following:

·262.5% of his current base salary;

·$11,350 intended for health and welfare benefits; and

·earned and unpaid bonus for the calendar year ending prior to the date of termination, if any.

The Company also will pay Mr. Clevenger his pro rata EIP award for the calendar year in which his employment terminates, at the time the Company pays EIP awards to other senior executives for that same calendar year.  Additionally, Mr. Clevenger will receive accrued vested benefits through any benefit plan, program or arrangement of the Company at the times specified therein.

However, if Mr. Clevenger’s employment terminates within six months prior to a Change in Control due to termination by the Company without Cause or due to termination by Mr. Clevenger for Good Reason, then Mr. Clevenger will receive payments in accordance with the provisions noted under the heading “Payments Made Upon Termination Without Cause or Resignation For Good Reason,” and within 30 days following the Change in Control, Mr. Clevenger will receive an additional lump sum payment equal to the difference between the payment already received and the amount  required under the Change in Control provisions noted above.

 “Change of Control” means (i) when any “person” (as defined in Section 13(d) and 14(d) of the Exchange Act) (other than the Company, IPC Manager III, L.P. or its affiliates, 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 stockholder or stockholders, as the use may be, of the Company, in substantially the same proportions as their ownership of stock of the Company), acquires, in a single transaction or a series of transactions (whether by merger, consolidation, reorganization or otherwise), (A) “beneficial ownership” (as defined in Rule 13d-3 under the Exchange Act) 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), or (B) substantially all or all of the assets of the Company and its Subsidiaries on a consolidated basis or (ii) a merger, consolidation, reorganization or

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similar transaction of the Company with a “person” (as defined above) if, following such transaction, the holders of a majority of the Company’s outstanding voting securities in the aggregate immediately prior to such transaction do not own at least a majority of the outstanding voting securities in the aggregate of the surviving corporation immediately after such transaction. “Subsidiary” means any corporation in an unbroken chain of corporations beginning with the Company if, at the time of a Change of Control, 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.

The following table shows the potential payments upon a termination or Change of Control of us under Mr. Clevenger’s employment agreement.

Rex T. Clevenger

Executive Vice President and Chief Finanical Officer

			For Good
			Reason or		Change of
			Without		Contol
	Death or		Cause		Related
	Disability		Termination		Termination
Executive Benefits and	on		on		on
Payments Upon Separation	12/31/2008		12/31/2008		12/31/2008
Compensation:
Non-Equity Incenive Plan	$	243,067	$	243,067	$	243,067
Stock Options	—		—		—
Benefits and Perquisites:
Health and Welfare Benefits	11,350		11,350		11,350
Severance Payments	327,891		573,809		860,714
Total	$	582,308	$	828,226	$	1,115,131

POTENTIAL PAYMENTS UNDER OUR EXECUTIVE SEVERANCE PAY PLAN

On June 1, 2007 we adopted an Executive Severance Pay Plan, which the compensation committee amended on December 31, 2008, to comply with Section 409A of the Code.  The amended Executive Severance Pay Plan provides benefits that are economically equivalent to the benefits the covered senior executives were entitled to under the June 1, 2007, Executive Severance Pay Plan, with the timing of payment and certain other provisions modified to comply with Section 409A.  Additionally, references to the controller were removed, because our controller, who serves as our chief accounting officer, became a vice president during 2008, and as a vice president, he is entitled to benefits generally available to all vice presidents under the Executive Severance Pay Plan.

The Executive Severance Pay Plan covers our executive vice presidents, senior vice presidents and vice presidents who are not covered by an employment agreement with the Company.  Executives covered by the Executive Severance Pay Plan include the

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following named executive officers: Mr. Kuck, Mr. Singer and Ms. Vance-Bryan.  The terms of the Executive Severance Pay Plan, as they related to the possible payments upon termination of each of the aforementioned named executive officers, are summarized below. The amounts shown assume that termination was effective as of December 31, 2008, include amounts earned through that date and are estimates of the amounts which would be paid out to the named executive officers upon their termination. The actual amounts paid can only be determined at the time of each named executive officer’s separation from us.

Payments Made Upon Termination for Cause, Resignation Except for Good Reason, upon a Change in Control, Death or Disability

In the event of termination of employment for Cause, voluntary resignation except for Good Reason, upon a Change in Control or upon the death or disability of a named executive officer, no severance benefits are payable.

“Cause” means:

·the executive’s continued failure, whether willful, intentional, or grossly negligent, after written notice, to perform substantially the executive’s duties (the “duties”) as determined by the executive’s immediate supervisor, or the chief executive officer, or a senior vice president of the Company (other than as a result of a disability);

·dishonesty or fraud in the performance of the executive’s duties or a material breach of the executive’s duty of loyalty to the Company or its subsidiaries;

·conviction or confession of an act or acts on the executive’s part constituting a felony under the laws of the United States or any state thereof or any misdemeanor which materially impairs such executive’s ability to perform the duties;

·any willful act or omission on the executive’s part which is materially injurious to the financial condition or business reputation of the Company or any of its subsidiaries; or

·any breach by the executive of any non-competition, non-solicitation, non-disclosure or confidentiality agreement applicable to the executive.

“Change of Control” means:

·any event as a result of which Irving Place Capital Manger III, L.P. and its affiliates collectively cease to own and control all of the economic and voting rights associated with ownership of at least 50.1% of the outstanding capital stock of Company; or

·any sale or transfer of all or substantially all of the assets of the Company.

“Resignation for Good Reason” means any of the following has occurred and the named executive officer has given notice thereof within 90 days of the event, we have not cured

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within 30 days of receipt of such notice, and the named executive officer terminates employment within 60 days thereafter:

·we have reduced or reassigned a material portion of the executive’s duties;

·the executive’s base salary has been materially reduced other than in connection with an across-the-board reduction of approximately the same percentage in executive compensation to employees imposed by our board of directors in response to negative financial results or other adverse circumstances affecting us; or

·we have required the executive to relocate in excess of 50 miles from the location where the executive is currently employed.

Payments Made Upon Termination Without Cause or Resignation for Good Reason

If we terminate the named executive officer’s employment without Cause (other than death or disability) or the named executive officer resigns for Good Reason and the named executive officer signs a General Release within 45 days of the date of termination, the named executive officer will receive his or her then current salary on a bi-weekly payment schedule and COBRA benefits, if so elected by the named executive officer, for the twelve-month period following termination (“Severance Period”), provided the time period allowed by the Company for rescission of the General Release has elapsed.  The first payments will be made on the 61st day following the date of termination and will include any such payment(s) that would otherwise have been made prior to the time the General Release was effective.  “General Release” means a written release of all claims against us and our affiliates in the form presented by us, which includes confidentiality, non-competition, non-solicitation and no-hire provisions.

A failure to execute a General Release within 45 days of the named executive officer’s date of termination or a subsequent rescission of such General Release within the time allowed will result in the loss of any rights to receive payments or benefits under the Executive Severance Pay Plan.

If the named executive officer finds other employment within 12 months from the date of termination, the amount of salary payable and COBRA benefits to the named executive officer will be reduced by the value of the compensation and benefits that the named executive officer receives in the named executive’ officer’s new employment.

If the named executive officer resigns for Good Reason, the named executive officer will receive a pro rata payment under our EIP, based on days employed, for the then current calendar year in which the termination occurs, payable at the time the EIP award is paid to our other senior executives.

The following tables show the potential payments to each of the named executive officers covered by our Executive Severance Pay Plan upon a termination or Change of Control.

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Timothy W. Kuck

Executive Vice President and Chief Operating Officer

	Without		For Good
	Cause		Reason
	Termination		Termination
Executive Benefits and	on		on
Payments Upon Separation	12/31/2008		12/31/2008
Compensation:
Non-Equity Incenive Plan	$	—	$	164,163
Stock Options	—		—
Benefits and Perquisites:
Health and Welfare Benefits	10,053		10,053
Severance Payments	237,269		237,269
Total	$	247,322	$	411,485

Jeffrey L. Singer

Executive Vice President, Sales

	Without		For Good
	Cause		Reason
	Termination		Termination
Executive Benefits and	on		on
Payments Upon Separation	12/31/2008		12/31/2008
Compensation:
Non-Equity Incenive Plan	$	—	$	157,277
Stock Options	—		—
Benefits and Perquisites
Health and Welfare Benefits	10,053		10,053
Severance Payments	227,880		227,880
Total	$	237,933	$	395,210

Diana Vance-Bryan

Senior Vice President and General Counsel

	Without		For Good
	Cause		Reason
	Termination		Termination
Executive Benefits and	on		on
Payments Upon Separation	12/31/2008		12/31/2008
Compensation:
Non-Equity Incenive Plan	$	—	$	138,300
Stock Options	—		—
Benefits and Perquisites:
Health and Welfare Benefits	10,053		10,053
Severance Payments	206,492		206,492
Total	$	216,545	$	354,845

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2003 STOCK OPTION PLAN

The Company’s 2003 Stock Option Plan provided for the grants of stock options to any of our full or part-time employees, including officers and directors who were also employees.  The exercise price for the stock options equaled the estimated fair market value of our common stock on the date such options were granted, as determined by our board of directors.  We also were permitted to grant stock options to non-employee directors and consultants or independent contractors providing services to us.  The exercise price for the options generally was equal to the fair market value of our common stock on the date such options were granted, as determined by our board of directors.  However, the board had discretion to issue such options at exercise prices lower than fair market value.  The 2003 Stock Option Plan was administered by the compensation committee.  Our board of directors was permitted to amend, alter, suspend, discontinue or terminate the plan at any time, and either the compensation committee or the board of directors was permitted to amend or terminate any outstanding award, except that an outstanding award could not be amended or terminated without the holder’s consent if such amendment or termination would adversely affect the rights of the holder.

The board of directors discontinued the 2003 Stock Option Plan on May 31, 2007, in connection with the Transaction and there are no options outstanding under this plan.  As a result of the Transaction, unvested options granted under our Predecessor 2003 Stock Option Plan became fully vested and accelerated expense was recorded in accordance with SFAS 123(R).  Holders of vested options received in consideration for the cancellation of their vested options an amount equal to the product of:

·the number of shares of common stock issuable upon the exercise of such vested options, and

·the per share merger consideration in the Transaction minus the exercise price for such vested options, less withholding taxes.

2007 STOCK OPTION PLAN

On May 31, 2007, in connection with the Transaction, our Parent’s board of directors adopted the 2007 Stock Option Plan.  The 2007 Stock Option Plan provides for the issuance of approximately 43.9 million nonqualified stock options of our Parent to any of our and Parent’s executives, including the named executive officers, other key employees and to consultants and certain directors.  The options allow for the purchase of shares of common stock of our Parent at prices no lower than the stock’s fair market value at the date of grant.  The exercise price of the stock option awards granted during the year ended December 31, 2008 and seven months ended December 31, 2007 was set by Parent’s board of directors and compensation committee and is equal to the market value of Parent’s common stock on the grant date as determined by the then recent per share valuation of Parent resulting from the Transaction as detailed below and by reference to a peer group of companies’ Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) multiple valuation.

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(in thousands, except per share amount)
Equity Contribution at May 31, 2007 from Irving Place Capital and UHS Management to Parent	$	248,794
Parent shares issued and outstanding at May 31, 2007	248,794
Per share Parent valuation at May 31, 2007	$	1.00

The 2007 Stock Option Plan is administered by Parent’s board of directors and  compensation committee, which has the authority to select the persons to whom awards are granted, to determine the exercise price, if any, and the number of shares of common stock covered by such awards, and to set other terms and conditions of awards, including any vesting schedule.  Parent’s board of directors is permitted to amend, alter, suspend, discontinue or terminate the plan at any time, and either the Parent’s compensation committee or Parent’s board of directors is permitted to amend or terminate any outstanding award, except that an outstanding award may not be amended or terminated without the holder’s consent if such amendment or termination would adversely affect the rights of the holder.

While the terms of the options to be granted under the 2007 Stock Option Plan will be determined at the time of grant, our employee stock options issued in 2008 and 2007 will expire 10 years from the date of grant.  Option grants to directors are 100% fixed vesting options, with 16.66% vesting on each December 31 over a six-year period.  Option grants to employees are comprised of 50% fixed vesting and 50% performance vesting options.  Fixed vesting options vest over a six-year service period with 16.66% vesting on December 31 of each year of the six-year period, subject to the option holder not ceasing employment with Parent or the Company.  Performance vesting options vest over a six-year period with 16.66% vesting on December 31 of each year of the six-year period, subject to the option holder not ceasing employment with Parent or the Company, and to the Company’s attainment of either an adjusted EBITDA target for the then current year or an aggregate adjusted EBITDA target, as set forth in the respective form of option agreement.  Upon a sale of Parent or the Company, all of the unvested options with fixed vesting schedules will vest and become exercisable, and the unvested options that vest upon the achievement of established performance targets will vest and become exercisable upon IPC’s achievement of a certain internal rate of return on its investment in Parent, subject to certain conditions.  An employee’s unvested options are forfeited when employment is terminated, and vested options must be exercised within a prescribed time period on or following termination to avoid forfeiture.  Before the exercise of an option, the holder has no rights as a stockholder regarding the shares subject to the option, including voting rights.

DIRECTOR COMPENSATION

Under our existing policy, we pay each of our independent directors cash compensation of $30,000 per year for their service as independent directors.  Members of our audit committee who are independent also receive an annual fee of $5,000 ($10,000 for the chair), and members of our compensation committee who are independent receive an annual fee of $3,000.  These amounts are reviewed by the board from time to time, and

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all amounts are pro-rated for partial year membership.  Directors who are not independent do not receive compensation for services on the board of directors.  Although David Crane serves as a senior advisor to IPC, we consider him to be independent for compensation purposes.  David Dovenberg, who is an advisory member of the audit committee and not a director, is an employee and receives no compensation for his audit committee services.

Independent directors are eligible to receive grants of stock options under the 2007 Stock Option Plan, subject to the approval of Parent.  In addition, we reimburse our independent directors for all out-of-pocket expenses incurred in connection with their activities as members of the board, provided that they are expected to follow travel and expense guidelines established for all of our officers and directors.

2008 Cash Compensation

In 2008, Mr. Roberg received cash compensation of $30,000 for his service as an independent director and $10,000 for his service as chairman of our audit committee.  Mr. Roberg received an aggregate amount of $40,000 during 2008.

Mr. McKenna, Mr. Schochet, and Mr. Crane were elected to the board in March 2008 and received the pro-rata amount of $24,000 for their service as independent directors.

Stock Option Compensation

In April 2008, Mr. McKenna, Mr. Schochet, and Mr. Crane each received a grant of stock options to purchase 300,000 shares of Parent’s common stock at the market value of Parent’s common stock on the grant date of $1.00 per share under and pursuant to the terms of the 2007 Stock Option Plan, for their service as our independent directors.

In December 2007, Mr. Roberg received a grant of stock options to purchase 300,000 shares of Parent’s common stock at the market value of Parent’s common stock on the grant date of $1.00 per share under and pursuant to the terms of the 2007 Stock Option Plan, for his service as our director and chairman of the audit committee.

Until a stock option vests and is exercised, the underlying share cannot be voted.  These stock options vest over a six-year period of service with 16.66% of the grant vesting each year.  The 2007 Stock Option Plan is discussed in detail under the caption “2007 Stock Option Plan” above.

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2008 Director Compensation Table

The table below summarized the compensation paid by the Company to directors for the fiscal year ended December 31, 2008:

	Fees
	Earned
	or Paid		Option
	in Cash		Awards		Total
Name (1)	($) (2)		($) (3)		($)
Barry Schochet	$	24,000	$	18,549	$	42,549
Bret D. Bowerman	—		—		—
David Crane	24,000		18,549		42,549
John D. Howard	—		—		—
Kevin L. Roberg	40,000		19,465		59,465
Mark M. McKenna	24,000		18,549		42,549
Robert Juneja	—		—		—

(1)Only the members of our board who are independent receive compensation for their service as directors.

(2)The amount in the “Fees Earned or Paid in Cash” column for Mr. Schochet, Mr. Crane, Mr. Roberg, and Mr. McKenna represents retainer and committee fees as discussed in detail on page 102 under the caption “2008 Cash Compensation.”

(3)The amounts in the “Option Awards” column reflect the dollar amount recognized for financial statement reporting purposes for the year ended December 31, 2008, in accordance with SFAS 123(R), of awards pursuant to the 2007 Stock Option Plan.  The amounts include expense from awards granted during and before 2008.  Assumptions used in the calculation of these amounts are included in Note 10 to our audited financial statements for the fiscal year ended December 31, 2008 set forth in Part IV, Item 15 of this Annual Report on Form 10-K.  As of December 31, 2008, Mr. Roberg, Mr. McKenna, Mr. Schochet, and Mr. Crane each had 300,000 options outstanding and 50,000 options exercisable under the 2007 Stock Option Plan.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Our board of directors has a compensation committee consisting of our directors, Mr. Juneja, Mr. Crane, and Mr. McKenna.  Mr. Crane and Mr. McKenna were elected to his committee on July 1, 2008.

For a discussion of the related person transactions between or among the foregoing compensation committee members, their affiliates and us, see Item 13 of this Annual Report on  Form 10-K.

ITEM 12:  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

All of our capital stock is owned by Parent.  IPC and certain members of our management team own Parent. The following table sets forth certain information regarding the beneficial ownership of the common stock of Parent as of March 1, 2009 by:

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·each person who is the beneficial owner of more than 5% of its outstanding voting stock;

·each member of the board of directors of Parent and our named executive officers; and

·all of our directors and executive officers as a group.

To our knowledge, each such stockholder has sole voting and investment power as to the common stock shown unless otherwise noted. Beneficial ownership of the common stock listed in the table has been determined in accordance with the applicable rules and regulations promulgated under the Exchange Act.

Name of Beneficial Owner (1)	Number of Shares Beneficially Owned	Percentage of Shares Beneficially Owned (%) (2)
Principal Stockholders:
IPC/UHS, L.P. (3) (11) (12)	175,000,000	67.8
IPC/UHS Co-Investment Partners, L.P. (3) (11) (12)	63,913,306	24.8
Directors and Named Executive Officers:
Gary D. Blackford (4)	8,757,527	3.4
Rex T. Clevenger (5)	1,099,960	*
Timothy W. Kuck (6)	1,333,154	*
Jeffrey L. Singer (7)	2,824,909	1.1
Diana Vance-Bryan (8)	416,650	*
Barry P. Schochet (9)	50,000	*
Bret D. Bowerman (10)	—	—
David Crane (9)	50,000	*
John D. Howard (11)	238,913,306	92.5
Kevin L. Roberg (9)	50,000	*
Mark M. McKenna (9)	50,000	*
Robert Juneja (12)	238,913,306	92.5
All directors and executive officers as a group (17 persons)	256,730,747	99.4

*Denotes less than one percent.

(1)Unless otherwise specified, the address of each of the named individuals is c/o Universal Hospital Services, Inc., 7700 France Avenue South, Suite 275, Edina, Minnesota 55435.

(2)Percentage of beneficial ownership is based on the aggregate of 248,793,717 shares of Parent’s common stock outstanding as of March 1, 2009 and 9,366,300 options exercisable or becoming exercisable for our directors and executive officers within 60 days of March 1, 2009. The percentage of beneficial ownership for all holders has been rounded to the nearest 1/10th of a percentage.

(3)IPC III GP, LLC may be deemed a beneficial owner of shares of UHS Holdco, Inc. due to its status as a general partner of IPC/UHS, L.P. and IPC/UHS Co-Investment Partners, L.P.  GP, LLC disclaims beneficial ownership of any such shares of which it is not the holder of record.  The address for each of the entities identified in this footnote is c/o Irving Place Capital, 277 Park Avenue, 39th Floor, New York, New York 10172.

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(4)Includes 1,333,275 shares of common stock held by Mr. Blackford’s wife and 738,448 shares of common stock held by Mr. Blackford’s children, which may collectively be deemed to be beneficially owned by Mr. Blackford, and options to purchase 4,833,140 shares of common stock that are exercisable or become exercisable within 60 days of March 1, 2009.

(5)Includes options to purchase 999,960 shares of common stock that are exercisable or become exercisable within 60 days of March 1, 2009.

(6)Includes options to purchase 833,300 shares of common stock that are exercisable or become exercisable within 60 days of March 1, 2009.

(7)Includes options to purchase 833,300 shares of common stock that are exercisable or become exercisable within 60 days of March 1, 2009.

(8)Includes options to purchase 416,650 shares of common stock that are exercisable or become exercisable within 60 days of March 1, 2009.

(9)Includes options to purchase 50,000 shares of common stock that are exercisable or become exercisable within 60 days of March 1, 2009, for each of Mr. Roberg, Mr. Crane, Mr. McKenna, and Mr. Schochet.

(10)Mr. Bowerman is a Senior Associate of Irving Place Capital.  His address is c/o Irving Place Capital, 277 Park Avenue, 39th Floor, New York, New York 10172.

(11)Mr. Howard is the Chief Executive Officer and Senior Managing Director of Irving Place Capital, an independent private equity firm located in New York, NY.  IPC/UHS, L.P. and IPC/UHS Co-Investment Partners, L.P. were previously known as BSMB/UHS, L.P. and BSMB/UHS Co-Investment Partners, L.P.  On October 31, 2008, Bear Stearns Merchant Banking, commonly known as “BSMB,” which was affiliated with Bear Stearns & Co. Inc., spun out into an independent firm and changed its name to “Irving Place Capital.”  Mr. Howard, by virtue of his status as the sole member of JDH Management, LLC, may be deemed to share beneficial ownership of shares owned of record by Irving Place Capital and IPC/UHS, L.P. and IPC/UHS Co-Investment Partners, L.P.  Mr. Howard has investment and voting power with respect to shares owned by Irving Place Capital and IPC/UHS, L.P. and IPC/UHS Co-Investment Partners, L.P., but disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein.  Irving Place Capital has the right to designate three persons to the Company’s board of directors pursuant to a securityholders agreement.  The address for Mr. Howard and each of the entities identified in this footnote is c/o Irving Place Capital, 277 Park Avenue, 39th Floor, New York, New York 10172.

(12)Mr. Juneja is a Senior Managing Director of Irving Place Capital.  His address is c/o Irving Place Capital, 277 Park Avenue, 39th Floor, New York, New York 10172.

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EQUITY COMPENSATION PLAN

The following table summarizes, as of December 31, 2008, the shares of Parent’s common stock subject to outstanding awards or available for future awards under Parent’s 2007 Stock Option Plan.

Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights	Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (1)		Number of Securitites Remaining  Available for Future Issuance Under Equity Compensation Plans (excluding shares reflected in the first column) (2)
Equity Compensation Plans Approved by Security Holders	36,739,583	$	1.00	7,165,190
Equity Compensation Plans Not Approved by Security Holders	—	—		—
Total	36,739,583	$	1.00	7,165,190

(1)The exercise price of the stock option award is equal to the market value of Parent’s common stock on the grant date as determined by the recent per share valuation of Parent resulting from the Transaction as detailed below and by reference to a peer group of companies’ Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) multiple valuation.

(in thousands, except per share amount)
Equity Contribution at May 31, 2007 from Irving Place Capital andUHS Management to Parent	$	248,794
Parent shares issued and outstanding at May 31, 2007	248,794
Per share Parent valuation at May 31, 2007	$	1.00

(2)Represents shares remaining available under Parent’s 2007 Stock Option Plan.

ITEM 13:  Certain Relationships and Related Transactions, and Director Independence

TRANSACTIONS WITH RELATED PERSONS

The board of directors has adopted a written policy and written procedures regarding transactions with related persons.  On an annual basis, each director and executive officer is obligated to complete a director and officer questionnaire, which requires disclosure of any transactions in which we are a participant and the director, executive officer or any member of his immediate family (each a “related person”), have a direct or indirect material interest.   The policy and procedures charge the audit committee with the review, approval and/or ratification of any conflict of interest with a related person.

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MANAGEMENT AGREEMENTS

Payments under the management agreements described below may be made only to the extent permitted by our senior secured credit facility and the Second Lien Senior Indenture governing our Notes.

On May 31, 2007, in connection with the Transaction, we and IPC entered into a professional services agreement pursuant to which general advisory and management services are to be provided to us with respect to financial and operating matters.  IPC is an owner of Parent, and the following members of our board of directors are associated with IPC:  John Howard, Robert Juneja and Bret Bowerman.  In addition, David Crane, a director, provides consulting services to IPC.  The professional services agreement requires us to pay an annual advisory fee for ongoing advisory and management services equal to the greater of $500,000 or 0.75% of our Adjusted EBITDA (as defined in the professional services agreement) for the immediately preceding fiscal year, payable in quarterly installments, provided that the annual advisory fee for the fiscal year ending December 31, 2007 shall be $500,000, as adjusted for the partial year.  We paid IPC approximately $716,000 in 2008 for advisory and management services.

The professional services agreement was amended and restated as of February 1, 2008, to state that IPC may provide to us certain strategic services in exchange for a portion of the fees that would have been payable by us to IPC as advisory fees under the original professional services agreement, provided that the aggregate of the advisory and strategic services fees do not exceed the greater of $500,000 or 0.75% of our Adjusted EBITDA (as defined in the professional services agreement) for the immediately preceding fiscal year .

OTHER RELATIONSHIP

As of March 1, 2009, Mr. Dovenberg, our advisory audit committee member, owned $1.5 million principal amount of our 8.5%/9.25% PIK Toggle Notes which pay interest semi-annually on June 1 and December 1 of each year.

ITEM 14:  Principal Accountant Fees and Services

Deloitte and Touche LLP (“D&T”) has served as our independent registered public accounting firm since June 20, 2007.  PricewaterhouseCoopers LLP (“PwC”) served as our independent registered public accounting firm from January 1, 2007 to June 5, 2007.  The following table presents fees for professional services rendered by D&T from June 20, 2007 to December 31, 2008 and from PwC for January 1, 2007 to June 5, 2007 for our related annual financial statements.

	2008		2007
Types of Fees	D&T		D&T		PwC		Total
Audit Fees (1)	$	385,000	$	260,000	$	20,500	$	280,500
Tax Fees (2)	—		—		23,050		23,050
All Other Fees (3)	—		276,500		236,120		512,620

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(1)Audit fees consist of services rendered for the audit of the annual financial statements, including required quarterly reviews, statutory and regulatory filings or engagements and services that generally only the auditor can reasonably be expected to provide.

(2)Tax fees are for professional services rendered for tax compliance, tax advice and tax planning.

(3)All other fees are for services other than those in the previous categories.  Fees incurred in 2007 relate primarily to the Transaction.

All decisions regarding selection of independent registered public accounting firms and approval of accounting services and fees are made by our audit committee in accordance with the provisions of the Sarbanes-Oxley Act of 2002 and related SEC rules.  There are no exceptions to the policy of securing prior approval by our audit committee for any service provided by our independent registered public accounting firm.

PART IV

ITEM 15:  Exhibits and Financial Statement Schedules

(a)           The following documents are filed as part of this Report:

1.        Financial Statements

Reports of Independent Registered Public Accounting Firm

Balance Sheets as of December 31, 2008 and 2007

Statements of Operations for the year ended December 31, 2008, seven months ended December 31, 2007, five months ended May 31, 2007, and year ended December 31, 2006

Statements of Shareholders’ Equity (Deficiency) and Other Comprehensive Income (Loss) for the year ended December 31, 2008, seven months ended December 31, 2007, five months ended May 31, 2007, and year ended December 31, 2006

Statements of Cash Flows for the year ended December 31, 2008, seven months ended December 31, 2007, five months ended May 31, 2007, and year ended December 31, 2006

Notes to Financial Statements

2.Financial Statement Schedule required to be filed by Item 8 and Paragraph (c) of this Item 15.

Schedule II -Valuation and Qualifying Accounts (follows the signature page)

108

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.

3.Exhibits

2.1	Agreement and Plan of Merger, dated as of April 15, 2007, by and among UHS Holdco, Inc., UHS Merger Sub, Inc., Universal Hospital Services, Inc. and J.W. Childs Equity Partners III, L.P., as representative (incorporated by reference to Exhibit 10.1 to Form 10-Q filed with the Securities and Exhange Commision on May 8, 2007, File No. 000-20086).
3.1	Amended and Restated Certificate of Incorporation of Universal Hospital Services, Inc. (incorporated by reference to Exhibit 3.1 to Form 10-Q filed with the Securities and Exchange Commission on August 14, 2007, File No. 000-20086).
3.2	Amended and Restated By-laws of Universal Hospital Services, Inc. (incorporated by reference to Exhibit 3.2 to Form 10-Q filed with the Securities and Exchange Commission on August 14, 2007, File No. 000-20086).
4.1	Indenture, dated as of May 31, 2007, relating to the Second Lien Senior Secured Floating Rate Notes due 2015 and the 8.50%/9.25% Second Lien Senior Secured PIK Toggle Notes due 2015, between UHS Merger Sub, Inc. and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to Form 10-Q filed with the Securities and Exchange Commission on August 14, 2007, File No. 000-20086).
4.2	Supplemental Indenture, dated as of May 31, 2007, relating to the Second Lien Senior Secured Floating Rate Notes due 2015 and the 8.50%/9.25% Second Lien Senior Secured PIK Toggle Notes due 2015, between Universal Hospital Services, Inc. and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.2 to Form 10-Q filed with the Securities and Exchange Commission on August 14, 2007, File No. 000-20086).
4.3	Indenture, dated as of October 17, 2003, relating to the 10.125% Senior Notes due 2011, between Universal Hospital Services, Inc. and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Form 10-Q filed with the Securities and Exchange Commission on November 12, 2003, File No. 000-20086).
4.4	First Supplemental Indenture, dated as of May 16, 2007, relating to the 10.125% Senior Notes due 2011, between Universal Hospital Services, Inc. and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.3 to Form 10-Q filed with the Securities and Exchange Commission on August 14, 2007, File No. 000-20086).
4.5	Registration Rights Agreement, dated as of May 31, 2007, among UHS Merger Sub, Inc. and the initial purchasers named therein (incorporated by reference to Exhibit 4.4 to Form 10-Q filed with the Securities and Exchange Commission on August 14, 2007, File No. 000-20086).
4.6	Joinder to Registration Rights Agreement, dated as of May 31, 2007, among Universal Hospital Services, Inc. and the initial purchasers named therein (incorporated by reference to Exhibit 4.5 to Form 10-Q filed with the Securities and Exchange Commission on August 14, 2007, File No. 000-20086).
4.7	Form of Second Lien Senior Secured Floating Rate Note due 2015 (included in Exhibit 4.1).
4.8	Form of 8.50% / 9.25% Second Lien Senior Secured PIK Toggle Note due 2015 (included in Exhibit 4.1).

109

4.9	Form of 10.125% Senior Notes, due 2011 in the aggregate principal amount outstanding of $9,945,000 (incorporated by reference to Exhibit 4.7 to Form S-4 filed with the Securities and Exchange Commission on December 30, 2003, File No. 333-111606).
10.1	Amended and Restated Credit Agreement dated as of May 26, 2005, among Universal Hospital Services, Inc., as Borrower, the other credit parties signatory thereto, as Credit Parties, the lenders signatory thereto from time to time, as Lenders, and General Electric Capital Corporation, as Agent, Administrative Agent, Collateral Agent and Lender, and GECC Capital Markets Group, Inc. as Sole Lead Arranger and Sole Bookrunner (incorporated by reference to Exhibit 10.21 to Form 8-K filed with the Securities and Exchange Commission on May 31, 2005, File No. 000-20086).
10.2	Amendment No. 1 to Credit Agreement dated as of February 13, 2007 by and among Universal Hospital Services, Inc., General Electric Capital Corporation, as agent for lenders, and the lenders party thereto (incorporated by reference to Exhibit 10.16 to Form 8-K filed with the Securities and Exchange Commission on February 28, 2007, File No. 000-20086).
10.3	Asset Purchase Agreement dated February 23, 2007 by and between Universal Hospital Services, Inc. and Intellamed, Inc. (incorporated by reference to Exhibit 10.14 to Form 8-K filed with the Securities and Exchange Commission on February 28, 2007, File No. 000-20086).
10.4	Letter Agreement dated February 27, 2007 between Universal Hospital Services, Inc. and Intellamed, Inc. (incorporated by reference to Exhibit 10.15 to Form 8-K filed with the Securities and Exchange Commission on February 28, 2007, File No. 000-20086).
10.5	Credit Agreement, dated as of May 31, 2007, among UHS Merger Sub, Inc., Universal Hospital Services, Inc., UHS Holdco, Inc., the lenders party thereto, Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services, Inc. (“ML Capital”), as administrative agent, Bank of America, N.A., as documentation agent, and ML Capital, Bear, Stearns & Co. Inc. and Wachovia Capital Markets, LLC, as joint lead arrangers and joint bookrunners (incorporated by reference to Exhibit 10.1 to Form 10-Q filed with the Securities and Exchange Commission on August 14, 2007, File No. 000-20086).
10.6	Guaranty, dated as of May 31, 2007, among UHS Holdco, Inc. and the secured parties named therein (incorporated by reference to Exhibit 10.2 to Form 10-Q filed with the Securities and Exchange Commission on August 14, 2007, File No. 000-20086).
10.7	First Lien Security Agreement, dated May 31, 2007, among UHS Merger Sub, Inc., Universal Hospital Services, Inc. and ML Capital, as collateral agent (incorporated by reference to Exhibit 10.3 to Form 10-Q filed with the Securities and Exchange Commission on August 14, 2007, File No. 000-20086).
10.8	Trademark Security Agreement, dated May 31, 2007, among UHS Merger Sub, Inc., Universal Hospital Services, Inc., UHS Holdco, Inc. and ML Capital, as collateral agent (incorporated by reference to Exhibit 10.4 to Form 10-Q filed with the Securities and Exchange Commission on August 14, 2007, File No. 000-20086).
10.9	Second Lien Security Agreement, dated May 31, 2007, among UHS Merger Sub, Inc., Universal Hospital Services, Inc. and Wells Fargo Bank, National Association, as collateral agent (incorporated by reference to Exhibit 10.5 to Form 10-Q filed with the Securities and Exchange Commission on August 14, 2007, File No. 000-20086).

110

10.10		Second Lien Trademark Security Agreement, dated May 31, 2007, among UHS Merger Sub, Inc., Universal Hospital Services, Inc., UHS Holdco, Inc. and Wells Fargo Bank, National Association, as collateral agent (incorporated by reference to Exhibit 10.6 to Form 10-Q filed with the Securities and Exchange Commission on August 14, 2007, File No. 000-20086).
10.11		Second Lien Copyright Security Agreement, dated May 31, 2007, among UHS Merger Sub, Inc., Universal Hospital Services, Inc., UHS Holdco, Inc. and Wells Fargo Bank, National Association, as collateral agent (incorporated by reference to Exhibit 10.7 to Form 10-Q filed with the Securities and Exchange Commission on August 14, 2007, File No. 000-20086).
10.12		Second Lien Patent Security Agreement, dated May 31, 2007, among UHS Merger Sub, Inc., Universal Hospital Services, Inc., UHS Holdco, Inc. and Wells Fargo Bank, National Association, as collateral agent (incorporated by reference to Exhibit 10.8 to Form 10-Q filed with the Securities and Exchange Commission on August 14, 2007, File No. 000-20086).
10.13		Securityholders Agreement, dated as of May 31, 2007, by and among UHS Holdco, Inc., IPC/UHS L.P. (formerly known as BSMB/UHS L.P.) and IPC/UHS Co-Investment Partners, L.P. (formerly known as BSMB/UHS Co-Investment Partners, L.P.), Gary D. Blackford and Kathy Blackford, and each of the other persons listed therein (incorporated by reference to Exhibit 10.9 to Form 10-Q filed with the Securities and Exchange Commission on August 14, 2007, File No. 000-20086).
10.14		Stock Option Plan of UHS Holdco, Inc. (incorporated by reference to Exhibit 10.17 to Form 10-Q filed with the Securities and Exchange Commission on August 14, 2007, File No. 000-20086).**
10.15		Form of Option Agreement with UHS Holdco, Inc. (incorporated by reference to Exhibit 10.18 to Form 10-Q filed with the Securities and Exchange Commission on August 14, 2007, File No. 000-20086).**
10.16		Amended and Restated Professional Services Agreement, dated as of February 1, 2008, by and between Universal Hospital Services, Inc. and Irving Place Capital Merchant Manager III, L.P. (formerly known as Bear Stearns Merchant Manager III, L.P.) (incorporated by reference to Exhibit 10.23 to Form 10-K/A filed with the Securities and Exchange Commission on March 12, 2008, File No. 000-20086)
10.17	*	Amended and Restated Employment Agreement, dated as of December 31, 2008, between Universal Hospital Services, Inc. and Gary D. Blackford. **
10.18	*	Amended and Restated Employment Agreement, dated as of December 31, 2008, between Universal Hospital Services, Inc. and Rex T. Clevenger. **
10.19	*	Amended and Restated Employment Agreement, dated as of December 31, 2008, between Universal Hospital Services, Inc. and Walter T. Chesley. **
10.20	*	Executive Severance Pay Plan, dated December 31, 2008. **
10.21	*	2009 Executive Incentive Plan Targets. **
12.1	*	Statement regarding the computation of ratio of earnings to fixed charges.
31.1	*	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
31.2	*	Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
32.1	*	Certification of Gary D. Blackford Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	*	Certification of Rex T. Clevenger Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*     Filed herewith

**   Indicates management contracts, compensatory plans or arrangements required to be filed pursuant to Item  601(b)(10)(iii)(A) of Regulation S-K.

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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 11, 2009.

UNIVERSAL HOSPITAL SERVICES, INC.
	By	/s/ Gary D. Blackford
		Gary D. Blackford
		Chairman of the Board and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated on March 11, 2009.

/s/	Gary D. Blackford	Chairman of the Board
	Gary D. Blackford	and Chief Executive
		Officer (Principal
		Executive Officer)
/s/	Rex T. Clevenger	Executive Vice President and
	Rex T. Clevenger	Chief Financial Officer
		(Principal Financial
		Officer)
/s/	Scott M. Madson	Vice President, Controller,
	Scott M. Madson	and Chief Accounting
		Officer (Principal
		Accounting Officer)
/s/	Barry P. Schochet	Director
	Barry P. Schochet
/s/	Bret D. Bowerman	Director
	Bret D. Bowerman
/s/	David Crane	Director
	David Crane
/s/	John D. Howard	Director
	John D. Howard
/s/	Kevin L. Roberg	Director
	Kevin L. Roberg

112

/s/	Mark M. McKenna	Director
	Mark M. McKenna
/s/	Robert Juneja	Director
	Robert Juneja

113

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT

No annual report relating to the fiscal year ended December 31, 2008 or proxy statement with respect to any annual or other meeting of security holders has been sent to security holders, nor will such information be sent to security holders.

114

Universal Hospital Services, Inc.

Schedule II - Valuation and Qualifying Accounts

(in thousands)

			Additions
Description	Balance- Beginning of Period		Charged to Costs and Expense		Charged to Other Accounts			Deductions from Reserves		Balance-End of Period
Allowance for Doubtful Accounts
Year ended December 31, 2008	$	1,500	$	2,018	$	—		$	1,068	$	2,450
Seven months ended December 31, 2007	1,250		854		—			604		1,500
Five months ended May 31, 2007	1,350		193		—			293		1,250
Year ended December 31, 2006	1,350		1,126		1			1,127		1,350
Allowance for Inventory Obsolescence
Year ended December 31, 2008	$	662	$	377	$	—		$	127	$	912
Seven months ended December 31, 2007	448		331		—			117		662
Five months ended May 31, 2007	475		256		—			283		448
Year ended December 31, 2006	562		375		—			462		475
Income Tax Valuation Allowance
Year ended December 31, 2008	$	—	$	—	$	—		$	—	$	—
Seven months ended December 31, 2007	—		—		—			—		—
Five months ended May 31, 2007	9,945		—		(9,945		)	—		—
Year ended December 31, 2006	9,734		211		—			—		9,945

Universal Hospital Services, Inc.

Index

December 31, 2008 and 2007

	Page(s)
Reports of Independent Registered Public Accounting Firm	F-1 to F-2
Financial Statements
Balance Sheets	F-3
Statements of Operations	F-4
Statements of Shareholders’ Equity (Deficiency) and Other Comprehensive Income (Loss)	F-5
Statements of Cash Flows	F-6
Notes to Financial Statements	F-7 to F-38

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Universal Hospital Services, Inc.

We have audited the accompanying balance sheets of Universal Hospital Services, Inc. (the “Company”) as of December 31, 2008 and 2007 and the related statements of operations, shareholders’ equity (deficiency), and cash flows for the year ended December 31, 2008 (successor), and for the seven month period ended December 31, 2007 (successor), and the five month period ended May 31, 2007 (predecessor). Our audits also included the financial statement schedule listed in the Index at Item 15 as of December 31, 2008 and 2007.  These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor have we been engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also 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, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material respects, the financial positions of Universal Hospital Services, Inc. as of December 31, 2008 and 2007 and the results of their operations and their cash flows for the year ended December 31 2008 (successor), and for the seven month period ended December 31, 2007 (successor), and the five month period ended May 31, 2007 (predecessor), in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

Deloitte & Touche LLP

Minneapolis, Minnesota

March 12, 2009

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of

Universal Hospital Services, Inc.

In our opinion, the financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, Universal Hospital Services, Inc.’s results of operations and its cash flows for the year ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America.  In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related financial statements for the year ended December 31, 2006.  These financial statements and financial statement schedule are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit.  We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.

As discussed in Note 2 to the financial statements, the Company changed its method of accounting for stock-based compensation effective January 1, 2006.

PricewaterhouseCoopers LLP

Minneapolis, Minnesota

March 2, 2007

F-2

Universal Hospital Services, Inc.

Balance Sheets

(in thousands, except share and per share information)

	December 31,			December 31,
	2008 (Successor)			2007 (Successor)
Assets
Current assets:
Cash and cash equivalents	$	12,006		$	—
Short-term investments	1,500			—
Accounts receivable, less allowance for doubtful accounts of $2,450 at December 31, 2008 and $1,500 at December 31, 2007	54,113			51,379
Inventories	5,627			4,230
Deferred income taxes	6,025			5,636
Other current assets	2,815			2,426
Total current assets	82,086			63,671
Property and equipment, net:
Medical equipment, net	215,643			214,336
Property and office equipment, net	22,728			18,707
Total property and equipment, net	238,371			233,043
Other long-term assets:
Goodwill	280,211			282,913
Other intangibles, net	262,848			282,507
Other, primarily deferred financing costs, net	14,209			16,618
Total assets	$	877,725		$	878,752
Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of long-term debt	$	3,555		$	3,120
Book overdrafts	7,170			3,420
Accounts payable	17,976			16,518
Accrued compensation	12,154			13,527
Accrued interest	3,880			3,783
Other accrued expenses	6,146			7,645
Total current liabilities	50,881			48,013
Long-term debt, less current portion	527,788			494,215
Pension and other long-term liabilities	8,248			1,624
Interest rate swap	27,167			14,681
Payable to Parent	5,012			2,471
Deferred income taxes	70,178			94,053
Commitments and contingencies (Note 8)
Shareholders’ equity
Common stock, $0.01 par value; 1,000 shares authorized, issued and outstanding at December 31, 2008 and 2007	—			—
Additional paid-in capital	248,794			248,794
Accumulated deficit	(39,592		)	(16,096		)
Accumulated other comprehensive loss	(20,751		)	(9,003		)
Total shareholders’ equity	188,451			223,695
Total liabilities and shareholders’ equity	$	877,725		$	878,752

The accompanying notes are an integral part of these financial statements.

F-3

Universal Hospital Services, Inc.

Statements of Operations

(in thousands)

				Seven			Five
				Months			Months
	Year Ended			Ended			Ended			Year Ended
	December 31,			December 31,			May 31,			December 31,
	2008 (Successor)			2007 (Successor)			2007 (Predecessor)			2006 (Predecessor)
Revenue
Medical equipment outsourcing	$	223,676		$	119,808		$	84,855		$	176,932
Technical and professional services	45,225			26,437			14,800			30,445
Medical equipment sales and remarketing	20,218			10,209			7,867			17,698
Total revenues	289,119			156,454			107,522			225,075
Cost of Sales
Cost of medical equipment outsourcing	82,030			43,104			27,694			58,987
Cost of technical and professional services	32,676			19,855			10,124			21,068
Cost of medical equipment sales and remarketing	15,473			9,005			6,366			13,387
Medical equipment depreciation	61,751			34,458			18,512			37,430
Total costs of medical equipment outsourcing, technical and professional services and medical equipment sales and remarketing	191,930			106,422			62,696			130,872
Gross margin	97,189			50,032			44,826			94,203
Selling, general and administrative	85,166			48,647			28,692			61,940
Transaction and related costs	—			306			26,891			—
Intangible asset impairment charge	4,000			—			—			—
Operating income (loss)	8,023			1,079			(10,757		)	32,263
Interest expense	46,878			26,322			13,829			31,599
Loss on extinguishment of debt	—			1,041			22,396			—
Income (loss) before income taxes	(38,855		)	(26,284		)	(46,982		)	664
Provision (benefit) for income taxes	(15,359		)	(10,188		)	492			612
Net income (loss)	$	(23,496	)	$	(16,096	)	$	(47,474	)	$	52

The accompanying notes are an integral part of these financial statements.

F-4

Universal Hospital Services, Inc.

Statements of Shareholders Equity (Deficiency) and Other Comprehensive Income (Loss)

(in thousands, except share and per share information)

											Accumulated			Total
			Additional								Other			Shareholders’
	Common		Paid-in		Accumulated			Deferred			Comprehensive			Equity
	Stock		Capital		Deficit			Compensation			Income (Loss)			(Deficiency)
Predecessor:
Balances at December 31, 2005	$	1,234	$	820	$	(93,579	)	$	(94	)	$	(5,180	)	$	(96,799	)
Issuance of 25,495 shares of common stock	1		28		—			—			—			29
Stock-based compensation	—		1,640		—			94			—			1,734
Comprehensive income:
Net income	—		—		52			—			—
Unrealized gain on minimum pension liability adjustment	—		—		—			—			2,003
Comprehensive income														2,055
Balances at December 31, 2006	1,235		2,488		(93,527		)	—			(3,177		)	(92,981		)
Issuance of 16,664 shares of common stock	—		19		—			—			—			19
Stock-based compensation	—		7,957		—			—			—			7,957
Comprehensive loss:
Net loss	—		—		(47,474		)	—			—
Comprehensive loss														(47,474		)
Balances at May 31, 2007	$	1,235	$	10,464	$	(141,001	)	$	—		$	(3,177	)	$	(132,479	)
Successor:
Equity contributions / issuance of common stock	$	—	$	248,794	$	—		$	—		$	—		$	248,794
Comprehensive loss:
Net loss	—		—		(16,096		)	—			—
Unrealized loss on minimum pension liability adjustment, net of tax	—		—		—			—			(12		)
Unrealized loss on cash flow hedge, net of tax	—		—		—			—			(8,991		)
Total Comprehensive loss														(25,099		)
Balances at December 31, 2007 Comprehensive loss:	—		248,794		(16,096		)	—			(9,003		)	223,695
Net loss	—		—		(23,496		)	—			—
Unrealized loss on minimum pension liability adjustment, net of tax	—		—		—			—			(4,384		)
Unrealized loss on cash flow hedge, net of tax	—		—		—			—			(7,364		)
Total Comprehensive loss														(35,244		)
Balances at December 31, 2008	$	—	$	248,794	$	(39,592	)	$	—		$	(20,751	)	$	188,451

The accompanying notes are an integral part of these financial statements.

F-5

Universal Hospital Services, Inc.

Statements of Cash Flows

(in thousands)

				Seven			Five Months
	Year Ended			Months Ended			Ended			Year Ended
	December 31,			December 31,			May 31,			December 31,
	2008			2007			2007			2006
	(Successor)			(Successor)			(Predecessor)			(Predecessor)
Cash flows from operating activities:
Net income (loss)	$	(23,496	)	$	(16,096	)	$	(47,474	)	$	52
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation	70,163			39,387			21,625			43,672
Amortization of intangibles and deferred financing costs	18,067			10,837			1,913			3,498
Intangible asset impairment charge	4,000			—			—			—
Non-cash write-off of deferred financing cost	—			290			6,305			—
Tender premium for purchase of 10.125% senior notes	—			751			16,090			—
Provision for doubtful accounts	2,018			854			194			1,126
Provision for inventory obsolescence	377			330			256			375
Non-cash charges related to step-up in carrying value of inventory	—			200			—			—
Non-cash stock-based compensation expense	2,540			2,471			7,957			1,734
Loss (gain) on sales and disposals of equipment	1,682			1,336			(745		)	(1,280		)
Deferred income taxes	(15,501		)	(10,353		)	392			372
Changes in operating assets and liabilities:
Accounts receivable	(4,725		)	(5,904		)	(3,481		)	(2,126		)
Inventories	(1,774		)	405			(252		)	(130		)
Other operating assets	(545		)	(15		)	643			(746		)
Accounts payable	4,377			(772		)	590			(2,344		)
Other accrued expenses	(934		)	(28,216		)	30,305			4,668
Net cash provided by (used in) operating activities	56,249			(4,495		)	34,318			48,871
Cash flows from investing activities:
Medical equipment purchases	(69,224		)	(34,695		)	(34,040		)	(50,783		)
Property and office equipment purchases	(4,679		)	(2,947		)	(1,720		)	(4,034		)
Proceeds from disposition of property and equipment	2,508			1,841			2,290			3,106
Acquisition of the ICMS division of Intellamed, Inc.	—			—			(14,590		)	—
Acquisition of Universal Hospital Services, Inc. by Parent	—			(335,069		)	—			—
Net cash used in investing activities	(71,395		)	(370,870		)	(48,060		)	(51,711		)
Cash flows from financing activities:
Proceeds under amended credit agreement	—			—			73,625			100,500
Payments under amended credit agreement	—			(74,550		)	(42,075		)	(95,606		)
Proceeds under senior secured credit facility	104,450			59,223			—			—
Payments under senior secured credit facility	(74,925		)	(39,748		)	—			—
Purchase of short term investment as collateral	(1,500		)	—			—			—
Payments of principal under capital lease obligations	(4,554		)	(2,730		)	(1,618		)	(1,391		)
Payment of deferred financing costs	(69		)	(17,529		)	—			—
Proceeds from issuance of bonds	—			460,000			—			—
Repayment of 10.125% senior notes	—			(250,055		)	—			—
Tender premium for purchase of 10.125% senior notes	—			(751		)	(16,090		)	—
Cash equity contributions	—			239,754			—			—
Change in book overdrafts	3,750			1,751			(119		)	(692		)
Proceeds from issuance of common stock	—			—			19			29
Net cash provided by financing activities	27,152			375,365			13,742			2,840
Net change in cash and cash equivalents	12,006			—			—			—
Cash and cash equivalents at the beginning of period	—			—			—			—
Cash and cash equivalents at the end of period	$	12,006		$	—		$	—		$	—
Supplemental cash flow information:
Interest paid	$	44,374		$	21,446		$	17,599		$	29,532
Income taxes paid (received)	$	384		$	(51	)	$	61		$	302
Non-cash activities:
Medical equipment purchases included in accounts payable	$	5,693		$	8,952		$	5,103		$	7,407
Deferred financing costs included in accounts payable	$	—		$	69		$	—		$	—
Capital lease additions	$	9,037		$	2,913		$	2,142		$	6,208
Equity contributions from management shareholders	$	—		$	9,039		$	—		$	—

The accompanying notes are an integral part of these financial statements.

F-6

Universal Hospital Services, Inc.

Notes to Financial Statements

As of December 31, 2008 and 2007 and for the year ended December 31, 2008, seven months ended December 31, 2007, five months ended May 31, 2007, and year ended December 31, 2006

1.Description of Business

Universal Hospital Services, Inc. (“we”, “our”, the “Company” or “UHS”) is a nationwide provider of medical equipment outsourcing and lifecycle services to the health care industry.  The Company’s services fall into three reporting segments:  medical equipment outsourcing, technical and professional services, and medical equipment sales and remarketing.

On May 31, 2007, UHS Holdco, Inc. (“Parent”) acquired all of the outstanding capital stock of the Company for approximately $712.0 million in cash less debt, tender premium and accrued interest and capitalized leases.  Parent is owned by affiliates of Irving Place Capital Merchant Manager III, L.P. (formerly known as Bear Stearns Merchant Manager III, L.P.) and certain members of our management, whom we collectively refer to as the “equity investors.” Parent and Merger Sub are corporations that were formed for the purpose of completing the Acquisition by Bear Stearns Merchant Banking, which was affiliated with Bear Stearns & Co. Inc. and which became an independent firm on November 1, 2008, changing its name to Irving Place Capital.

In conjunction with the Acquisition, the Company initiated a cash tender offer to purchase its $260.0 million outstanding aggregate principal amount of its 10.125% Senior Notes due 2011, which the Company completed for $235.0 million of such notes on May 31, 2007, and Merger Sub issued $230.0 million in aggregate principal amount of its Floating Rate Notes due 2015 and $230.0 million in aggregate principal amount of its PIK Toggle Notes due 2015 (The PIK Toggle Notes and the Floating Rate Notes are collectively referred to as the “Notes”).  Concurrently with the closing of the Acquisition, Merger Sub merged with and into the Company, which was the surviving corporation and the Company assumed Merger Sub’s obligations with respect to the Notes and related second lien senior indenture dated as of May 31, 2007, between us and Wells Fargo Bank, National Association, as trustee (“Second Lien Senior Indenture”).

The Agreement and Plan of Merger, dated as of April 15, 2007, by and among the Company, Parent and Merger Sub and related documents resulted in the occurrence of the events outlined in Note 3 to these audited financial statements, which we collectively refer to as the “Transaction” or the “Acquisition.”

Although the Company continued as the surviving legal entity after the Acquisition, the accompanying information presents our results preceding the Acquisition (“Predecessor”) and the periods subsequent to the acquisition (“Successor”).  All references to the year ended December 31, 2008 and seven months ended December 31, 2007 refer to our Successor results.  All references to the five months ended May 31, 2007 and year ended December 31, 2006 refer to our Predecessor results.

The Acquisition and the allocation of the purchase price to the opening balance sheet accounts of the Successor have been recorded as of the beginning of the first day of our new accounting period (June 1, 2007).

F-7

2.Significant Accounting Policies

Although we underwent significant ownership and organizational changes in 2007, as a result of the Transaction, our significant accounting policies have remained consistent between Predecessor and Successor.

Cash and Cash Equivalents

The Company considers money market accounts and other highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Short-term Investments

Marketable securities with original purchase maturities greater than three months, but less than twelve months are classified as short-term investments. On December 31, 2008, the Company purchased a six-month certificate of deposit for $1.5 million that serves as collateral for bank purchase card financing.

Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are recorded at the invoiced amount.  Concentrations of credit risk with respect to trade accounts receivable are limited due to the number of customers and their geographical distribution.  The Company performs initial and ongoing credit evaluations of its customers and maintains allowances for potential credit losses.  The allowance for doubtful accounts is based on historical loss experience and estimated exposure on specific trade receivables.

Inventories

Inventories consist of supplies and equipment held for resale and are valued at the lower of cost or market.  Cost is determined by the average cost method, which approximates the first-in, first-out (“FIFO”) method.

Medical Equipment

Depreciation of medical equipment is provided on the straight-line method over the equipment’s estimated useful life, generally four to seven years.  The cost and accumulated depreciation of medical equipment retired or sold is eliminated from their respective accounts and the resulting gain or loss is recorded as gain or loss on sales and disposals of equipment in the period the asset is retired or sold.

Property and Office Equipment

Property and office equipment includes property, leasehold improvements and office equipment.

Depreciation and amortization of property and office equipment is provided on the straight-line method over the lesser of the remaining useful life or lease term for leasehold improvements, and 3 to 10 years for shop and office equipment.  The cost and accumulated depreciation or amortization of property and equipment retired or sold is eliminated from their respective accounts and the resulting gain or loss is recorded in selling, general and administrative expense in the period the asset is retired or sold.

Goodwill

Goodwill represents the excess of the cost of acquired businesses over the fair value of identifiable tangible net assets and identifiable intangible assets purchased.

Goodwill is tested at least annually for impairment, and is tested for impairment more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test is

F-8

performed using a two-step process. In the first step, the fair value of each reporting unit is compared with the carrying amount of the reporting unit, including goodwill. If the estimated fair value is less than the carrying amount of the reporting unit, an indication that goodwill impairment exists and a second step must be completed in order to determine the amount of the goodwill impairment, if any, that should be recorded. In the second step, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation. The fair value of each reporting unit is determined using a discounted cash flow analysis. Projecting discounted future cash flows requires us to make significant estimates regarding future revenues and expenses, projected capital expenditures, changes in working capital and the appropriate discount rate. The projections also take into account several factors including current and estimated economic trends and outlook, and other factors which are beyond our control.

We completed step one of our annual goodwill impairment evaluation during the fourth quarter with each reporting unit’s fair value exceeding its carrying value. Accordingly, step two of the impairment analysis was not required.  Goodwill was not found to be impaired during any of the periods presented.

Other Intangible Assets

Other intangible assets primarily include customer relationships, supply agreement, trade names and trademarks, technology database and non-compete agreements.  With the exception of trade names, which have indefinite lives, other intangible assets are amortized over their estimated economic lives of two to thirteen years that results in a remaining weighted-average useful life of approximately 11 and 12 years at year ended December 31, 2008 and 2007, respectfully.  The straight-line method of amortization generally reflects an appropriate allocation of the cost of the intangible assets to earnings in proportion to the amount of economic benefits obtained by the Company in each reporting period.  However, for certain of our customer relationships we use the sum-of-the-years-digits amortization method to more appropriately allocate the cost to earnings in proportion to the estimated amount of economic benefit obtained.  Intangible assets with indefinite lives are tested for impairment on an annual basis.  Amortizable intangibles are measured for impairment consistent with the process utilized for long-lived assets.  See Note 6 for further information regarding the $4.0 million impairment loss recognized in 2008 for technical and professional service segment trade names.

Long-Lived Assets

The Company periodically reviews its long-lived assets for impairment and assesses whether significant events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable.  An impairment loss is recognized when the carrying amount of an asset exceeds the anticipated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition.  The amount of the impairment loss to be recorded, if any, is calculated by the excess of the asset’s carrying value over its fair value.

Deferred Financing Costs

Deferred financing costs associated with issuing debt are deferred and amortized over the related terms using the straight-line method, which approximates the effective interest rate method.  Accumulated amortization of our deferred financing costs was $3.8 and $1.4 million at December 31, 2008 and 2007, respectively.

F-9

Purchase Accounting

We account for acquisitions in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations, whereby the purchase price paid to effect the acquisition is allocated to state the acquired assets and liabilities at fair value with excess purchase price being recorded as goodwill.

Revenue Recognition

Medical equipment is outsourced on both short-term and long-term arrangements, and outsourced revenue is recorded in income as equipment is utilized based on an agreed rate per use or time period.  Any changes to the rate are billed on a prospective basis.  Technical and professional services revenue is recognized as services are provided.  Medical equipment sales and remarketing revenues consist of (1) sales of medical equipment and related parts and single-use disposable items to customers and (2) sales of medical equipment that include installation services.   The Company follows the provisions of Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition, in recognizing these revenues as they are realized and earned once an arrangement exists, delivery has occurred and services rendered, and the price is fixed and collectability is reasonably assured.  Sales of medical equipment as well as related parts and single-use disposable items are recognized at the point of delivery, if performed by us, or at the point of shipment, when risk of loss has passed to the customer. Because of the short-term nature of equipment installation projects, sales that include installation services are recognized when the earnings cycle is complete—installation has been completed, the equipment becomes operational and the customer has accepted it.  All revenues are recognized net of any sales taxes.  The Company reports only its portion of revenues earned under certain revenue share arrangements in accordance with Emerging Issues Task Force (“EITF”) No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent.

Operating Leases

The Company leases all of its district, corporate and other operating locations under operating leases and recognizes rent expense on a straight-line basis over the lease terms.  Rent holidays and rent escalation clauses, which provide for scheduled rent increases during the lease term, are taken into account in computing straight-line rent expense included in our Statements of Operations.  The difference between the rent due under the stated periods of the leases compared to that of the straight-line basis is recorded as a component of other long-term liabilities in the Balance Sheets.  Landlord funded lease incentives, including tenant improvement allowances provided for our benefit, are recorded as leasehold improvement assets and as deferred rent in the Balance Sheets and are amortized to depreciation expense and as rent expense credits, respectively.

Income Taxes

The Company accounts for deferred income taxes utilizing SFAS No. 109, Accounting for Income Taxes. SFAS No. 109 requires the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the tax effects of temporary differences between the financial statement and the tax bases of assets and liabilities, as measured at current enacted tax rates. When appropriate the Company evaluates the need for a valuation allowance to reduce deferred tax assets.

In June 2006, Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes—An interpretation of FASB Statement No. 109.  The Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attributes of income tax positions taken or expected to be taken on a tax return.  We adopted the provisions of FIN 48 as of January 1, 2007.

F-10

Interest and penalties associated with uncertain income tax positions is classified as income tax expense.  The Company has not recorded any material income tax related interest or penalties during any of the periods presented.

Derivative Financial Instruments

We use derivative financial instruments consisting of an interest rate swap agreement in the management of our interest rate exposures.  We do not use financial instruments for trading or other speculative purposes.

SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,” establishes accounting and reporting standards requiring that derivative instruments be recorded on the balance sheet as either an asset or liability measured at fair value. The statement requires that changes in the derivative’s fair value be recognized currently in earnings unless specific hedge accounting criteria are met. If hedge accounting criteria are met, the changes in a derivative’s fair value (for a cash flow hedge) are deferred in stockholders’ equity (deficiency) as a component of other comprehensive income (loss). These deferred gains and losses are recognized as income in the period in which hedged cash flows occur. The ineffective portions of hedge returns are recognized as earnings.

In June 2007 we entered into an interest rate swap agreement for $230.0 million, which has the effect of converting our $230.0 of Floating Rate Notes to fixed interest rates.  The effective date for the swap agreement is December 2007; the expiration date is May 2012.  See Note 7, Long-Term Debt, for a detailed description of our interest rate swap.

Fair Value of Other Financial Instruments

The Company considers that the carrying amount of financial instruments, including accounts receivable, accounts payable and accrued liabilities, approximate fair value due to their short maturities.  The fair value of our outstanding PIK Toggle Notes, Floating Rate Notes and 10.125% Senior Notes, based on the quoted market price for the same or similar issues of debt, is approximately:

	December 31,		December 31,
(in millions)	2008		2007
PIK Toggle Notes	$	162.4	$	232.3
Floating Rate Notes	139.4		230.0
10.125% Senior Notes	9.8		10.5

Segment Information

The Company’s business is managed and internally reported as three segments.

Stock-Based Compensation

We record compensation expense associated with stock options in accordance with SFAS No. 123(R), Share-Based Payment, as interpreted by SAB No. 107, Share-Based Payment. Note 10 contains the significant assumptions used in determining the underlying fair value of options and disclosures as required under SFAS No. 123(R).

Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net income (loss) and other comprehensive loss.  Other comprehensive loss includes unrealized gains and losses from derivatives designated as cash flow hedges and minimum pension liability adjustments.  These amounts are presented in the Statements of Shareholders’ Equity (Deficiency) and Other Comprehensive Income (Loss).

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Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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

Standards Adopted

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, which permits entities to elect to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value.  This election is irrevocable.  The provisions of SFAS No. 159 are effective for fiscal years beginning after November 15, 2007.  We adopted the provisions of SFAS No. 159 on January 1, 2008.  We did not elect the fair value option for any assets or liabilities.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements.  SFAS No. 157, which establishes a consistent framework for measuring fair value and expands disclosures on fair value measurements. Considerable judgment may be required in interpreting market data used to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that could be realized in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value.  SFAS No. 157 was effective for the Company starting in fiscal 2008 with respect to financial assets and liabilities. The impact of the initial adoption of SFAS No. 157 in 2008 had no impact on our financial statements.

Financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2008 are summarized in the following table by type of inputs applicable to the fair value measurements:

	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant		Total
	Indentical		Observable		Unobservable		as of
(in thousands)	Assets		Inputs		Inputs		December 31,
Description	(Level 1)		(Level 2)		(Level 3)		2008
Short term investments	$	—	$	1,500	$	—	$	1,500
Loss on swap contract	—		27,167		—		27,167
	$	—	$	28,667	$	—	$	28,667

A description of the inputs used in the valuation of assets and liabilities is summarized in the following table:

Level 1 – Inputs represent unadjusted quoted prices for identical assets or liabilities exchanged in active markets.

Level 2 – Inputs include directly or indirectly observable inputs other than Level 1 inputs such as quoted prices for similar assets or liabilities exchanged in active or inactive markets; quoted prices for identical assets or liabilities exchanged in inactive markets; other inputs that are considered in fair value determinations of the assets or liabilities, such as interest rates and yield curves that are observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit

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risks and default rates; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 – Inputs include unobservable inputs used in the measurement of assets and liabilities. Management is required to use its own assumptions regarding unobservable inputs because there is little, if any, market activity in the assets or liabilities or related observable inputs that can be corroborated at the measurement date. Measurements of nonexchange traded derivative contract assets and liabilities are primarily based on valuation models, discounted cash flow models or other valuation techniques that are believed to be used by market participants. Unobservable inputs require management to make certain projections and assumptions about the information that would be used by market participants in pricing assets or liabilities.

With respect to non-financial assets and liabilities, SFAS No. 157 is effective for the Company starting in fiscal 2009. We have not determined the impact of the adoption of the non-financial asset and liability provisions SFAS No. 157 on our financial statements.

Standards Issued Not Yet Adopted

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, which establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) is to be applied prospectively to business combinations for which the acquisition date is on or after the beginning of an entity’s fiscal year that begins on or after December 15, 2008. Beginning January 1, 2009 we will apply the provisions of SFAS No. 141(R) to our accounting for applicable business combinations.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities. SFAS No. 161 expands disclosures but does not change accounting for derivative instruments and hedging activities.  Pursuant to the transition provisions of SFAS No. 161, the Company will adopt SFAS No. 161 in fiscal year 2009 and will present the required disclosures in the prescribed format on a prospective basis. SFAS No. 161 will not impact the Company’s financial statements as it is disclosure-only in nature.

3.The Transaction

The Acquisition was completed on May 31, 2007 and was comprised of:

·the purchase by the equity investors of all of the issued and outstanding shares of common stock and option interests of the Company for approximately $335.1 million (excluding non-cash consideration of $9.0 million), which is comprised of the purchase price of approximately $712.0 million less debt, tender premium and accrued interest and capitalized leases;

·equity investments from Parent funded by Irving Place Capital (formerly Bear Stearns Merchant Banking) in the amount of $238.9 million,  management rollover of $9.0 million and management contributions of $0.9 million;

·the entry into by Merger Sub of a new $135.0 million senior secured credit facility;

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·the issuance by Merger Sub of $230.0 million of Floating Rate Notes and $230.0 million of PIK Toggle Notes; and

·the retirement of $309.6 million of the existing indebtedness of the Predecessor, which was approximately $334.6 million as of May 31, 2007 (excluding approximately $7.7 million of pre-existing capital leases which remained outstanding), including the repayment of $235.0 million of our $260.0 million existing 10.125% Senior Notes due 2011 for which we completed a tender offer and consent solicitation on May 31, 2007, and the repayment of the outstanding balance ($74.6 million) on our previous $125.0 million amended and restated credit agreement (“Amended Credit Agreement”) that we had entered into on May 26, 2005, with a bank group led by General Electric Capital Corporation.

The Acquisition occurred simultaneously with:

·the closing of the financing and equity investments described above; and

·the merger of Merger Sub with and into the Company, with the Company as the surviving corporation, and the payment of approximately $712.0 million as merger consideration.

Transaction and Related Costs.  During the five months ended May 31, 2007, we incurred $26.9 million of expenses in connection with the Transaction.  These expenses consisted primarily of:

·accounting, legal, investment banking advisory and restructuring expenses totaling $13.7 million;

·Irving Place Capital fee expensed of $6.5 million (see Note 11); and

·stock-based compensation expense related to the accelerated vesting of options under our 2003 Stock Option Plan of $6.7 million upon the occurrence of the Transaction.

Loss on Extinguishment of Debt.  In connection with the Transaction, as detailed above, Predecessor incurred $22.4 million of expense associated with the purchase of $235.0 million of our 10.125% Senior Notes in May 2007.  The expense consisted of a call premium of $16.1 million and the write-off of $6.3 million of unamortized deferred financing costs related to our repurchased 10.125% Senior Notes and Amended Credit Agreement.

Purchase Accounting

We have accounted for the Acquisition in accordance with the provisions of SFAS No. 141, Business Combinations, whereby the purchase price paid to effect the Acquisition is allocated to state the acquired assets and liabilities at fair value.  The Acquisition and the allocation of the purchase price to the opening balance sheet accounts of the Successor has been recorded as of the beginning of the first day of our new accounting period (June 1, 2007).  The purchase price was $712.0 million and the total consideration was approximately $344.1 million (including non-cash management rollover and direct costs). The sources and uses of funds in connection with the Transaction and the partial redemption of our 10.125% Senior Notes are summarized below:

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(in millions)
Sources:
Existing 10.125% Senior Notes	$	25.0
Floating Rate Notes	230.0
PIK Toggle Notes	230.0
Capitalized leases	7.7
Equity contribution (cash)	239.8
Equity contribution (non-cash)	9.0
Cash on hand	1.4
Total Sources	$	742.9
Uses:
Consideration paid (including non-cash consideration of $9.0)	$	342.9
Payment of existing debt	309.6
Tender premium and accrued interest	18.6
Capitalized leases	7.7
Existing 10.125% Senior Notes	25.0
Buyer fees (including direct costs of $1.2)	30.9
Seller fees	8.2
Total Uses	$	742.9

The following tables reconcile the total sources and uses of funds to the purchase price and the purchase price to the total consideration:

Reconciliation of Sources and Uses to Purchase Price

(in millions)

Total of Sources and Uses	$	742.9
Less: Buyer fees (including direct costs of $1.2)	(30.9		)
Purchase price (1)	$	712.0

Reconciliation of Purchase Price to Total Consideration

(in millions)

Purchase Price (1)	$	712.0
Direct costs	1.2
Indebtedness (2)	(360.9		)
Seller fees	(8.2		)
Total Consideration	$	344.1

(1)Per Agreement and Plan of Merger.

(2)As defined in the Agreement and Plan of Merger, “funded indebtedness” includes long-term debt ($334.6 million for both debt retired and remaining), tender premium and accrued interest ($18.6 million) and capitalized leases ($7.7 million) as of May 31, 2007.

In connection with the purchase price allocation, we estimated the fair values of our long-lived and intangible assets, inventories and liabilities based upon assumptions related to the future cash flows, discount rates and asset lives utilizing currently available information.  We have recorded purchase accounting adjustments to increase the carrying value of our property and equipment and inventory, to establish intangible assets for our customer relationships, supply agreement,

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trade names and trademarks, technology database, non-compete agreements, favorable lease commitments and to revalue our long-term benefit plan obligations, among other things.  As additional information became available, that was primarily related to the tax impact of valuation analysis and the tax impact of the Transaction itself, we revised the preliminary purchase accounting adjustments during the fourth quarter of 2007 and finalized our purchase accounting adjustment during the second quarter of 2008. The final purchase accounting adjustments, as reflected in our December 31, 2008 balance sheet, were as follows:

(in millions)
Cash Consideration:
Paid to shareholders and option holders				$	333.9
Direct costs				1.2
				335.1
Non-Cash Consideration				9.0
Total Consideration				$	344.1
Net assets acquired at historical cost				$	(132.5	)
Adjustments to state acquired assets at fair value:
Increase carrying value of inventories	$	0.2
Increase carrying value of medical equipment	59.7
Increase in carrying value of property and office equipment	2.3
Write-off of historical goodwill and other intangibles	(59.8		)
Record intangible assets acquired:
Customer relationships	87.0
Supply agreement	26.0
Trade names and trademarks	170.0
Technology database	7.0
Non-compete agreements	1.8
Record favorable lease commitments	0.1
Write-off of historical deferred rent credits	2.4
Decrease in long-term pension liability	0.8
Increase in other accrued liabilities	(0.3		)
Tax impact of valuation adjustments	(100.8		)
				196.4
Net assets acquired at fair value				63.9
Excess purchase price recorded as goodwill				$	280.2

Our trade names and trademarks have indefinite lives and are not subject to amortization.  Our trade names and trademarks and goodwill are reviewed at least annually for impairment.  Our goodwill is generally not deductible for income tax purposes.

A condensed balance sheet of the fair value of the acquired assets and liabilities as of May 31, 2007 follows:

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(in millions)
Current assets	$	90.7
Property and equipment	231.2
Goodwill	280.2
Other intangible assets	291.9
Other long-term assets	18.3
Current liabilities	(59.6		)
Long-term debt	(489.4		)
Other long-term liabilities	(114.5		)
	$	248.8

4.Acquisitions by Predecessor

On April 1, 2007, we completed the acquisition of customer contracts and other assets of the ICMS division of Intellamed, Inc. (“Intellamed”), located in Bryan, Texas.  The purchase price was $14.6 million including direct costs and the assumption of certain liabilities, having taken into account certain adjustments and a holdback.  The purchase agreement provided for additional consideration to be paid if certain revenue targets are obtained during the two years following the acquisition.  We have not recorded any such additional consideration and will not unless we consider it probable of being paid.  The operations of the acquired entity have been included in the Company’s technical and professional services segment results of operations since the date of acquisition.  A condensed balance sheet of the acquired assets and liabilities as of April 1, 2007 is presented below.

(in millions)
Current assets	$	0.1
Property and equipment	0.1
Goodwill	2.7
Other intangible assets	13.3
Current liabilities	(1.6		)
	$	14.6

The above condensed balance sheet amounts were revalued at May 31, 2007, in conjunction with the Transaction.

The Company acquired the assets of Intellamed in order to expand its customer base and as part of its strategy of growing its technical and professional services segment.  The purchase price of this acquisition was determined based on an evaluation of the assets, liabilities assumed, cash flow potential and comparable prices for similar businesses.  This acquisition was financed by borrowings under the Company’s revolving credit facility.

5.Book Overdrafts

The Company typically does not maintain cash balances at its principal bank under a policy whereby the net amount of collected balances and cleared checks is, at the Company’s option, applied to or drawn from our credit facility on a daily basis.

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6.Selected Financial Statement Information

Accounts Receivable

Accounts receivable at December 31, consists of the following:

(in thousands)	2008			2007
Accounts receivable	$	56,563		$	52,879
Less: Allowance for doubtful accounts	(2,450		)	(1,500		)
Accounts receivable, net	$	54,113		$	51,379

Property and Equipment

Our property and equipment at December 31, consists of the following:

(in thousands)	2008			2007
Medical Equipment	$	309,837		$	249,439
Less: Accumulated depreciation	(94,194		)	(35,103		)
Medical equipment, net	215,643			214,336
Leasehold improvements	4,903			4,087
Office equipment and vehicles	29,686			19,312
	34,589			23,399
Less: Accumulated depreciation and amortization	(11,861		)	(4,692		)
Property and office equipment, net	22,728			18,707
Total property and equipment, net	$	238,371		$	233,043
Property and equipment financed under capital leases, net	$	12,377		$	8,120

Other Intangible Assets and Goodwill

Our other intangible assets and goodwill as of December 31, 2008 and 2007, by reporting segment, consist of the following:

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	Customer			Supply			Technology			Non-Compete			Favorable Lease			Trade Names
(in thousands)	Relationships			Agreement			Database			Agreements			Agreements			(indefinite lives)			Goodwill
Medical Equipment Outsourcing
Recorded in connection with the Transaction	$	78,000		$	26,000		$	—		$	—		$	—		$	143,000		$	207,907
Amortization	(6,500		)	(1,167		)	—			—			—			—			—
Balance at December 31, 2007	71,500			24,833			—			—			—			143,000			207,907
Final purchase price allocation adjustments	—			—			—			—			—			—			(1,954		)
Amortization	(10,643		)	(2,000		)	—			—			—			—			—
Balance at December 31, 2008	60,857			22,833			—			—			—			143,000			205,953
Technical and Professional Services
Recorded in connection with the Transaction	9,000			—			—			—			—			27,000			56,260
Amortization	(404		)	—			—			—			—			—			—
Balance at December 31, 2007	8,596			—			—			—			—			27,000			56,260
Final purchase price allocation adjustments	—			—			—			—			—			—			(605		)
Intangible asset impairment charge	—			—			—			—			—			(4,000		)	—
Amortization	(692		)	—			—			—			—			—			—
Balance at December 31, 2008	7,904			—			—			—			—			23,000			55,655
Sales and Remarketing
Recorded in connection with the Transaction	—			—			—			—			—			—			18,746
Amortization	—			—			—			—			—			—			—
Balance at December 31, 2007	—			—			—			—			—			—			18,746
Final purchase price allocation adjustments	—			—			—			—			—			—			(143		)
Amortization	—			—			—			—			—			—			—
Balance at December 31, 2008	—			—			—			—			—			—			18,603
Corporate and Unallocated
Recorded in connection with the Transaction	—			—			7,000			1,800			133			—			—
Amortization	—			—			(817		)	(524		)	(14		)	—			—
Balance at December 31, 2007	—			—			6,183			1,276			119			—			—
Amortization	—			—			(1,400		)	(900		)	(24		)	—			—
Balance at December 31, 2008	$	—		$	—		$	4,783		$	376		$	95		$	—		$	—
Total
Recorded in connection with the Transaction	87,000			26,000			7,000			1,800			133			170,000			282,913
Amortization	(6,904		)	(1,167		)	(817		)	(524		)	(14		)	—			—
Balance at December 31, 2007	80,096			24,833			6,183			1,276			119			170,000			282,913
Final purchase price allocation adjustments	—			—			—			—			—			—			(2,702		)
Intangible asset impairment charge	—			—			—			—			—			(4,000		)	—
Amortization	(11,335		)	(2,000		)	(1,400		)	(900		)	(24		)	—			—
Balance at December 31, 2008	$	68,761		$	22,833		$	4,783		$	376		$	95		$	166,000		$	280,211

Total amortization expense related to intangible assets was approximately $15.7, $9.4, $1.2, and $1.8 million for the year ended December 31, 2008, seven months ended December 31, 2007, five months ended May 31, 2007, and year ended December 31, 2006, respectively.

As of December 31, 2008, management performed its testing of impairment of goodwill as well as medical equipment outsourcing and technical and professional services trade names.  Fair values were estimated using the expected present value of future cash flows, using estimates, judgments, and assumptions (See Note 1) that management believes were appropriate in the circumstances.  As a result, the Company recorded an impairment charge of $4.0 million in the fourth quarter of 2008 related to its technical and professional services segment trade name.  The impairment charge reflects modestly lower future revenues from the technical and professional services segment than were expected at the date of the Transaction due to poorer economic conditions and increased focus on growth in the Company’s traditional medical equipment outsourcing business, asset management partnership programs and manufacturer revenue share programs.

At December 31, 2008, future estimated amortization expense related to intangible assets for each of the years ended December 31, 2009 to 2013 and thereafter is estimated as follows:

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(in thousands)
2009	$	14,277
2010	13,041
2011	12,184
2012	10,505
2013	9,059
Thereafter	37,782
	$	96,848

Future amortization expense is an estimate.  Actual amounts may change due to additional intangible asset acquisitions, impairment, accelerated amortization or other events.

7.Long-Term Debt

Long-term debt at December 31, consists of the following:

(in thousands)	2008			2007
PIK Toggle Notes	$	230,000		$	230,000
Floating Rate Notes	230,000			230,000
Senior secured credit facility	49,000			19,475
10.125% Senior Notes	9,945			9,945
Capital lease obligations	12,398			7,915
	531,343			497,335
Less: Current portion of long-term debt	(3,555		)	(3,120		)
Total long-term debt	$	527,788		$	494,215

PIK Toggle Notes. On May 31, 2007, Merger Sub issued $230.0 million aggregate original principal amount of 8.50% / 9.25% PIK Toggle Notes (the “PIK Toggle Notes”) under the Second Lien Senior Indenture (see “Second Lien Senior Indenture” below).  At the closing of the Transaction, as the surviving corporation in the Acquisition, we assumed all the obligations of Merger Sub under the Second Lien Senior Indenture.

For any interest payment period through June 1, 2011, the Company may, at its option, elect to pay cash interest, PIK interest or 50% cash interest and 50% PIK interest.  Cash interest on the PIK Toggle Notes accrues at the rate of 8.50% per annum.  PIK interest on the PIK Toggle Notes accrues at the rate of 9.25% per annum.  After June 1, 2011, the Company is required to make all interest payments on the PIK Toggle Notes entirely as cash interest.  All PIK Toggle Notes mature on June 1, 2015. Interest on the PIK Toggle Notes is payable semiannually in arrears on each June 1 and December 1.  As of December 31, 2008, we intend to make future payments in the form of cash interest.

We may redeem some or all of the PIK Toggle Notes at any time prior to June 1, 2011, at a price equal to 100% of the principal amount thereof, plus the applicable premium (as defined by the Second Lien Senior Indenture), plus accrued and unpaid interest, if any, to the date of redemption.  In addition, on or before June 1, 2010, we may redeem up to 40% of the aggregate principal amount of the PIK Toggle Notes with the net proceeds of certain equity offerings.

Except as noted above, we cannot redeem the PIK Toggle Notes until June 1, 2011.  Thereafter we may redeem some or all of the PIK Toggle Notes at the redemption prices (expressed as

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percentages of principal amount) set forth below plus accrued and unpaid interest, if any, on the PIK Toggle Notes redeemed, to the applicable redemption date, if redeemed during the 12-month period beginning on June 1 of the years indicated below, subject to the rights of noteholders:

Year	Percentage
2011	104.250	%
2012	102.125	%
2013 and thereafter	100.000	%

Upon the occurrence of a change of control, each holder of the PIK Toggle Notes has the right to require the Company to repurchase some or all of such holder’s PIK Toggle Notes at a price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, and PIK Interest, if any, to the date of purchase.

Floating Rate Notes.  On May 31, 2007, Merger Sub issued $230.0 million aggregate original principal amount of Floating Rate Notes (the “Floating Rate Notes”) under the Second Lien Senior Indenture (see “Second Lien Senior Indenture” below).  Interest on the Floating Rate Notes is reset for each semi-annual interest period and is calculated at the current LIBOR rate plus 3.375%.  At December 31, 2008, our LIBOR-based rate was 5.943%, which includes the credit spread noted above.  Interest on the Floating Rate Notes is payable semiannually, in arrears, on each June 1 and December 1.  At the closing of the Transaction, as the surviving corporation in the Acquisition, we assumed all the obligations of Merger Sub under the Second Lien Senior Indenture.  The Floating Rate Notes mature on June 1, 2015.

We may redeem some or all of the Floating Rate Notes at any time prior to June 1, 2009, at a price equal to 100% of the principal amount thereof, plus the applicable premium (as defined by the Second Lien Senior Indenture), plus accrued and unpaid interest, if any, to the date of redemption.  In addition, on or before June 1, 2009, we may redeem up to 40% of the aggregate principal amount of the Floating Rate Notes with the net proceeds of certain equity offerings.

Except as noted above, we cannot redeem the Floating Rate Notes until June 1, 2009.  Thereafter we may redeem some or all of the Floating Rate Notes at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest, if any, on the Floating Rate Notes redeemed, to the applicable redemption date, if redeemed during the 12-month period beginning on June 1 of the years indicated below, subject to the rights of noteholders:

Year	Percentage
2009	102.000	%
2010	101.000	%
2011 and thereafter	100.000	%

Upon the occurrence of a change of control, each holder of the Floating Rate Notes has the right to require the Company to repurchase some or all of such holder’s Floating Rate Notes at a price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase.

Interest Rate Swap. In June 2007, we entered into an interest rate swap agreement for $230.0 million, which has the effect of converting our $230.0 million of Floating Rate Notes to fixed interest rates.  The effective date for the interest rate swap agreement was December 2007 and the expiration date is May 2012.

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The interest rate swap agreement qualifies for cash flow hedge accounting under SFAS 133, Accounting for Derivative Instruments and Hedging Activities.  Both at inception and on an on-going basis, we must perform an effectiveness test.  In accordance with SFAS 133, the fair value of the interest rate swap agreement at December 31, 2008 is included as a cash flow hedge on our balance sheet.  The change in fair value was recorded as a component of accumulated other comprehensive loss on our balance sheet, net of tax, since the instrument was determined to be an effective hedge at December 31, 2008.  We do not expect any amounts to be reclassified into current earnings in the future due to ineffectiveness.

As a result of our interest rate swap agreement, we expect the effective interest rate on our $230.0 million Floating Rate Notes to be 9.065% from December 2007 through May 2012.

Second Lien Senior Indenture.  Our PIK Toggle Notes and Floating Rate Notes (collectively the “Notes”) are guaranteed, jointly and severally, on a second priority senior secured basis, by certain of our future domestic subsidiaries.  We do not currently have any subsidiaries.  The Notes are our second priority senior secured obligations and rank:

·equal in right of payment with all of our existing and future unsecured and unsubordinated indebtedness, and effectively senior to any such unsecured indebtedness to the extent of the value of collateral;

·senior in right of payment to all of our and our guarantor’s existing and future subordinated indebtedness;

·effectively junior to our senior secured credit facility and other obligations that are secured by first priority liens on the collateral securing the Notes or that are secured by a lien on assets that are not part of the collateral securing the Notes, in each case, to the extent of the value of such collateral or assets; and

·structurally subordinated to any indebtedness and other liabilities (including trade payables) of any of our future subsidiaries that are not guarantors.

The Second Lien Senior Indenture governing the Notes contains covenants that limit our and our guarantors’ ability, subject to certain definitions and exceptions, and certain of our future subsidiaries’ ability to:

·incur additional indebtedness;

·pay cash dividends or distributions on our capital stock or repurchase our capital stock or subordinated debt;

·issue redeemable stock or preferred stock;

·issue stock of subsidiaries;

·make certain investments;

·transfer or sell assets;

·create liens on our assets to secure debt;

·enter into transactions with affiliates; and

·merge or consolidate with another company.

Senior Secured Credit Facility.  In connection with the Transaction, the Company and Parent entered into a new first lien senior secured asset-based revolving credit facility providing for loans in an amount of up to $135.0 million pursuant to a credit agreement, dated as of May 31, 2007, with a group of financial institutions.  We refer to this credit facility as the “senior secured credit facility.” The senior secured credit facility is available for working capital and general corporate purposes, including permitted investments, capital expenditures and debt repayments, on a fully

F-22

revolving basis, subject to the terms and conditions set forth in the credit documents in the form of revolving loans, swing line loans and letters of credit.

The senior secured credit facility provides financing of up to $135.0 million, subject to a borrowing base calculated on the basis of certain of our eligible accounts receivable, inventory and equipment.  As of December 31, 2008, we had $84.6 million of availability under our senior secured credit facility based on a borrowing base of $135.0 million less borrowings of $49.0 million and after giving effect to $1.4 million used for letters of credit.

The senior secured credit facility matures on May 31, 2013.  Our obligations under the senior secured credit facility are secured by a first priority security interest in substantially all of our assets, excluding a pledge of our and Parent’s capital stock, any joint ventures and certain other exceptions.  Our obligations under the senior secured credit facility are unconditionally guaranteed by our Parent.

The senior secured credit facility provides that we have the right at any time to request up to $50.0 million of additional commitments, but the lenders are under no obligation to provide any such additional commitments, and any increase in commitments will be subject to customary conditions precedent, such as an absence of any default or events of default.  If we were to request any such additional commitments and the existing lenders or new lenders were to agree to provide such commitments, the senior secured credit facility size could be increased to up to $185.0 million, but our ability to borrow would still be limited by the amount of the borrowing base.

Borrowings under the senior secured credit facility accrue interest (including a credit spread varying with facility usage):

·at a per annum rate equal to 0.50% above the rate announced from time to time by the agent as the “prime rate” payable quarterly in arrears; and

·at a per annum rate equal to 1.50% above the adjusted LIBOR rate used by the agent, for the respective interest rate period determined at our option, payable in arrears upon cessation of the interest rate period elected.

At December 31, 2008, we had a one-month LIBOR-based rate and a six-month LIBOR-based rate which were accruing interest at rates of 2.461% and 4.765%, respectively, which in each case includes the credit spread noted above.  As of December 31, 2008, we had no outstanding balances under our prime rate based agreement.

Overdue principal, interest and other amounts will bear interest at a rate per annum equal to 2% in excess of the applicable interest rate.  The applicable margins of the senior secured credit facility will be subject to adjustment based upon leverage ratios.  The senior secured credit facility also provides for customary letter of credit fees, closing fees, unused line fees and other fees.

The senior secured credit facility requires our compliance with various affirmative and negative covenants.  Pursuant to the affirmative covenants, we and Parent will, among other things, deliver financial and other information to the agent, provide notice of certain events (including events of default), pay our obligations, maintain our properties, maintain the security interest in the collateral for the benefit of the agent and the lenders and maintain insurance.

Among other restrictions, and subject to certain definitions and exceptions, the senior secured credit facility restricts our ability to:

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·incur indebtedness;

·create or permit liens;

·declare or pay dividends and certain other restricted payments;

·consolidate, merge or recapitalize;

·acquire or sell assets;

·make certain investments, loans or other advances;

·enter into transactions with affiliates;

·change our line of business; and

·enter into hedging transactions.

The senior secured credit facility also contains a financial covenant that is calculated if our available borrowing capacity is less than $15.0 million for a certain period.  Such covenant consists of a minimum ratio of trailing four-quarter Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) to cash interest expense, as defined in the credit agreement dated May 31, 2007.

The senior secured credit facility specifies certain events of default, including among others, failure to pay principal, interest or fees, violation of covenants, inaccuracy of representations or warranties, bankruptcy events, certain ERISA-related events, cross-defaults to other material agreements, change of control events, and invalidity of guarantees or security documents.  Some events of default will be triggered only after certain cure periods have expired, or will provide for materiality thresholds.  If such a default occurs, the lenders under the senior secured credit facility would be entitled to take various actions, including all actions permitted to be taken by a secured creditor and the acceleration of amounts due under the senior secured credit facility.

10.125% Senior Notes.  The 10.125% Senior Notes (“Senior Notes”) mature on November 1, 2011.  Interest on the Senior Notes accrues at the rate of 10.125% per annum and is payable semiannually on each May 1 and November 1.

On May 17, 2007, we entered into a supplemental indenture to the Indenture governing our Senior Notes, dated as of October 17, 2003, between the Company and Wells Fargo Bank, National Association, as trustee.  The Indenture governs the terms of the Senior Notes.  The supplemental indenture amended the Indenture.

The amendments set forth in the supplemental indenture (the “Amendments”) became operative after the Company purchased all of its Senior Notes validly tendered and not withdrawn pursuant to its tender offer and consent solicitation.  As of May 11, 2007, holders of Senior Notes representing an amount greater than a majority of the principal amount of outstanding Senior Notes had validly tendered their Senior Notes and consented to the execution of the supplemental indenture.  The Amendments eliminated from the Indenture:

·requirements to file reports with the Securities SEC;

·requirements to pay taxes;

·limitations on the Company to use defenses against usury;

·the limitation on restricted payments;

·the limitation on payment of dividends and other payment restrictions affecting subsidiaries;

·limitations on incurrence of indebtedness and issuance of preferred stock;

·limitations on asset sales and requirements to repurchase the Senior Notes with excess proceeds thereof;

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·limitations on affiliate transactions;

·limitations on liens;

·limitations on the businesses in which the Company and its subsidiaries may engage;

·requirements to preserve corporate existence;

·requirements to purchase the Senior Notes upon a change of control;

·limitation on the issuance of guarantees of indebtedness;

·limitations on the payments for consent from holders of Senior Notes;

·limitations on mergers, consolidation and sale of assets with respect to the Company;

·limitations on mergers or consolidation of, or transfer of assets of, guarantors; and

·certain events of default.

In May 2007, in connection with the Transaction, we tendered for all of our outstanding Senior Notes, pursuant to their terms.  On May 31, 2007, $235.0 million of our Senior Notes were purchased.  We paid $253.1 million, including a call premium of $16.1 million and accrued interest of $2.0 million to complete the purchase.  We used proceeds from the issuance of our Notes to redeem a portion of our Senior Notes.

On June 13, 2007, we purchased an additional $15.1 million of our remaining Senior Notes, pursuant to their terms.  We paid $15.9 million of cash including a call premium of $0.7 million and accrued interest of $0.1 million to complete the purchase.

The Company has the right to redeem some or all of the remaining $9.9 million of Senior Notes at the redemption prices (expressed as a percentage of principal amount) set forth below, plus accrued and unpaid interest, if any, if redeemed during the 12-month period beginning on November 1 of the years indicated below, subject to the rights of the noteholders:

Year	Percentage
2008	102.531	%
2009 and thereafter	100.000	%

Termination of Our Amended Credit Agreement.  In connection with the Transaction, we repaid all outstanding balances and terminated our Amended Credit Agreement.

Maturities of Long-Term Debt. At December 31, 2008, maturities of long-term debt for each of our fiscal years ending December 31, 2009 to 2013 and thereafter, are estimated as follows:

(in thousands)
2009	$	3,555
2010	3,150
2011	12,375
2012	1,400
2013	49,756
Thereafter	461,107
	$	531,343

8.Commitments and Contingencies

Rental expenses were approximately $8.5, $4.8, $3.0, and $8.4 million for the year ended December 31, 2008, seven months ended December 31, 2007, five months ended May 31, 2007, and year ended December 31, 2006, respectively.  At December 31, 2008, the Company is

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committed under various noncancellable operating leases for its district, corporate and other operating locations with annual rental commitments for each of the years ending December 31, 2009 to 2013 and thereafter of the following:

(in thousands)
2009	$	5,702
2010	4,735
2011	4,043
2012	3,701
2013	3,215
Thereafter	5,948
	$	27,344

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 these actions may have an impact on the Company’s financial results for a particular reporting period, management believes that any such resolution would not have a material adverse effect on the financial position, results of operations or cash flows of the Company.

9.Common Stock

On May 31, 2007, in conjunction with the Transaction, the Predecessor retired all 123,480,264.21 of common shares and the Successor authorized and issued 1,000 new shares of common stock with a par value of $0.01 per share.

10.Stock-Based Compensation

Successor

On May 31, 2007, and in connection with the Transaction, Parent’s board of directors adopted a new stock option plan (“2007 Stock Option Plan.”)  The 2007 Stock Option Plan provides for the issuance of 43.9 million nonqualified stock options of Parent to any of its and Parent’s executives, other key employees and to consultants and certain non-employee directors.  The options allow for the purchase of shares of common stock of Parent at prices equal to the stock’s fair market value at the date of grant.

Options granted have a ten-year contractual term and vest over approximately six years.  For option grants to its employees, half of the options have fixed vesting schedules and the other half of the options vest upon the achievement of established performance targets.  For option grants to its directors, all of the options vest on a fixed schedule.  Upon a sale of Parent or the Company, all of the unvested options with fixed vesting schedules will vest and become exercisable, and the unvested options that vest upon the achievement of established performance targets will vest and become exercisable upon Irving Place Capital’s achievement of a certain internal rate of return on its investment in Parent, subject to certain conditions.  The shares issued to a grantee upon the exercise of such grantee’s options will be subject to certain restrictions on transferability as provided in the 2007 Stock Option Plan.  Grantees are subject to non-competition, non-solicitation and confidentiality requirements as set forth in their respective stock option grant agreements.  Forfeited options are available for future issue.

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A summary of the status of Parent’s 2007 Stock Option Plan as of and for the year ended December 31, 2008, and seven months ended December 31, 2007, is detailed below:

(in thousands except exercise price and years)	Number of Options		Weighted average exercise price		Aggregate intrinsic value		Weighted average remaining contractual term (years)
Approved for issuance at May 31, 2007	43,905
Granted	36,864		$	1.00
Exercised	—
Forfeited or expired	(374	)	1.00
Outstanding at December 31, 2007	36,490		1.00		$	—	9.5
Granted	955		1.00
Exercised	—
Forfeited or expired	(705	)	1.00
Outstanding at December 31, 2008	36,740		1.00		—		8.5
Exercisable at December 31, 2008	11,934		$	1.00	$	—	8.4
Remaining authorized options not yet issued	7,165

Our Parent’s compensation committee and board of directors determined the exercise price for options issued during 2008 and 2007 by reference to the recent per share valuation of the Parent resulting from the Transaction as detailed below and by reference to a peer group of companies’ EBITDA multiple valuation.  The exercise price was approved by Parent’s board of directors.

(in thousands, except per share amount)
Equity Contribution at May 31, 2007 from Irving Place Capital and UHS Management to Parent	$	248,794
Parent shares issued and outstanding at May 31, 2007	248,794
Per share Parent valuation at May 31, 2007	$	1.00

We determine the fair value of options using the Black-Scholes option pricing model. The estimated fair value of options, including the effect of estimated forfeitures, is recognized as expense on a straight-line basis over the options’ vesting periods. The following assumptions were used in determining the fair value of stock options granted during the year ended December 31, 2008 and seven months ended December 31, 2007, under the Black-Scholes model:

		Seven Months
	Year Ended	Ended
	December 31,	December 31,
	2008	2007
Risk-free interest rate	2.85%	3.71% to 4.97%
Expected volatility	30.50%	29.50% to 30.50%
Dividend Yield	N/A	N/A
Expected option life (years)	6.6	6.5 to 6.8

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Using the Black-Scholes option-pricing model, the weighted-average per-share fair value of options issued during the year ended December 31, 2008 and seven months ended December 31, 2007, was approximately $0.37 and $0.42, respectively.  Expected volatility is based on an independent valuation of the stock of companies within our peer group.  Given the lack of a true comparable company, the peer group consists of selected public health care companies representing our suppliers, customers and competitors within certain product lines.  The risk free-interest rate is based on the U.S. Treasury yield curve in effect at the grant date based on the expected option life.  The expected option life represents the result of the “simplified” method applied to “plain vanilla” options granted during the period, as provided within SAB No. 110.  Parent used the simplified method as Parent does not have sufficient historical exercise experience to provide a basis upon which to estimate the expected term.

Although Parent grants the stock options, the Company recognizes compensation expense related to these options since the services are performed for its benefit.  For the year ended December 31, 2008 and seven months ended December 31, 2007, we recognized non-cash stock compensation expense of $2.5 million during each of the aforementioned periods, which is primarily included in selling, general and administrative expenses and is recorded as Payable to Parent on our balance sheet.  At December 31, 2008, the total compensation cost for non-vested awards not yet recognized in our statements of operations was $9.8 million net of our estimated annual forfeiture rate of 2.0%.  This amount is expected to be recognized over a weighted-average period of 4.1 years.

Predecessor

Effective January 1, 2006, we adopted SFAS No. 123(R) using the modified prospective application method. Under this method, as of January 1, 2006, we have applied the provisions of this statement to new and modified awards, as well as to the non-vested portion of awards granted before the required effective date and outstanding at such time.

The Predecessor established the 2003 Stock Option Plan which allowed for the granting of stock option awards to the Company’s employees and consultants or independent contractors.  All outstanding non-vested options as of May 31, 2007 were vested in connection with the Transaction.  All vested options were cancelled subsequent to payment of Transaction consideration.  We recorded non-cash charges for stock-based compensation expense of approximately $8.0 million during the first five months of 2007 in relation to our 2003 Stock Option Plan, $6.7 million of which resulted from the accelerated vesting described above.

Stock option activity, including the corresponding weighted average exercise price, as of and for the five months ended May 31, 2007 and year ended December 31, 2006 is as follows (shares in thousands, per share amounts in dollars):

Option Activity	2007		2006
Options outstanding at beginning of year	16,309		15,066
Options granted	—		1,745
Options exercised	(17	)	(25	)
Options forfeited or expired	(170	)	(477	)
Options cancelled	(16,122	)	—
Options outstanding at end of period	—		16,309
Options exercisable at end of period	—		3,384
Options remaining to be issued	—		812

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Weighted-Average Exercise Price Per Share	2007		2006
Options granted	NA		$	1.98
Options exercised	$	1.17	$	1.11
Options forfeited or expired	$	1.43	$	1.14
Options cancelled	$	1.13	NA
At end of period
Outstanding	NA		$	1.14
Exercisable	NA		$	1.01

We determined the fair value of options using the Black-Scholes option pricing model. The estimated fair value of options, including the effect of estimated forfeitures, was recognized as expense on a straight-line basis over the options’ vesting periods. The following assumptions were used in determining the fair value of stock options granted during the year ended December 31, 2006 under the Black-Scholes model:

Risk-free interest rate	4.64% to 4.69%
Expected volatility	43.1% to 43.7%
Dividend Yield	None
Expected option life (years)	8

The risk-free interest rate for periods within the ten year contractual life of the option is based on the U.S. Treasury yield curve in effect at the grant date and the expected option life of eight years. Expected volatility is based on the historical volatility of the stock of companies within our peer group.  The eight year expected life of stock options granted to employees represents the weighted average of the result of the “simplified” method applied to “plain vanilla” options granted during the period, as provided within SAB No. 107.

The weighted-average grant-date fair values of options granted during the year ended December 31, 2006 was $1.10.  The intrinsic value of a stock award is the amount by which the market value of the underlying stock exceeds the exercise price of the award. The aggregate intrinsic value for outstanding and exercisable options at December 31, 2006 was $15,067.  The total intrinsic value of options exercised during the five months ended May 31, 2007 was negligible.  Shares supporting option exercises are sourced from new share issuances.

For each of the periods presented, options were granted with option strike prices based on the estimated fair market values of the Company’s common stock on the date of the grant, as determined by the Company’s board of directors.  Our board of directors considered multiple valuation metrics and methods and determined that the most appropriate method for the Company, given its unique attributes, was an Enterprise Value to EBITDA approach.  In order to determine this fair market value, during 2004, we applied the Enterprise Value to EBITDA multiple per our sale of equity to new common shareholders as part of our late 2003 recapitalization.  Beginning in 2005, we began using an average market multiple approach using the average Enterprise Value to forecasted EBITDA multiple from a comparable group of publicly traded health care companies.  Given the lack of a truly comparable peer company, our comparable group was determined by using public market players in a generally capital-intensive setting, with attributes of our customer base, suppliers and competitors.  We then applied a discount to such multiple in arriving at the fair market value of our common shares, in order to account for the lack of liquidity in our shares as well as minority ownership.  This discount rate was determined through an analysis of the restrictions on the transferability of our stock, our impression of the generally accepted range for such discount factors for privately held companies based upon broad capital market discussions, our

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progress toward a capital event of some type and the inherent risk that such a capital event would not be consummated.  After considering these factors, the Company determined appropriate aggregate discounts of 25% during 2004, 2005 and through the first quarter of 2006.  Thereafter, the aggregate discount was reduced to 7.5% in order to account for the increased likelihood of a capital event.

11.Related Party Transactions

Successor

Management Agreement

On May 31, 2007, in connection with the Transaction, we and Irving Place Capital entered into a professional services agreement pursuant to which general advisory and management services are to be provided to us with respect to financial and operating matters.  Irving Place Capital is an owner of Parent, and the following members of our board of directors are associated with Irving Place Capital:  John Howard, Robert Juneja and Bret Bowerman.  In addition, David Crane, a director, provides consulting services to Irving Place Capital.  The professional services agreement requires us to pay an annual fee for ongoing advisory and management services equal to the greater of $0.5 million or 0.75% of our Adjusted EBITDA (as defined in the professional services agreement) for the immediately preceding fiscal year, payable in quarterly installments, provided that the annual advisory fee for the fiscal year ending December 31, 2007 shall be $0.5 million, as adjusted for the partial year.  The professional services agreement also required us to pay a transaction fee in the amount of $10.0 million for services rendered in connection with the Transaction, $3.5 million of which was included in deferred financing costs on the balance sheet and the remaining portion was expensed.  The $10.0 million fee was paid at the consummation of the Transaction on May 31, 2007.  The professional services agreement provides that Irving Place Capital will be reimbursed for its reasonable out-of-pocket expenses in connection with certain activities undertaken pursuant to the professional services agreement and will be indemnified for liabilities incurred in connection with its role under the professional services agreement, other than for liabilities resulting from its gross negligence or willful misconduct. The term of the professional services agreement commenced on May 31, 2007 and will remain in effect unless and until either party notifies the other of its desire to terminate, we are sold to a third-party purchaser or we consummate a qualified initial public offering, as defined in the professional services agreement. The total professional services agreement fees paid to Irving Place Capital were $0.7 and $0.3 million for the year ended December 31, 2008 and seven months ended December 31, 2007, respectively.

2007 Stock Option Plan

Parent established the 2007 Stock Option Plan.  Compensation expense related to service provided by the Company’s employees is recognized in the accompanying Statements of Operations with an offsetting Payable to Parent liability, which is not expected to be settled within the next twelve months.

Business Relationship

In the ordinary course of business, we entered into an operating lease for our Minneapolis, Minnesota district office with Ryan Companies US, Inc. (“Ryan”), which began on May 1, 2007.  On November 29, 2007, we added a new member to our board of directors who is also a director of Ryan.  During the year ended December 31, 2008, we made rent payments to a Ryan affiliate totaling $306,000. Between November 29, 2007 and December 31, 2007 we made rent payments to a Ryan affiliate totaling $49,000.

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On April 1, 2008, we added three new directors to our Board of Directors.  One of our new directors also is a director of Broadlane, Inc. (“Broadlane”), a health care group purchasing organization that serves many of our customers.  During the nine months ended December 31, 2008, we paid Broadlane approximately $427,000 in administrative fees.  On December 31, 2008, accounts payable includes approximately $44,000 in amounts due to Broadlane.

The Company believes that the aforementioned arrangements and relationships were provided in the ordinary course of business at prices and on terms similar to those that would result from arm’s length negotiation between unrelated parties.

Predecessor

Management Agreement

Prior to May 31, 2007, the Company was a party to management agreements with J. W. Childs Associates, L.P. (an affiliate of Childs) (“Childs Associates”) and Halifax Capital Partners, L.P. (“Halifax”) (together “Predecessor Equity Sponsors”) pursuant to which the Company paid the Predecessor Equity Sponsors an annual management fee totaling $480,000 in consideration of their ongoing consulting and management advisory services.  The agreements were terminated upon the consummation of the Transaction.

12.Employee Benefit Plans

In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an Amendment of FASB Statements No. 87, 88, 106 and 132(R) (“SFAS 158”).   SFAS No. 158 requires employers to recognize the under funded or over funded status of a defined benefit post retirement plan as an asset or liability in its statements of financial position and to recognize changes in the funded status in the year in which the changes occur through accumulated other comprehensive income.  Additionally, SFAS 158 requires employers to measure the funded status of a plan as of the date of its year-end statement of financial position.  The impact of our adoption of SFAS No. 158 on December 31, 2007 is not material to our recognition of the under funded or over funded status of our defined benefit post retirement plan as the full funded status of the pension plan had been recognized in purchase accounting due to the Transaction.  The adoption had no impact to the measurement date used in our year-end statement of financial position as related to our noncontributory defined benefit pension plan.

Pension plan benefits are to be paid to eligible employees after retirement based primarily on years of credited service and participants’ compensation.  The Company uses a December 31 measurement date.  Effective December 31, 2002, the Company froze the benefits under the pension plan.  The change in benefit obligation, pension plan assets and funded status as of and for the year ended December 31, 2008, seven months ended December 31, 2007, and five months ended May 31, 2007 consisted of the following:

F-31

Change in Benefit Obligation

(in thousands)
Predecessor
Benefit obligation at December 31, 2006	$	17,219
Interest cost	421
Actuarial loss (gain)	(448		)
Benefits paid	(290		)
Benefit obligation at May 31, 2007	$	16,902

Successor
Benefit obligation at June 1, 2007	$	16,902
Interest cost	594
Actuarial loss (gain)	(683		)
Benefits paid	(411		)
Benefit obligation at December 31, 2007	16,402
Interest cost	1,033
Actuarial loss (gain)	1,039
Benefits paid	(702		)
Benefit obligation at December 31, 2008	$	17,772

Change in Pension Plan Assets

Predecessor
Fair value of plan assets at December 31, 2006	$	13,740
Actuarial gain (loss) on plan assets	693
Benefits paid	(290		)
Employer contribution	460
Fair value of plan assets at May 31, 2007	$	14,603

Successor
Fair value of plan assets at June 1, 2007	$	14,603
Actuarial gain (loss) on plan assets	(15		)
Benefits paid	(411		)
Employer contribution	640
Fair value of plan assets at December 31, 2007	14,817
Actuarial gain (loss) on plan assets	(5,020		)
Benefits paid	(702		)
Employer contribution	830
Fair value of plan assets at December 31, 2008	$	9,925

	2008			2007
(in thousands)	(Successor)			(Successor)
Funded status	$	(7,847	)	$	(1,585	)
Unrecognized net actuarial loss / Accumulated other comprehensive loss	7,310			20
Net (accrued) amount recognized	$	(537	)	$	(1,565	)

In connection with the Acquisition, the obligations and assets related to our pension plan were valued at fair value as of May 31, 2007, the date of the Acquisition, using a discount rate of 6.15%, as follows:

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(in thousands)
Benefit obligations at fair value	$	16,902
Assets held by defined benefit pension plan, at fair value	14,603
Excess of benefit obligations over assets	2,299
Less: previously recorded benefit plan obligations recorded by predecessor	(3,061		)
Adjustment to benefit plan obligations	$	(762	)

A summary of our pension plan projected benefit obligation, accumulated obligation and fair value of pension plan assets at December 31, are as follows:

	2008		2007
(in thousands)	(Successor)		(Successor)
Projected benefit obligation	$	17,772	$	16,402
Accumulated benefit obligation (“ABO”)	17,772		16,402
Fair value of plan assets	9,925		14,817
ABO less Fair value of plan assets	7,847		1,585

Net Periodic Benefit Cost (Benefit)

The components of net periodic benefit cost (benefit) are as follows:

(in thousands)	Year Ended December 31, 2008 (Successor)			Seven Months Ended December 31, 2007 (Successor)			Five Months Ended May 31, 2007 (Predecessor)			Year Ended December 31, 2006 (Predecessor)
Interest cost	$	1,033		$	594		$	421		$	974
Expected return on plan assets	(1,231		)	(688		)	(452		)	(1,010		)
Recognized net actuarial loss	—			—			73			268
Net periodic benefit cost (benefit)	$	(198	)	$	(94	)	$	42		$	232

Pension Plan Assets

Our target pension plan asset allocation and actual pension plan allocation of assets at December 31, are as follows:

	Target		2008		2007		2006
Asset Category	Allocation		(Successor)		(Successor)		(Predeccessor)
Equity securities	70	%	61	%	68	%	75	%
Debt securities and cash	30		39		32		25
	100	%	100	%	100	%	100	%

The pension plan assets are invested with the objective of maximizing long-term returns while minimizing material losses in order to meet future benefit obligations when they come due.

The Company utilizes an investment approach with a mix of equity and debt securities used to maximize the long-term return on assets.  Risk tolerance is established through consideration of pension plan liabilities, funded status and corporate financial condition.  The investment portfolio consists of a diversified blend of mutual funds and fixed-income investments.  Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews and annual asset and liability reviews.

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Contributions

The Company contributed $0.8, $0.6, $0.5, and $0.0 million to the pension plan during the year ended December 31, 2008, the seven months ended December 31, 2007, five months ended May 31, 2007 and during the year ended December 31, 2006, respectively.  The Company expects to make contributions of approximately $0.4 million in 2009.

Estimated Future Benefit Payments

The following benefit payments are expected to be paid:

(in thousands)
2009	$	716
2010	752
2011	753
2012	748
2013	785
2014 to 2017	4,745

Pension Plan Assumptions

The following weighted-average assumptions were used as of each of the years ended December 31, as follows:

	2008		2007		2006
	(Successor)		(Successor)		(Predecessor)
Weighted-average actuarial assumptions used to determine benefit obligations:
Discount rate	6.10	%	6.47	%	5.90	%
Expected return on assets	8.00	%	8.00	%	8.00	%
Weighted-average assumptions used to determine net periodic benefit cost (benefit):
Discount rate	6.47	%	6.15	%	5.50	%
Expected return on assets	8.00	%	8.00	%	8.00	%
Rate of compensation increase	N/A		N/A		N/A

These assumptions are reviewed on an annual basis.  In determining the expected return on asset assumption, the Company evaluates the long-term returns earned by the pension plan, the mix of investments that comprise pension plan assets and forecasts of future long-term investment returns.

Other Employee Benefits

The Company also sponsors a defined contribution plan, which qualifies under Section 401(k) of the Internal Revenue Code and covers substantially all of the Company’s employees.  Employees may contribute annually up to 60% of their base compensation on a pre-tax basis (subject to Internal Revenue Service limitation).  During 2008, 2007 and 2006 the Company contribution was 50% of the first 6% of base compensation that an employee contributes.  We made matching contributions to the plan of approximately $1.3, $0.5, $0.6, and $0.9 million for the year ended December 31, 2008, seven months ended December 31, 2007, five months ended May 31, 2007, and year ended December 31, 2006, respectively.

The Company is self-insured for employee health care up to $130,000 per member per plan year and aggregate claims up to 125% of expected claims per plan year.  Also, the Company purchases workers’ compensation and automobile liability coverage with related deductibles.  The Company

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is liable for workers’ compensation and automobile liability claims up to $250,000 and $100,000 per individual claim, respectively.  Self-insurance and deductible costs are included in other accrued expenses in the Balance Sheets and are accrued based upon the aggregate of the liability for reported claims and an actuarially determined estimated liability for claims development and incurred but not reported.

13.Income Taxes

The provision (benefit) for income taxes consists of the following:

				Seven Months			Five Months
	Year Ended			Ended			Ended		Year Ended
	December 31,			December 31,			May 31,		December 31,
	2008			2007			2007		2006
	(Successor)			(Successor)			(Predecessor)		(Predecessor)
Current - State	$	142		$	165		$	100	$	240
Deferred	(15,501		)	(10,353		)	392		372
	$	(15,359	)	$	(10,188	)	$	492	$	612

Reconciliations between the Company’s effective income tax rate and the U.S. statutory rate follow:

			Seven Months		Five Months
	Year Ended		Ended		Ended		Year Ended
	December 31,		December 31,		May 31,		December 31,
	2008		2007		2007		2006
	(Successor)		(Successor)		(Predecessor)		(Predecessor)
Statutory U.S. Federal income tax rate	(35.0	)%	(35.0	)%	(34.0	)%	34.0	%
State income taxes, net of U.S. Federal income tax	(4.8	)	(4.8	)	(5.5	)	5.5
Valuation allowance	—		—		37.7		16.7
Permanent items	0.5		0.4		2.6		—
Minimum state taxes	—		0.6		0.2		36.0
Other	(0.2	)	—		—		—
Effective income tax rate	(39.5	)%	(38.8	)%	1.0	%	92.2	%

The components of the Company’s overall deferred tax assets and liabilities at December 31, 2008 and 2007, are as follows:

F-35

	December 31,			December 31,
	2008			2007
(in thousands)	(Successor)			(Successor)
Deferred tax assets
Accounts receivable	$	975		$	597
Accrued compensation and pension	4,050			4,736
Inventories	400			301
Other assets	3,078			2,356
Unrealized loss on cash flow hedge	10,813			5,690
Unrealized loss on pension	2,906			—
Net operating loss carryforwards	53,035			49,670
Deferred tax assets	75,257			63,350
Deferred tax liabilities
Accelerated depreciation and amortization	(138,513		)	(150,981		)
Prepaid assets	(897		)	(786		)
Total deferred tax liabiliites	(139,410		)	(151,767		)
Net deferred tax liability	$	(64,153	)	$	(88,417	)

At December 31, 2008, the Company had available unused net operating loss carryforwards of approximately $133.9 million.  The net operating loss carryforwards will expire at various dates from 2018 through 2027.

The Company moved from a net deferred tax asset position prior to the Transaction, where tax expense related primarily to minimum state taxes due to valuation allowances established for net operating losses not recognized, to a net deferred tax liability position after the Transaction.  Management believes the valuation allowance is no longer necessary as we determined that it was more likely than not that the benefits of these deferred tax assets will be realized.

Under Internal Revenue Code of 1986, certain corporate stock transactions into which the Company has entered or may enter in the future could limit the amount of net operating loss carryforwards which may be utilized on an annual basis to offset taxable income in future periods.

We adopted the provisions of FIN 48 on January 1, 2007.  FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement 109, Accounting for Income Taxes, and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Based on our evaluation, we have concluded that no significant unrecognized tax benefits existed prior to May 31, 2007.   Our evaluation was performed for the tax years ended December 31, 2005, 2006, 2007 and 2008, the tax years that remain subject to examination by major tax jurisdictions as of December 31, 2008.  We do not believe there will be any material changes in our unrecognized tax positions over the next twelve months.

A reconciliation of the beginning and ending amount of unrecognized tax benefit for the year ended December 31, 2008, five months ended May 31, 2007 and seven months ended December 31, 2007 follows:

F-36

(in thousands)
Unrecognized tax benefits balance at January 1, 2007	$	—
Gross increases for tax positions in 2007	2,100
Unrecognized tax benefits balance at December 31, 2007	2,100
Gross increases for tax positions in current period	—
Unrecognized tax benefits balance at December 31, 2008	$	2,100

All of the unrecognized tax benefits at December 31, 2008 would affect the remaining balance attributable to the Transaction in accordance with EITF 93-7: Uncertainties Related to Income Taxes in a Business Combination if recognized.

14.Securityholders Agreement

In connection with the Transactions, Irving Place Capital and certain members of our management that acquired securities of Parent in connection with the merger entered into a securityholders agreement that governs certain relationships among, and contain certain rights and obligations of, such stockholders. The securityholders agreement, among other things:

·limits the ability of the stockholders to transfer their securities in Parent, except in certain permitted transfers as defined therein;

·provides for certain co-sale rights; and

·provides for certain rights of first refusal with respect to transfers by stockholders other than to certain permitted transferees.

15.Business Segments

The Company operates in three reportable segments:

·Medical equipment outsourcing provides customers with the use of medical equipment and the Company maintains the equipment for customers by performing preventative maintenance, repairs, cleaning and testing, and maintaining certain reporting records.

·Technical and professional services offers a broad range of inspection, preventative maintenance, repair, logistic and consulting services through the Company’s team of over 350 technicians and professionals located in its nationwide network of offices.

·Medical equipment sales and remarketing buys, sources, remarkets and disposes of pre-owned medical equipment for its customers through the Company’s Asset Recovery Program; provides sales and distribution of specialty medical equipment; and offers its customers disposable items that are used on a single use basis.

The Company identifies its segments based on its organizational structure and its internal reporting.

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				Seven Months			Five Months
	Year Ended			Ended			Ended			Year Ended
	December 31,			December 31,			May 31,			December 31,
	2008			2007			2007			2006
(in thousands)	(Successor)			(Successor)			(Predecessor)			(Predecessor)
Medical Equipment Outsourcing
Net Sales	$	223,676		$	119,808		$	84,855		$	176,932
Gross margin	79,895			42,246			38,649			80,515
Assets	432,643			447,240						39,395
Amortization and Depreciation	12,643			7,667			450			1,072
Technical and Professional Services
Net Sales	45,225			26,437			14,800			30,445
Gross margin	12,549			6,582			4,676			9,377
Assets	86,559			91,856						1,793
Amortization and Depreciation	692			404			745			703
Intangible asset impairment charge	4,000			—			—			—
Medical Equipment Sales and Remarketing
Net Sales	20,218			10,209			7,867			17,698
Gross margin	4,745			1,204			1,501			4,311
Assets	18,603			18,746						3,843
Amortization and Depreciation	—			—			3			7
Corporate and Unallocated
Net Sales	—			—			—			—
Gross margin	—			—			—			—
Assets	339,920			320,910						219,975
Amortization and Depreciation	72,488			40,742			21,625			45,388
Capital Expenditures	73,903			37,642			35,760			54,817
Total Company Assets, Amortization and Depreciation and Capital Expenditures
Assets	877,725			878,752						265,006
Amortization and Depreciation	85,823			48,813			22,823			47,170
Capital Expenditures	73,903			37,642			35,760			54,817
Impairment charge	4,000			—			—			—
Total Gross Margin and Reconciliation to Income (Loss) Before Income Taxes
Total gross margin	$	97,189		$	50,032		$	44,826		$	94,203
Selling, general and administrative	85,166			48,647			28,692			61,940
Transaction and related costs	—			306			26,891			—
Intangible asset impairment charge	4,000			—			—			—
Interest expense	46,878			26,322			13,829			31,599
Loss on extinguishment of debt	—			1,041			22,396			—
Income (loss) before income tax	$	(38,855	)	$	(26,284	)	$	(46,982	)	$	664

Gross margin represents net revenues less total direct costs.

Segment assets for the three business segments (excluding Corporate and Unallocated) primarily include goodwill and intangible assets, which is consistent with the Company’s reporting to its Chief Operating Decision Maker, other assets are not allocated to the three business segments.  Thus, assets included in Corporate and Unallocated contain all other Company assets.

F-38

EX-10.17

Exhibit 10.17

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Employment Agreement”) dated as of December 31, 2008, is between UNIVERSAL HOSPITAL SERVICES, INC., a Delaware corporation (the “Company”), and Gary D. Blackford (the “Executive”).  This Employment Agreement amends and restates the employment agreement between the Executive and the Company dated May 31, 2007, as amended by letter dated July 27, 2007, but has no effect on the supplemental letter between the parties dated May 31, 2007, which remains in full effect.

The Company wishes to continue to employ the Executive, and the Executive wishes to remain employed with the Company, on the terms and conditions set forth in this Employment Agreement.  This Employment Agreement replaces any existing employment agreement between the Executive, on the one hand, and Company or any of its subsidiaries or predecessor entities, on the other hand, and the parties acknowledge that the Executive has no remaining rights, obligations or entitlements under any such agreement, other than (i) any rights or entitlements of the Executive to indemnification or coverage under any directors and officers indemnity insurance, (ii) with respect to any equity owned by Executive or options or other awards granted to the Executive, (iii) with respect to an excise tax gross-up under Section 4(g) of the Employment Agreement, dated as of June 25, 2002, between the Company and the Executive, as amended on or prior to the date hereof (the “Original Agreement”), and (iv) under the letter of June 25, 2002 with regarding the retention by the Executive of certain property upon termination of his employment.

Accordingly, the Company and the Executive agree as follows:

1.Position; Duties.  The Company agrees to employ the Executive, and the Executive agrees to serve and accept employment, for the Term (as defined below) as Chairman and Chief Executive Officer of the Company, as Chairman and a member of the Board of Directors (the “Board”) of UHS Holdco, Inc., the parent of the Company (the “Parent”), and as a member of the Board of Directors of the Company, subject, in his capacity as Chief Executive Officer, to the direction and control of the Board, and, in connection therewith, to reside in the Minneapolis, Minnesota area, to oversee and direct the operations of the Company and to perform such other duties commensurate with his position as the Board may from time to time reasonably direct.  The Executive shall also be appointed as Chairman and Chief Executive Officer of any parent holding or operating company other than any non-public company that solely holds equity or debt of the Company.  The Executive’s place of employment will be in the Minneapolis, Minnesota area.  The Executive shall have all of the authorities, duties and responsibilities commensurate with his position.  During the Term, the Executive agrees to devote substantially all of his time, energy, experience and talents during regular business hours, and as otherwise reasonably necessary, to such employment.  The Executive shall be entitled to engage in other business activities of a material nature, as a director, consultant or in any similar capacity, whether or not the Executive receives any compensation therefor; provided, that the Executive notifies the Board of such other business activities and the Board determines in good faith that such other business activities do not unreasonably conflict with the Executive’s duties and responsibilities to the Company pursuant to this Employment Agreement.  The Executive

1

will not be given duties inconsistent with his executive position.  The parties acknowledge that the Executive is a member of the Board of Directors of Wright Medical Group, Inc.

2.Term of Employment Agreement.  The term of the Executive’s employment hereunder began May 31, 2007, and ends as of the close of business on May 31, 2010, 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 Employment Agreement will 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 sixty (60) days’ written notice prior to the date on which such renewal would otherwise occur.  In the event that the Executive’s employment is not renewed by the Company in accordance with this Section 2 upon the expiration of the Term or any Renewal Term, the Executive’s employment shall terminate as of the date of such expiration, and such termination shall be deemed a termination without “Cause” for purposes of this Employment Agreement.

3.Compensation and Benefits.

(a)Base Salary.  The Executive’s base salary as of May 31, 2007, is an annual rate of $432,000, payable in equal bi-weekly installments.  The Board will review the Executive’s base salary annually and make such increases as it deems appropriate.  Any decrease may only be made in connection with an across-the-board reduction (of approximately the same percentage but no more than five percent (5%) of the then-base salary) in executive compensation to executive employees imposed by the Board in response to materially negative financial results or other materially adverse circumstances affecting the Company.  Necessary withholding taxes, FICA contributions and the like will be deducted from the Executive’s base salary.

(b)Bonus.  In addition to the Executive’s base salary, but subject to the other provisions of this Employment Agreement, the Executive will be entitled to receive a bonus based on the achievement of the annual EBITDA target established by the Board (or any compensation committee thereof) for each calendar year, which shall be paid in the calendar year following the calendar year in which it is earned; provided, that the target for any calendar year will be subject to adjustment by the Board (or any compensation committee thereof), in good faith, to reflect any acquisitions, dispositions and material changes to capital spending made after the date hereof.  The amount of such bonus, if any, will correspond to achievement of target EBITDA in accordance with the following:

Percentage Achievement of Target EBITDA	Percentage of Base Salary
90% or less	0	%
100%	85	%
110% or more	170	%

Bonus amounts between the above amounts will be determined by straight line interpolation (e.g., if percentage achievement is 95%, the bonus shall be 42.5% of base salary).  For

2

computational purposes, “base salary” shall equal the amount received pursuant to Section 3(a) for the calendar year.

(c)           Equity Grant.  As soon as practicable following May 31, 2007, the Executive shall be granted options to purchase Parent’s common stock, $.01 par value per share, under Parent’s stock option plan pursuant to terms mutually agreed upon by the parties in accordance with the terms set forth on Exhibit A attached hereto.

(d)           Other.  The Executive will be entitled to such health, life, disability, pension, sick leave and other benefits as are generally made available by the Company to its executive employees.  If the Executive elects not to participate in the Company’s group health plan, but rather obtains health coverage directly through Minnesota Blue Cross Blue Shield, or such other insurer as the Board may approve, the Company shall reimburse the Executive for the reasonable cost of such coverage on a monthly basis, but in no event later than March 15th of the calendar year following the calendar year to which such premium expenses relate.  The Executive will also accrue five weeks paid vacation during each year during the Term in accordance with and subject to the Company’s vacation policy.

4.Termination.

(a)           Death.  This Employment Agreement will automatically terminate upon the Executive’s death.  In the event of such termination, the Company will pay to the Executive’s legal representatives the sum of (i) 100% of the Executive’s annual base salary (as in effect on the Date of Termination (as defined below)), (ii) $11,350, and (iii) any earned but unpaid bonus for a calendar year ending prior to the Date of Termination.  Such amount shall be paid to Executive’s estate in a single lump sum payment the 61st day following the Date of Termination.  Additionally, the Company will pay to the Executive’s legal representatives a pro rata bonus for the calendar year in which such termination occurs (based on the number of days elapsed in such calendar year prior to the Date of Termination), at the time during the next calendar year that the Company pays bonuses to other senior executives for the calendar year in question, to the extent such bonus would be payable based on actual results of the Company, as calculated in accordance with Section 3(b) above (the “Pro-Rata Bonus”).  Additionally, upon any termination hereunder, the Executive’s estate shall be entitled to receive any accrued but unpaid salary and unused vacation pay through the Date of Termination in accordance with Section 3(a) of this Agreement and the terms of the Company’s vacation plan or policy then in effect, and any accrued vested benefits through any benefit plan, program or arrangement of the Company at the times specified therein (collectively, the “Accrued Obligations”).

(b)           Disability.  If during the Term the Executive becomes physically or mentally disabled whether totally or partially, either permanently or so that the Executive has been unable substantially and competently to perform his duties hereunder for one hundred eighty (180) days during any twelve-month period during the Term (a “Disability”), the Company may terminate the Executive’s employment hereunder by written notice to the Executive.  In the event of such termination, the Company will pay to the Executive or his legal representative the sum of (i) 100% of the Executive’s annual base salary (as in effect on the Date of Termination), (ii) $11,350 and (iii) any earned but unpaid bonus for a calendar year ending prior to the Date of Termination.  Such amounts under clauses (i), (ii) and (iii) above shall,

3

subject to Section 15 hereof, be paid to the Executive or his legal representative in a single lump sum payment on the 61st day following the Date of Termination.  Additionally, the Executive or his legal representative shall be entitled to receive the Accrued Obligations and the Pro-Rata Bonus, if any, at the time specified therefor in Sections 3(a) and 4(a), respectively.

(c)Cause.  The Executive’s employment hereunder may be terminated at any time by the Company for Cause (as defined herein) by written notice to the Executive.  In the event of such termination, all of the Executive’s rights to any payments (other than the Accrued Obligations, which shall be paid at the time specified therefor in Section 4(a)) will cease immediately.  The Company will have “Cause” for termination of the Executive’s employment hereunder if any of the following has occurred:

(i)            the commission by the Executive of a felony for which he is convicted; or

(ii)           the material breach by the Executive of his agreements or obligations under this Employment Agreement, if such breach is described in a written notice to the Executive referring to this Section 4(c)(ii), and such breach is not capable of being cured or has not been cured within thirty (30) days after receipt of such notice.

(d)Without Cause.  The Executive’s employment hereunder may be terminated at any time by the Company without Cause by written notice to the Executive.  In the event of such termination, the Company will pay, subject to Section 4(j), to the Executive the sum of (i) 185% of the Executive’s annual base salary (as in effect on the Date of Termination), (ii) $11,350 and (iii) any earned but unpaid bonus for a calendar year ending prior to the Date of Termination.  Such amounts under clauses (i), (ii) and (iii) above shall, subject to Section 15 hereof, be paid to the Executive or his legal representative in a single lump sum payment on the 61st day following the Date of Termination.  Additionally, the Executive shall be entitled to receive the Accrued Obligations and the Pro-Rata Bonus, if any, at the time specified therefor in Sections 3(a) and 4(a), respectively.

(e)Resignation Without Good Reason.  The Executive may terminate the Executive’s employment hereunder upon sixty (60) days’ prior written notice to the Company, without Good Reason (as defined herein).  In the event of such termination, all of the Executive’s rights to any payments (other than the Accrued Obligations, which shall be paid at the time specified therefor in Section 4(a)) will cease upon the Date of Termination.

(f)Resignation For Good Reason.  The Executive may terminate the Executive’s employment hereunder at any time upon thirty (30) days’ written notice to the Company for Good Reason.  In the event of such termination, the Company will pay, subject to Section 4(j), to the Executive the sum of (i) 185% of the Executive’s annual base salary (as in effect on the Date of Termination), (ii) $11,350 and (iii) any earned but unpaid bonus for a calendar year ending prior to the date of such termination.  Such amounts under clauses (i), (ii) and (iii) above shall, subject to Section 15 hereof, be paid to the Executive or his legal representative in a single lump sum payment on the 61st day following the Date of Termination.  The Executive shall be entitled to receive Accrued Obligations and the Pro-Rata Bonus, if any, at time specified therefor in Sections 3(a) and 4(a), respectively.

4

The Executive will have “Good Reason” for termination of the Executive’s employment hereunder if other than for Cause, any of the following has occurred:

(i)            the Executive’s base salary or the percentage of base salary to which the Executive may be entitled as the result of the Company reaching the annual EBITDA targets as provided in Section 3(b) of this Employment Agreement has been reduced other than in connection with an across-the-board reduction (of approximately the same percentage but no more than five (5%) of the then base salary) in executive compensation to executive employees imposed by the Board in response to materially negative financial results or other materially adverse circumstances affecting the Company;

(ii)           the Board (or any compensation committee thereof) establishes an unachievable and commercially unreasonable annual EBITDA target that the Company must achieve in order for the Executive to receive a bonus under Section 3(b) of this Employment Agreement and the Executive provides written notice of his objection to the Board (or such compensation committee) within ten (10) business days after such target has been established and communicated in writing to the Executive stating that the Executive believes such target to be unachievable and commercially unreasonable;

(iii)          the Executive is not elected or re-elected to the Board;

(iv)          the Company has required the Executive to relocate outside the greater Minneapolis, Minnesota area or has relocated the corporate headquarters of the Company outside the greater Minneapolis, Minnesota area or has removed or relocated outside the greater Minneapolis area, a material number of employees or senior management of the Company in each case, without the Executive’s written consent;

(v)           any diminution in title, or any material diminution in responsibilities, duties or authorities, without the Executive’s written consent; or

(vi)          the Company has breached this Employment Agreement in any material respect if such breach is described in a written notice to the Company referring to this Section 4(c)(ii), and such breach is not capable of being cured or has not been cured within thirty (30) days after receipt of such notice.

(g)Change of Control.  If the Executive is terminated without Cause or resigns for Good Reason at any time within six (6) months prior to, or twenty four (24) months following a Change of Control, or the Executive terminates employment for any reason during the thirty (30) day period following the six (6) month anniversary of the Change of Control, then, notwithstanding Sections 4(d) and 4(f) and in lieu of amounts provided under Sections 4(d) and 4(f), the Company shall pay the Executive the sum of (i) 285% of the Executive’s annual base salary (as in effect on the Date of Termination), (ii) $11,350 and (iii) any earned but unpaid bonus for a calendar year ending prior to the Date of Termination.  Such amounts under clauses (i), (ii) and (iii) above shall, subject to Section 15 hereof, be paid to the Executive or his legal representative in a single lump sum payment on the 61st day following the Date of Termination, except that in the event the Executive’s employment terminates within six (6) months prior to a

5

Change in Control due to termination by the Company without Cause or due to termination by the Executive for Good Reason, then on the Date of Termination, the Executive shall be entitled to receive payment in accordance with the terms of Section 4(d), and within thirty (30) days following a Change in Control, the Executive shall receive a single lump sum payment in an amount equal to the difference between the amount paid in accordance with Section 4(d) and the amount to be paid in accordance with this Section 4(g).  The Executive shall be entitled to receive the Accrued Obligations and the Pro-Rata Bonus, if any, at the time specified therefor in Sections 3(a) and 4(a), respectively.  Notwithstanding any provision of this Employment Agreement to the contrary, in the event that any payment or benefit received or to be received by the Executive in connection with a Change of Control of the Company or termination of the Executive’s employment constitutes a “parachute payment,” within the meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the “Code”) which would be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then the Company shall pay the Executive in cash an additional amount (the “Gross-Up Payment”) such that, after payment by the Executive of all taxes, including but not limited to income taxes (and any interest and penalties imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed on the parachute payments.  The Gross-up Payment shall be paid to the Executive (or deposited with the government as withholding and deduction) in a single lump sum payment within ninety (90) days following the date on which the Executive is required to pay the Excise Tax to the government in respect of the Executive’s “parachute payment”, but in no event later than the end of the Executive’s taxable year next following the Executive’s taxable year in which the Executive remits the related taxes.

For purposes of this Section 4(g), “Change of Control” shall mean (i) when any “person” (as defined in Section 13(d) and 14(d) of the Securities Exchange Act of 1934) (other than the Company, Bear Stearns Merchant Manager III (Cayman), L.P. (on November 1, 2008, Bear Stearns Merchant Banking, which was affiliated with Bear, Stearns & Co. Inc., spun out into an independent firm and changed its name to “Irving Place Capital”) or its affiliates, 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, in a single transaction or a series of transactions (whether by merger, consolidation, reorganization or otherwise), (A) “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), or (B) substantially all or all of the assets of the Company and its Subsidiaries on a consolidated basis or (ii) a merger, consolidation, reorganization or similar transaction of the Company with a “person” (as defined above) if, following such transaction, the holders of a majority of the Company’s outstanding voting securities in the aggregate immediately prior to such transaction do not own at least a majority of the outstanding voting securities in the aggregate of the surviving corporation immediately after such transaction.  For purposes of this Section 4(g), “Subsidiary” shall mean any corporation in an unbroken chain of corporations beginning with the Company if, at the time of a Change of Control, 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.  In the event of any merger, consolidation, reorganization or similar

6

transaction with, into or involving another corporation or other entity, such entity shall be a “person” for purposes of this Section 4(g).

(h)           Date and Effect of Termination.  The date of termination of the Executive’s employment hereunder pursuant to this Section 4 will be, (i) in the case of Section 4(a), the date of the Executive’s death, (ii) in the case of Sections 4(b), (c) or (d), the date specified as the Executive’s last day of employment in the Company’s notice to the Executive of such termination, (iii) in the case of Section 4(e) or 4(f), the date specified in the Executive’s notice to the Company of such termination, or (iv) in the case of Section 4(g), the date specified in the Executive’s notice to the Company for resignation for Good Reason or the Company’s notice to the Executive for termination without Cause (in each case, the “Date of Termination”).  Upon any termination of the Executive’s employment hereunder pursuant to this Section 4, the Executive will not be entitled to, and hereby irrevocably waives, 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 between Parent and certain of the equityholders of Parent (the “Stockholders Agreement”) or in any stock option plans adopted by Parent.  Notwithstanding the foregoing, upon any termination of the Executive’s employment hereunder, the Executive shall continue to be entitled to (i) the rights to indemnification pursuant to the Company’s charter or by-laws or any written agreement between the Executive and the Company, (ii) rights with respect to any directors and officers insurance policy of the Company, and (iii) rights with respect to the Gross-Up Payment.

(i)            Terminations Not a Breach.  The termination of the Executive’s employment pursuant to this Section 4 shall not constitute a breach of this Employment Agreement by the party responsible for the termination, and the rights and responsibilities of the parties under this Employment Agreement as a result of such termination shall be as described in this Section 4.

(j)            Release.  The Executive agrees that the Executive shall be entitled to the payments and services provided for in this Section 4 (other than the Accrued Obligations), if any, if and only if the Executive has executed and delivered the Release attached as Annex A within forty-five (45) days of the Date of Termination and fifteen (15) days have elapsed since such execution without any revocation thereof by the Executive.

(k)           Withholding.  All amounts payable to the Executive as compensation hereunder shall be subject to all customary withholding, payroll and other taxes.  The Company shall be entitled to deduct or withhold from any amounts payable to the Executive any federal, state, local or foreign withholding taxes, excise tax, or employment taxes imposed with respect to the Executive’s compensation or other payments or the Executive’s ownership interest in the Company (including, without limitation, wages, bonuses, dividends, the receipt or exercise of equity options and/or the receipt or vesting of restricted equity).

5.Acknowledgment.  The Executive agrees and acknowledges that in the course of rendering services to the Company and its clients and customers, the Executive will have access to and become acquainted with confidential information about the professional, business and financial affairs of the Company and its affiliates.  The Executive acknowledges that the Company is engaged and will be engaged in a highly competitive business, and the success of

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the Company in the marketplace depends upon its good will and reputation for quality and dependability.  The Executive recognizes that in order to guard the legitimate interests of the Company and its affiliates, it is necessary for the Company to protect all confidential information.  The existence of any claim or cause of action by the Executive against the Company shall not constitute and shall not be asserted as a defense to the enforcement by the Company of Section 6.  The Executive further agrees that the Executive’s obligations under Section 6 shall be absolute and unconditional.

6.             Confidentiality.  The Executive agrees that during and at all times after the Term, the Executive 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 the Executive had or may have access and will not disclose such Confidential Information to any person, other than (i) the Company, its respective authorized employees and such other persons to whom the Executive has been instructed to make disclosure by the Board, (ii) as appropriate (as determined by the Executive in good faith) to perform his duties hereunder, or (iii) in compliance with legal process or regulatory requirements.  “Confidential Information” will 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 the Executive in violation of this Employment Agreement.

7.             Intellectual Property, Inventions and Patents.  The Executive acknowledges that all discoveries, concepts, ideas, inventions, innovations, improvements, developments, methods, designs, analyses, drawings, reports, patent applications, copyrightable work and mask work (whether or not including any confidential information) and all registrations or applications related thereto, all other proprietary information and all similar or related information (whether or not patentable) which relate to the Company’s or any of its Subsidiaries’ actual or anticipated business, research and development or existing or future products or services and which are conceived, developed or made by the Executive (whether above or jointly with others) while employed by the Company or its predecessors and its Subsidiaries (“Work Product”), belong to the Company or such Subsidiary.  The Executive shall promptly disclose such Work Product to the Board and, at the Company’s expense, perform all actions reasonably requested by the Board (whether during or after the Term) to establish and confirm such ownership (including, without limitation, assignments, consents, powers of attorney and other instruments).

8.             Modification.  The Executive agrees and acknowledges that the duration and scope of the covenants described in Sections 6 and 7 are fair, reasonable and necessary in order to protect the goodwill and other legitimate interests of the Company and its subsidiaries, that adequate consideration has been received by the Executive for such obligations, and that these obligations do not prevent the Executive from earning a livelihood.  If, however, for any reason any court of competent jurisdiction determines that any restriction contained in Section 6 or 7 is not reasonable, that consideration is inadequate or that the Executive has been prevented unlawfully from earning a livelihood, such restriction will be interpreted, modified or rewritten to include as

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much of the duration, scope and geographic area identified in Section 6 or 7 as will render such restrictions valid and enforceable.

9.             Equitable Relief.  The Executive acknowledges that the Company will suffer irreparable harm as a result of a breach of this Employment Agreement by the Executive 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 the Executive of Section 6, 7 or 13 of this Employment Agreement, the Company will, 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.  Such relief will 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 the Executive against the Company or any of its subsidiaries, whether predicated on this Employment Agreement or otherwise, will not constitute a defense to the enforcement by the Company of this Employment Agreement.  The Executive agrees not to defend on the basis that there is an adequate remedy at law.

10.           Representations.  The Executive hereby represents and warrants to the Company that (i) the execution, delivery and performance of this Employment Agreement by the Executive do not and shall not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which the Executive is a party or by which he is bound, (ii) the Executive is not a party to or bound by any employment agreement, noncompete agreement or confidentiality agreement with any other person or entity and (iii) upon the execution and delivery of this Employment Agreement by the Company, this Employment Agreement shall be the valid and binding obligation of the Executive, enforceable in accordance with its terms.  THE EXECUTIVE HEREBY ACKNOWLEDGES AND REPRESENTS THAT HE HAS CONSULTED WITH INDEPENDENT LEGAL COUNSEL REGARDING HIS RIGHTS AND OBLIGATIONS UNDER THIS EMPLOYMENT AGREEMENT AND THE TERMS OF THE RELEASE ATTACHED AS ANNEX A AND THAT HE FULLY UNDERSTANDS THE TERMS AND CONDITIONS CONTAINED HEREIN AND THEREIN.

11.           Survival.  This Employment Agreement survives and continues in full force in accordance with its terms notwithstanding the expiration or termination of the Term.

12.           Cooperation.  During the Term and thereafter, the Executive shall reasonably cooperate with the Company and its Subsidiaries in any internal investigation or administrative, regulatory or judicial proceeding as reasonably requested by the Company (including, without limitation, being available to the Company upon reasonable notice for interviews and factual investigations, appearing at the Company’s request to give testimony without requiring service of a subpoena or other legal process, making available to the Company all pertinent information requested by the Company and all relevant documents requested by the Company which are or may come into the Executive’s possession, all at times and on schedules that are reasonably consistent with the Executive’s other activities and commitments, with due regard for such activities and commitments).  In the event the Company requires the Executive’s cooperation in accordance with this section after the termination of the Term, the Company shall reimburse the

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Executive for all of his reasonable costs and expenses incurred, in connection therewith, including legal fees, plus pay the Executive a reasonable amount per day for his time spent and such payments shall be made by Company on a monthly basis, but in no event later than March 15th of the calendar year following the calendar year to which such amounts relate.  The Company shall indemnify the Executive and hold him harmless from any claim, loss or damage as a result of his cooperation hereunder.

13.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 the Executive’s life, in such amount and in such form or forms as the Company may determine.  The Executive will have no right or interest whatsoever in such policy or policies, but the Executive agrees that the Executive will, at the request of the Company, submit himself 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.

14.No Mitigation.  The Executive shall be under no obligation to seek other employment or otherwise mitigate the obligations of the Company under this Agreement upon termination of this Agreement, and any payments or benefits paid by the Company hereunder shall not be offset by any remuneration or benefits received from a subsequent employer.

15.Section 409A.

(a)           Compliance.   It is the intention of the parties to this Employment Agreement that no payment or entitlement pursuant to this Employment Agreement will give rise to any adverse tax consequences to the Executive under Section 409A of the Code.  The Employment Agreement shall be interpreted to that end and, consistent with that objective and notwithstanding any provision herein to the contrary, the Company and the Executive shall, to the extent necessary to comply with Section 409A of the Code, agree to act reasonably and in good faith to mutually reform the provisions of this Employment Agreement to avoid the application of or excise tax under Section 409A of the Code.  To this end, the parties agree that the severance benefits payable under this Employment Agreement will be paid only upon a “separation from service” (within the meaning of Section 409A of the Code) that occurs coincident with or following the Date of Termination.  Notwithstanding any other provision herein, if the Executive is a “specified employee”, as defined in, and pursuant to, Reg. Section 1.409A-1(i) or any successor regulation, on the Date of Termination, any payment provided hereunder that is designated as being “subject to Section 15” shall be made to the Executive no earlier than the date which is six (6) months from the Date of Termination; provided, that such payment may be made earlier in the event of the Executive’s death.  If any payment to the Executive is delayed pursuant to clause (i) of the foregoing sentence, such payment instead shall be made on the first business day following the expiration of the six-month period referred to in the prior sentence or the date of the Executive’s death, as applicable.

(b)Payment Period.  Whenever a payment under this Agreement specifies a payment period with reference to a number of days (e.g., “payment shall be made within ninety (90) days following the Date of Termination), the actual date of payment within the specified period shall be within the sole discretion of the Company.

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(c)Reimbursement.  With regard to any provision herein that provides for reimbursement of costs and expenses or in-kind benefits, except as permitted by Section 409A of the Code, (i) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, (ii) the amount of expenses eligible for reimbursement, of in-kind benefits, provided during any taxable year shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year, provided that the foregoing clause (ii) shall not be violated without regard to expenses reimbursed under any arrangement covered by Section 105(b) of the Code solely because such expenses are subject to a limit related to the period the arrangement is in effect and (iii) such payments shall be made on or before the last day of the Executive’s taxable year following the taxable year in which the expense occurred.

(d)Installments.  If under this Agreement, an amount is to be paid in two or more installments, for purposes of Section 409A of the Code, each installment shall be treated as a separate payment.

16.Attorney Fees. The Company shall pay the Executive’s reasonable legal fees of Proskauer Rose LLP and out-of-pocket expenses incurred in connection with the negotiation and drafting of this Employment Agreement and any equity award agreements, and other reasonable legal fees and out-of-pocket expenses of Proskauer Rose LLP related to the sale of the Company consummated on or about May 31, 2007, subject, in each case, to and within ten (10) days after his written request for such payment accompanied by reasonably satisfactory evidence that such fees and expenses were actually incurred in connection therewith.  If a court of competent jurisdiction determines that this Employment Agreement was breached by the Company, the Executive shall be entitled to recover any and all out-of-pocket costs and expenses, including reasonable legal fees, incurred in enforcing this Employment Agreement against the Company, subject to and within ten (10) days after his request for reimbursement accompanied by reasonably satisfactory evidence that the costs and expenses were incurred in connection therewith.  The Executive shall submit a written request for payment or reimbursement within sixty (60) days of incurring the expense.

17.Indemnification.  The Company shall indemnify the Executive (including, for the avoidance of doubt, advancement of legal expenses) to the fullest extent permitted by applicable law in the event he was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, or in the event a claim or demand for information is made or threatened to be made against him, in each case by reason of the fact that he is or was a director, officer, employee, fiduciary or agent of the Company or, at the request of the Company, any other entity or benefit plan (except with respect to the Executive’s fraud, gross negligence, or willful misconduct).  Such obligation shall continue after any termination of employment or directorship with regard to actions or inactions prior thereto, and shall survive the termination of this Agreement. The Executive shall be covered by the Company’s directors and officers insurance policy upon terms and conditions no less favorable than the terms provided by the Company to any member of the Board or other senior executive of the Company.

18.Successors Assigns Amendment; Notice.  This Employment Agreement will be binding upon and will inure to the benefit of the Company and will not be assigned by the Company without the Executive’s prior written consent.  This Employment Agreement will be

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binding upon the Executive and will inure to the benefit of the Executive’s heirs, executors, administrators and legal representatives, but will not be assignable by the Executive.  This Employment Agreement may be amended or altered only by the written agreement of the Company and the Executive.  All notices or other communications permitted or required under this Employment Agreement will be in writing and will 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 the Executive or the Company at the last known address of the party, or such other address as will be furnished in writing by like notice by the Executive or the Company to the other; provided, that any notice to the Company hereunder shall also be delivered to UHS Holdco, Inc., c/o Irving Place Capital, 277 Park Avenue, 39th Floor, New York, NY  10172, Attention: Robert Juneja.

19.Entire Agreement.  This Employment Agreement embodies the entire agreement and understanding between the Executive and the Company with respect to the subject matter hereof and supersedes all such prior agreements and understandings (including the Original Agreement), except as otherwise specifically provided herein.

20.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 will remain in full force and effect and will in no way be affected, impaired or invalidated.

21.Governing Law; Jurisdiction.  This Employment Agreement will be governed by and construed and enforced in accordance with the laws of the state of Minnesota applicable to contracts made and to be performed in such state without giving effect to the principles of conflicts of laws thereof.  Each of the parties agrees that any legal action or proceeding with respect to this Employment Agreement shall be brought in the federal or state courts in the State of Minnesota (provided, that any action that can be brought in either the federal or state courts shall be brought in the federal courts) and, by execution and delivery of this Employment Agreement, each party hereto hereby irrevocably submits itself in respect of its property, generally and unconditionally, to the exclusive jurisdiction of the aforesaid court in any legal action or proceeding arising out of this Employment Agreement.  Each of the parties hereto hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Employment Agreement brought in the court referred to in the preceding sentence.

22.Counterparts.This Employment Agreement may be executed in two or more counterparts, each of which will be deemed an original but all of which together will constitute one and the same instrument, and all signatures need not appear on any one counterpart.

23.Headings.  All headings in this Employment Agreement are for purposes of reference only and will not be construed to limit or affect the substance of this Employment Agreement.

*   *   *   *   *

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IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the date first written above.

UNIVERSAL HOSPITAL SERVICES, INC.

By:
	Name:
	Title:

Gary D. Blackford

Reviewed by

Date:

Legal Department

on behalf of

UHS

Annex A

RELEASE

I, Gary D. Blackford, in consideration of and subject to the performance by Universal Hospital Services, Inc., a Delaware corporation (together with its subsidiaries, the “Company”), of its material obligations under the Employment Agreement, dated as of December 31, 2008 (the “Agreement”), do hereby release and forever discharge as of the date hereof the Company and all present and former directors, officers, agents, representatives, executives, successors and assigns of the Company and its direct or indirect owners (collectively, the “Released Parties”) to the extent provided below. Capitalized terms used but not otherwise defined herein shall have the meanings set forth in the Agreement.

1.Except as provided in paragraph 2 below, I knowingly and voluntarily release and forever discharge the Released Parties from any and all claims, controversies, actions, causes of action, cross-claims, counter-claims, demands, debts, compensatory damages, liquidated damages, punitive or exemplary damages, other damages, claims for costs and attorneys’ fees, or liabilities of any nature whatsoever in law and in equity, both past and present (through the date hereof) and whether known or unknown, suspected, or claimed against any of the Released Parties which I, or any of my heirs, executors, administrators or assigns, may have, which arise out of or are connected with my employment with, or my separation from, the Company (including, but not limited to, any allegation, claim or violation, arising under:  Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991; the Age Discrimination in Employment Act of 1967, as amended (including the Older Workers Benefit Protection Act); the Equal Pay Act of 1963, as amended; the Americans with Disabilities Act of 1990; the Family and Medical Leave Act of 1993; the Civil Rights Act of 1866, as amended; the Worker Adjustment Retraining and Notification Act; the Employee Retirement Income Security Act of 1974; any applicable Executive Order Programs; the Fair Labor Standards Act; or their state or local counterparts; or under any other federal, state or local civil or human rights law, or under any other local, state, or federal law, regulation or ordinance; or under any public policy, contract or tort, or under common law; or arising under any policies, practices or procedures of the Company; or any claim for wrongful discharge, breach of contract, infliction of emotional distress, defamation; or any claim for costs, fees, or other expenses, including attorneys’ fees incurred in these matters), (all of the foregoing collectively referred to herein as the “Claims”).

2.I agree that this Release does not waive or release any rights or claims that I may have under:  the Age Discrimination in Employment Act of 1967 which arise after the date I execute this Release; claims for benefits under any employee benefit plan maintained by the Company; rights and entitlements under the Company’s equity plans and related award agreements; claims in connection with the Gross-Up Payment (as defined in the Agreement); claims for indemnification and coverage under any directors and officers insurance policy; claims or claims for unemployment or worker’s compensation as provided by law; or rights and claims under the Original Agreement to the extent expressly reserved in the introductory paragraph of the Agreement.

A-1

3.I acknowledge and intend that this Release shall be effective as a bar and shall serve as a complete defense to each and every one of the Claims and that it shall be given full force and effect according to each and all of its express terms and provisions, including those relating to unknown and unsuspected Claims (notwithstanding any state statute that expressly limits the effectiveness of a release of unknown, unsuspected and unanticipated Claims), if any, as well as those relating to any other Claims hereinabove mentioned or implied.

4.I represent that I have not made any assignment or transfer of any Claim.  I agree that neither this Release, nor the furnishing of the consideration for this Release, shall be deemed or construed at any time to be an admission by the Company or any Released Party of any improper or unlawful conduct.  I agree that this Release is confidential and agree not to disclose any information regarding the terms of this Release, except to my immediate family and any tax, legal or other counsel I have consulted regarding the meaning or effect hereof or as required by law, and I will instruct each of the foregoing not to disclose the same to anyone.

5.Each provision of this Release shall be interpreted in such manner as to be effective and valid under applicable law and any provision of this Release held to be invalid, illegal or unenforceable in any respect shall be severable.  This Release cannot be amended except in a writing duly executed by the Company and me.

*     *     *    *     *

A-2

I UNDERSTAND THAT I HAVE FIFTEEN (15) DAYS AFTER THE EXECUTION OF THIS RELEASE TO REVOKE IT AND THAT THIS RELEASE SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE REVOCATION PERIOD HAS EXPIRED.

DATE:	UNIVERSAL HOSPITAL SERVICES, INC.
	By:
			Name:
			Title:
		Gary D. Blackford

EX-10.18

Exhibit 10.18

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Employment Agreement”) is dated as of December 31, 2008 and is between UNIVERSAL HOSPITAL SERVICES, INC., a Delaware corporation (the “Company”), and Rex Clevenger (the “Executive”).  This Employment Agreement amends and restates the employment agreement between the Executive and the Company dated May 31, 2007, as amended by letter dated July 27, 2007.

The Company wishes to continue to employ the Executive, and the Executive wishes to remain employed with the Company, on the terms and conditions set forth in this Employment Agreement.  This Employment Agreement replaces any existing employment agreement between the Executive, on the one hand, and Company or any of its subsidiaries or predecessor entities, on the other hand, and the parties acknowledge that the Executive has no remaining rights, obligations or entitlements under any such agreement, other than (i) any rights or entitlements of the Executive to indemnification or coverage under any directors and officers indemnity insurance, and (ii) with respect to any equity owned by Executive or options or other awards granted to the Executive.

Accordingly, the Company and the Executive agree as follows:

1.             Position; Duties.  The Company agrees to employ the Executive, and the Executive agrees to serve and accept employment, for the Term (as defined below) as Executive Vice President and Chief Financial Officer of the Company, subject to the direction and control of the Chief Executive Officer and the Board of Directors (the “Board”) of UHS Holdco, Inc., the parent of the Company (“Parent”), and, in connection therewith, to reside in the Minneapolis, Minnesota area, to oversee and direct the development and execution of the financial operations of the Company and to perform such other duties as the Chief Executive Officer and Board may from time to time reasonably direct.  The Executive’s place of employment will be in the Minneapolis, Minnesota area.  The Executive shall have all of the authorities, duties and responsibilities commensurate with his position.  During the Term, the Executive agrees to devote substantially all of his time, energy, experience and talents during regular business hours, and as otherwise reasonably necessary, to such employment, and not to engage in any other business activities of a material nature, as an employee, director, consultant or in any similar capacity, whether or not the Executive receives any compensation therefor, without the prior written consent of the Board, provided, that the Executive shall be entitled to engage in such other business activities as do not unreasonably conflict with the Executive’s duties and responsibilities to the Company pursuant to this Employment Agreement upon notice to and consent by the Company, which consent will not be unreasonably withheld.  The Executive will not be given duties inconsistent with his executive position.

2.             Term of Employment Agreement.  The term of the Executive’s employment hereunder began as of May 31, 2007, and will end as of the close of business on the third anniversary of the date hereof 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 Employment Agreement will automatically be renewed for successive one-year terms

unless notice of termination is given by either party upon not less than sixty (60) days’ written notice prior to the date on which such renewal would otherwise occur.  In the event that the Executive’s employment is not renewed by the Company in accordance with this Section 2 upon the expiration of the Term or any Renewal Term, the Executive’s employment shall terminate as of the date of such expiration, and such termination shall be deemed a termination without “Cause” for purposes of this Employment Agreement.

3.Compensation and Benefits.

(a)Base Salary.  The Executive’s base salary as of May 31, 2007 is a rate of $313,800, payable in equal bi-weekly installments.  The Board will review the Executive’s base salary annually and make such increases as it deems appropriate.  Any decrease may only be made in connection with an across-the-board reduction (of approximately the same percentage but no more than five percent (5%) of the then-base salary) in executive compensation to executive employees imposed by the Board in response to materially negative financial results or other materially adverse circumstances affecting the Company.  Necessary withholding taxes, FICA contributions and the like will be deducted from the Executive’s base salary.

(b)Bonus.  In addition to the Executive’s base salary, the Executive will be entitled to receive a target bonus of 75% of base salary under the Company’s Executive Bonus Plan based on the Company’s achievement of the annual EBITDA target established by the Board (or any compensation committee thereof) for each calendar year (each an “EBITDA Target”), paid in the calendar year following the calendar year in which it is earned, on the same basis as other executives of the Company, as such plan has been described to the Executive and may be amended from time to time by the Board (or any compensation committee thereof).  The EBITDA Target for any calendar year will be subject to adjustment by the Board (or any compensation committee thereof), in good faith, to reflect any acquisitions, dispositions and material changes to capital spending made after the date hereof.

(c)Options.  As soon as practicable following May 31, 2007, the Executive shall be granted options to purchase Parent’s common stock, $.01 par value per share, under Parent’s stock option plan that has been approved by the Board.

(d)Other.  The Executive will be entitled to such health, life, disability, pension, sick leave and other benefits as are generally made available by the Company to its executive employees.  The Executive will also accrue five weeks paid vacation during each year during the Term, in accordance with and subject to the Company’s vacation policy.

4.Termination.

(a)Death.  This Employment Agreement will automatically terminate upon the Executive’s death.  In the event of such termination, the Company will pay to the Executive’s legal representatives the sum of (i) 100% of the Executive’s annual base salary (as in effect on the Date of Termination (as defined below), (ii) $11,350, and (iii) any earned but unpaid bonus for a calendar year ending prior to the Date of Termination.  Such amount shall be paid to Executive’s estate in a single lump sum payment on the 61st day following the Date of Termination.  Additionally, upon any termination hereunder, the Executive’s estate shall be

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entitled to receive any accrued but unpaid salary and unused vacation pay through the Date of Termination in accordance with Section 3(a) of this Agreement and the terms of the Company’s vacation plan or policy then in effect, and any accrued vested benefits through any benefit plan, program or arrangement of the Company at the times specified therein (collectively, the “Accrued Obligations”).

(b)Disability.  If during the Term the Executive becomes physically or mentally disabled whether totally or partially, either permanently or so that the Executive has been unable substantially and competently to perform his duties hereunder for one hundred eighty (180) days during any twelve-month period during the Term (a “Disability”), the Company may terminate the Executive’s employment hereunder by written notice to the Executive.  In the event of such termination, the Company will pay to the Executive or his legal representative the sum of (i) 100% of the Executive’s annual base salary (as in effect on the Date of Termination), (ii) $11,350 and (iii) any earned but unpaid bonus for a calendar year ending prior to the Date of Termination.  Such amounts under clauses (i), (ii) and (iii) above shall, subject to Section 16 hereof, be paid to the Executive or his legal representative in a single lump sum payment on the 61st day following the Date of Termination.  Additionally, the Executive or his legal representative shall be entitled to receive the Accrued Obligations at the time specified therefor in Section 4(a).

(c)Cause.  The Executive’s employment hereunder may be terminated at any time by the Company for Cause (as defined herein) by written notice to the Executive.  In the event of such termination, all of the Executive’s rights to any payments (other than the Accrued Obligations which shall be paid at the time specified therfor in Section 4(a)) will cease immediately.  The Company will have “Cause” for termination of the Executive’s employment hereunder if any of the following has occurred:

(i)            the commission by the Executive of a felony for which he is convicted; or

(ii)           the material breach by the Executive of his agreements or obligations under this Employment Agreement, if such breach is described in a written notice to the Executive referring to this Section 4(c)(ii), and such breach is not capable of being cured or has not been cured within thirty (30) days after receipt of such notice.

(d)Without Cause.  The Executive’s employment hereunder may be terminated at any time by the Company without Cause by written notice to the Executive.  In the event of such termination, the Company shall pay, subject to Section 4(j), to the Executive the sum of (i) 175% of the Executive’s annual base salary (as in effect on the Date of Termination), (ii) $11,350 and (iii) any earned but unpaid bonus for a calendar year ending prior to the Date of Termination.  Such amounts under clauses (i), (ii) and (iii) above shall be paid to the Executive or his legal representative in a single lump sum payment on the 61st day following the Date of Termination.  Additionally, the Company will pay to the Executive a pro rata bonus for the calendar year in which such termination occurs (based on the number of days elapsed in such calendar year prior to the Date of Termination), at the time during the next calendar year that the Company pays bonuses to other senior executives for the calendar year in question, to the extent such bonus

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would be payable based on the actual results of the Company, as calculated in accordance with Section 3(b) above (the “Pro-Rata Bonus”).  Additionally, the Executive shall be entitled to receive the Accrued Obligations at the time specified therefor in Section 4(a).

(e)Resignation Without Good Reason.  The Executive may terminate the Executive’s employment hereunder upon sixty (60) days’ prior written notice to the Company, without Good Reason (as defined herein).  In the event of such termination, all of the Executive’s rights to any payments (other than the Accrued Obligations which shall be paid at the time specified therefore in Section 4(a)) will cease upon the Date of Termination.

(f)Resignation For Good Reason.  The Executive may terminate the Executive’s employment hereunder at any time upon thirty (30) days’ written notice to the Company, for Good Reason.  In the event of such termination, the Company shall pay, subject to Section 4(j), to the Executive the sum of (i) 175% of the Executive’s annual base salary (as in effect on the Date of Termination), (ii) $11,350 and (iii) any earned but unpaid bonus for a calendar year ending prior to the date of such termination.  Such amounts under clauses (i), (ii) and (iii) above shall, subject to Section 16 hereof, be paid to the Executive or his legal representative in a single lump sum payment on the 61st day following the Date of Termination.  The Executive shall be entitled to receive the Accrued Obligations and the Pro Rata Bonus, if any, at time specified therefor in Sections 4(a) and 4(d), respectively.

The Executive will have “Good Reason” for termination of the Executive’s employment hereunder if, other than for Cause, any of the following has occurred:

(i)            the Executive’s base salary or the percentage of base salary to which the Executive may be entitled as the result of the Company reaching the annual EBITDA targets as provided in Section 3(b) of this Employment Agreement has been reduced, other than in connection with an across-the-board reduction (of approximately the same percentage but no more than five (5%) of the then base salary) in executive compensation to executive employees imposed by the Board in response to materially negative financial results or other materially adverse circumstances affecting the Company;

(ii)           the Board (or any compensation committee thereof) establishes an unachievable and commercially unreasonable annual EBITDA target that the Company must achieve in order for the Executive to receive a bonus under Section 3(b) of this Employment Agreement and the Executive provides written notice of his objection to the Board (or such compensation committee) within ten (10) business days after such target has been established and communicated in writing to the Executive stating that the Executive believes such target to be unachievable and commercially unreasonable;

(iii)          the Company has required the Executive to relocate outside the greater Minneapolis, Minnesota area or has relocated the corporate headquarters of the Company outside the greater Minneapolis, Minnesota area or has removed or relocated outside the greater Minneapolis area, a material number of employees

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or senior management of the Company in each case, without the Executive’s written consent;

(iv)          any diminution in title, or any material diminution in responsibilities, duties or authorities, without the Executive’s written consent; or

(v)           the Company has breached this Employment Agreement in any material respect if such breach is described in a written notice to the Company referring to this Section 4(c)(ii), and such breach is not capable of being cured or has not been cured within thirty (30) days after receipt of such notice.

(g)Change of Control.  If the Executive is terminated without Cause or resigns for Good Reason at any time within six (6) months prior to, or twenty- four (24) months following, a Change of Control, then, notwithstanding Sections 4(d) and 4(f) and in lieu of amounts provided under Sections 4(d) and 4(f), the Company shall pay the Executive the sum of (i) 262.5% of the Executive’s annual base salary (as in effect on the Date of Termination), (ii) $11,350, and (iii) any earned but unpaid bonus for a calendar year ending prior to the Date of Termination.  Such amounts under clauses (i), (ii) and (iii) above shall, subject to Section 16 hereof, be paid to the Executive or his legal representative in a single lump sum payment on the 61st day following the Date of Termination except that in the event the Executive’s employment terminates within six (6) months prior to a Change in Control due to termination by the Company without Cause or due to termination by the Executive for Good Reason, then on the Date of Termination, the Executive shall be entitled to receive payment in accordance with the terms of Section 4(d), and within thirty (30) days following a Change in Control, the Executive shall receive a single lump sum payment in an amount equal to the difference between the amount paid in accordance with Section 4(d) and the amount to be paid in accordance with this Section 4(g).  Additionally, the Executive shall be entitled to receive the Accrued Obligations and the Pro-Rata Bonus, if any, at the time specified therefor in Sections 4(a) and 4(d), respectively.

For purposes of this Section 4(g), “Change of Control” shall mean (i) when any “person” (as defined in Section 13(d) and 14(d) of the Securities Exchange Act of 1934), other than the Company, Bear Stearns Merchant Manager III (Cayman), L.P. (on November 1, 2008, Bear Stearns Merchant Banking, which was affiliated with Bear, Stearns & Co. Inc., spun out into an independent firm and changed its name to “Irving Place Capital”), or its affiliates, 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, in a single transaction or a series of transactions (whether by a merger, consolidation, reorganization or otherwise), (A) “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), or (B) substantially all or all of the assets of the Company and its Subsidiaries on a consolidated basis or (ii) a merger, consolidation, reorganization or similar transaction of the Company with a “person” (as defined above) if, following such transaction, the holders of a majority of the Company’s outstanding voting securities in the aggregate immediately prior to such transaction do not own at least a majority of the outstanding voting securities in the aggregate of the surviving corporation immediately after such transaction.

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For purposes of this Section 4(g), “Subsidiary” shall mean any corporation in an unbroken chain of corporations beginning with the Company if, at the time of a Change of Control, 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.  In the event of any merger, consolidation, reorganization or similar transaction with, into or involving another corporation or other entity, such entity shall be a “person” for purposes of this Section 4(g).

(h)           Date and Effect of Termination.  The date of termination of the Executive’s employment hereunder pursuant to this Section 4 will be, (i) in the case of Section 4(a), the date of the Executive’s death, (ii) in the case of Sections 4(b), (c) or (d), the date specified as the Executive’s last day of employment in the Company’s notice to the Executive of such termination, (iii) in the case of Section 4(e) or 4(f), the date specified in the Executive’s notice to the Company of such termination, or (iv) in the case of Section 4(g), the date specified in the Executive’s notice to the Company for resignation for Good Reason or the Company’s notice to the Executive for termination without Cause (in each case, the “Date of Termination”).  Upon any termination of the Executive’s employment hereunder pursuant to this Section 4, the Executive will not be entitled to, and hereby irrevocably waives, 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 between Parent and certain of the equityholders of Parent (the “Stockholders Agreement”) or in any stock option plans adopted by Parent.  Notwithstanding the foregoing, upon any termination of the Executive’s employment hereunder, the Executive shall continue to be entitled to (i) the rights to indemnification pursuant to the Company’s charter or by laws or any written agreement between the Executive and the Company and (ii) rights with respect to any directors and officers insurance policy of the Company.

(i)            Terminations Not a Breach.  The termination of the Executive’s employment pursuant to this Section 4 shall not constitute a breach of this Employment Agreement by the party responsible for the termination, and the rights and responsibilities of the parties under this Employment Agreement as a result of such termination shall be as described in this Section 4.

(j)            Release.  The Executive agrees that the Executive shall be entitled to the payments and services provided for in this Section 4 (other than the Accrued Obligations), if any, if and only if the Executive has executed and delivered the Release attached as Annex A within forty-five (45) days of the Date of Termination and fifteen (15) days have elapsed since such execution without any revocation thereof by the Executive.

(k)           Withholding.  All amounts payable to the Executive as compensation hereunder shall be subject to all customary withholding, payroll and other taxes.  The Company shall be entitled to deduct or withhold from any amounts payable to the Executive any federal, state, local or foreign withholding taxes, excise tax, or employment taxes imposed with respect to the Executive’s compensation or other payments or the Executive’s ownership interest in the Company (including, without limitation, wages, bonuses, dividends, the receipt or exercise of equity options and/or the receipt or vesting of restricted equity).

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5.Acknowledgment.  The Executive agrees and acknowledges that in the course of rendering services to the Company and its clients and customers, the Executive will have access to and become acquainted with confidential information about the professional, business and financial affairs of the Company and its affiliates.  The Executive acknowledges 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.  The Executive recognizes that in order to guard the legitimate interests of the Company and its affiliates, it is necessary for the Company to protect all confidential information.  The existence of any claim or cause of action by the Executive against the Company shall not constitute and shall not be asserted as a defense to the enforcement by the Company of Section 6.  The Executive further agrees that the Executive’s obligations under Section 6 shall be absolute and unconditional.

6.Confidentiality.  The Executive agrees that during and at all times after the Term, the Executive 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 the Executive had or may have access and will not disclose such Confidential Information to any person other than (i) the Company, its respective authorized employees and such other persons to whom the Executive has been instructed to make disclosure by the Board, (ii) as appropriate (as determined by the Executive in good faith) to perform his duties hereunder, or (iii) in compliance with legal process or regulatory requirements.  “Confidential Information” will 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 the Executive in violation of this Employment Agreement.

7.Non-Compete, Non-Solicitation.

(a)In further consideration of the compensation to be paid to the Executive hereunder, the Executive acknowledges that, during the course of his employment with the Company and its subsidiaries, he shall become familiar with the Company’s trade secrets and with other Confidential Information concerning the Company and its subsidiaries (and their respective predecessor companies) and that his services have been and shall be of special, unique and extraordinary value to the Company and its subsidiaries, and therefor, the Executive agrees that during the Term and thereafter until the end of the first anniversary of the Date of Termination, he shall not directly or indirectly own any interest in, manage, control, participate in, consult with, render services for, or in any manner engage in any Competing Business (as defined below) in the United States; provided, that the foregoing shall not prohibit the Executive from owning stock as a passive investor in any publicly traded corporation so long as the Executive’s ownership in such corporation, directly or indirectly, is less than 2% of the voting stock of such corporation.  For purposes of this paragraph, “Competing Business” means any business activity involving the outsourcing or rental of movable medical equipment and related services to the health care industry.

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(b)During the Term and thereafter until the end of the second anniversary of the Date of Termination, the Executive shall not directly or indirectly through another person or entity (i) induce or attempt to induce any employee of the Company or any Subsidiary to leave the employ of the Company or such Subsidiary, or in any way interfere with the relationship between the Company or any Subsidiary and any employee thereof, (ii) hire any person who was an employee of the Company or any Subsidiary at any time within the one year period before Employee’s termination from employment or (iii) induce or attempt to induce any customer, supplier, licensee, licensor, franchisee or other business relation of the Company or any Subsidiary to cease doing business with the Company or such Subsidiary, or in any way interfere with the relationship between any such customer, supplier, licensee or business relation and the Company or any Subsidiary, except with the prior written consent of the Board, which consent will be given at the sole discretion of the Board.

8.Intellectual Property, Inventions and Patents.  The Executive acknowledges that all discoveries, concepts, ideas, inventions, innovations, improvements, developments, methods, designs, analyses, drawings, reports, patent applications, copyrightable work and mask work (whether or not including any confidential information) and all registrations or applications related thereto, all other proprietary information and all similar or related information (whether or not patentable) which relate to the Company’s or any of its Subsidiaries’ actual or anticipated business, research and development or existing or future products or services and which are conceived, developed or made by the Executive (whether above or jointly with others) while employed by the Company or its predecessors and its Subsidiaries (“Work Product”), belong to the Company or such Subsidiary.  The Executive shall promptly disclose such Work Product to the Board and, at the Company’s expense, perform all actions reasonably requested by the Board (whether during or after the Term) to establish and confirm such ownership (including, without limitation, assignments, consents, powers of attorney and other instruments).

9.Modification.  The Executive agrees and acknowledges that the duration and scope of the covenants described in Sections 6, 7 and 8 are fair, reasonable and necessary in order to protect the goodwill and other legitimate interests of the Company and its subsidiaries, that adequate consideration has been received by the Executive for such obligations, and that these obligations do not prevent the Executive from earning a livelihood.  If, however, for any reason any court of competent jurisdiction determines that any restriction contained in Section 6, 7 or 8 are not reasonable, that consideration is inadequate or that the Executive has been prevented unlawfully from earning a livelihood, such restriction will be interpreted, modified or rewritten to include as much of the duration, scope and geographic area identified in Section 6, 7 or 8 as will render such restrictions valid and enforceable.

10.Equitable Relief.  The Executive acknowledges that the Company will suffer irreparable harm as a result of a breach of this Employment Agreement by the Executive 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 the Executive of any provision of this Employment Agreement, the Company will, 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

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necessity of proving damages, posting a bond or other security.  Such relief will 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 the Executive against the Company or any of its subsidiaries, whether predicated on this Employment Agreement or otherwise, will not constitute a defense to the enforcement by the Company of this Employment Agreement.  The Executive agrees not to defend on the basis that there is an adequate remedy at law.

11.Representations.  The Executive hereby represents and warrants to the Company that (i) the execution, delivery and performance of this Employment Agreement by the Executive do not and shall not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which the Executive is a party or by which he is bound, (ii) the Executive is not a party to or bound by any employment agreement, noncompete agreement or confidentiality agreement with any other person or entity and (iii) upon the execution and delivery of this Employment Agreement by the Company, this Employment Agreement shall be the valid and binding obligation of the Executive, enforceable in accordance with its terms.  THE EXECUTIVE HEREBY ACKNOWLEDGES AND REPRESENTS THAT HE HAS CONSULTED WITH INDEPENDENT LEGAL COUNSEL REGARDING HIS RIGHTS AND OBLIGATIONS UNDER THIS EMPLOYMENT AGREEMENT AND THE TERMS OF THE RELEASE ATTACHED AS ANNEX A AND THAT HE FULLY UNDERSTANDS THE TERMS AND CONDITIONS CONTAINED HEREIN AND THEREIN.

12.Survival.  This Employment Agreement survives and continues in full force in accordance with its terms notwithstanding the expiration or termination of the Term.

13.Cooperation.  During the Term and thereafter, the Executive shall reasonably cooperate with the Company and its Subsidiaries in any internal investigation or administrative, regulatory or judicial proceeding as reasonably requested by the Company (including, without limitation, being available to the Company upon reasonable notice for interviews and factual investigations, appearing at the Company’s request to give testimony without requiring service of a subpoena or other legal process, making available to the Company all pertinent information requested by the Company and all relevant documents requested by the Company which are or may come into the Executive’s possession, all at times and on schedules that are reasonably consistent with the Executive’s other activities and commitments, with due regard for such activities and commitments).  In the event the Company requires the Executive’s cooperation in accordance with this section after the termination of the Term, the Company shall reimburse the Executive for all of his reasonable costs and expenses incurred, in connection therewith, including legal fees, plus pay the Executive a reasonable amount per day for his time spent and such payments shall be made by Company on a monthly basis, but in no event later than March 15th of the calendar year following the calendar year to which such amounts relate.  The Company shall indemnify the Executive and hold him harmless from any claim, loss or damage as a result of his cooperation hereunder.

14.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 the Executive’s life, in such amount and in such form or forms as the Company may determine.  The Executive will have no right or interest

9

whatsoever in such policy or policies, but the Executive agrees that the Executive will, at the request of the Company, submit himself 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.

15.No Mitigation.  The Executive shall be under no obligation to seek other employment or otherwise mitigate the obligations of the Company under this Agreement upon termination of this Agreement, and any payments or benefits paid by the Company hereunder shall not be offset by any remuneration or benefits received from a subsequent employer.

16.Section 409A.

(a)Compliance.  It is the intention of the parties to this Employment Agreement that no payment or entitlement pursuant to this Employment Agreement will give rise to any adverse tax consequences to the Executive under Section 409A of the Code.  The Employment Agreement shall be interpreted to that end and, consistent with that objective and notwithstanding any provision herein to the contrary, the Company and the Executive shall, to the extent necessary to comply with Section 409A of the Code, agree to act reasonably and in good faith to mutually reform the provisions of this Employment Agreement to avoid the application of or excise tax under Section 409A of the Code.  To this end, the parties agree that the severance benefits payable under this Employment Agreement will be paid only upon a “separation from service” (within the meaning of Section 409A of the Code) that occurs coincident with or following the Date of Termination.  Notwithstanding any other provision herein, if the Executive is a “specified employee”, as defined in, and pursuant to, Prop. Reg. Section 1.409A 1(i) or any successor regulation, on the Date of Termination, any payment provided hereunder that is designated as being “subject to Section 16” shall be made to the Executive no earlier than the date which is six months from the Date of Termination; provided, that such payment may be made earlier in the event of the Executive’s death.  If any payment to the Executive is delayed pursuant to clause (i) of the foregoing sentence, such payment instead shall be made on the first business day following the expiration of the six month period referred to in the prior sentence or the date of the Executive’s death, as applicable.

(b)Payment Period.  Whenever a payment under this Agreement specifies a payment period with reference to a number of days (e.g., “payment shall be made within ninety (90) days following the Date of Termination), the actual date of payment within the specified period shall be within the sole discretion of the Company.

(c)Reimbursement.  With regard to any provision herein that provides for reimbursement of costs and expenses or in-kind benefits, except as permitted by Section 409A of the Code, (i) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, (ii) the amount of expenses eligible for reimbursement, of in-kind benefits, provided during any taxable year shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year, provided that the foregoing clause (ii) shall not be violated without regard to expenses reimbursed under any arrangement covered by Section 105(b) of the Code solely because such expenses are subject to a limit related to the period the arrangement is in effect and (iii) such payments shall be made on

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or before the last day of the Executive’s taxable year following the taxable year in which the expense occurred.

(d)Installments.  If under this Agreement, an amount is to be paid in two or more installments, for purposes of Section 409A of the Code, each installment shall be treated as a separate payment.

17.Attorney Fees.  The Company shall pay the Executive’s reasonable legal fees and out-of-pocket expenses of one counsel incurred in connection with the negotiation and drafting of this Employment Agreement and any equity award agreements, and other reasonable legal fees and out-of-pocket expenses of one counsel related to the sale of the Company consummated on or about May 31, 2007, subject, in each case, to and within ten (10) days after his written request for such payment accompanied by reasonably satisfactory evidence that such fees and expenses were actually incurred in connection therewith.  If a court of competent jurisdiction determines that this Employment Agreement was breached by the Company, the Executive shall be entitled to recover any and all out-of-pocket costs and expenses, including reasonable legal fees, incurred in enforcing this Employment Agreement against the Company, subject to and within ten (10) days after his request for reimbursement accompanied by reasonably satisfactory evidence that the costs and expenses were incurred in connection therewith.  The Executive shall submit a written request for payment or reimbursement within sixty (60) days of incurring the expense.

18.Indemnification.  The Company shall indemnify the Executive (including, for the avoidance of doubt, advancement of legal expenses) to the fullest extent permitted by applicable law in the event he was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, or in the event a claim or demand for information is made or threatened to be made against him, in each case by reason of the fact that he is or was a director, officer, employee, fiduciary or agent of the Company or, at the request of the Company, any other entity or benefit plan (except with respect to the Executive’s fraud, gross negligence, or willful misconduct).  Such obligation shall continue after any termination of employment or directorship with regard to actions or inactions prior thereto, and shall survive the termination of this Agreement.  The Executive shall be covered by the Company’s directors and officers insurance policy upon terms and conditions no less favorable than the terms provided by the Company to any member of the Board or other senior executive of the Company.

19.Successors; Assigns; Amendment; Notice.  This Employment Agreement will be binding upon and will inure to the benefit of the Company and will not be assigned by the Company without the Executive’s prior written consent.  This Employment Agreement will be binding upon the Executive and will inure to the benefit of the Executive’s heirs, executors, administrators and legal representatives, but will not be assignable by the Executive.  This Employment Agreement may be amended or altered only by the written agreement of the Company and the Executive.  All notices or other communications permitted or required under this Employment Agreement will be in writing and will 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 the Executive or the Company at the last known address of the party, or such other address as will be furnished in writing by like notice by the Executive or the Company to the other; provided, that any notice to the Company

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hereunder shall also be delivered to UHS Holdco, Inc., c/o Irving Place Capital, 277 Park Avenue, 39th Floor, New York, NY 10172, Attention: Robert Juneja.

20.Entire Agreement.  This Employment Agreement embodies the entire agreement and understanding between the Executive and the Company with respect to the subject matter hereof and supersedes all such prior agreements and understandings (including the Employment Agreement, dated June 2004, by and between the Company and the Executive), except as otherwise specifically provided herein.

21.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 will remain in full force and effect and will in no way be affected, impaired or invalidated.

22.Governing Law; Jurisdiction.  This Employment Agreement will be governed by and construed and enforced in accordance with the laws of the state of Minnesota applicable to contracts made and to be performed in such state without giving effect to the principles of conflicts of laws thereof.  Each of the parties agrees that any legal action or proceeding with respect to this Employment Agreement shall be brought in the federal or state courts in the State of Minnesota (provided that any action that can be brought in either the federal or state courts shall be brought in the federal courts) and, by execution and delivery of this Employment Agreement, each party hereto hereby irrevocably submits itself in respect of its property, generally and unconditionally, to the exclusive jurisdiction of the aforesaid court in any legal action or proceeding arising out of this Employment Agreement.  Each of the parties hereto hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Employment Agreement brought in the court referred to in the preceding sentence.

23.Counterparts.  This Employment Agreement may be executed in two or more counterparts, each of which will be deemed an original but all of which together will constitute one and the same instrument, and all signatures need not appear on any one counterpart.

24.Headings.  All headings in this Employment Agreement are for purposes of reference only and will not be construed to limit or affect the substance of this Employment Agreement.

*   *   *   *   *

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IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the date first written above.

UNIVERSAL HOSPITAL SERVICES, INC.
By:
	Name:
	Title:
Rex Clevenger

Reviewed by

Date:

Legal Department

on behalf of

UHS

Annex A

RELEASE

	I, Rex Clevenger, in consideration of and subject to the performance by Universal Hospital Services, Inc., a Delaware
corporation (together with its subsidiaries, the “Company”), of its material obligations under the Employment Agreement, dated as of December 31, 2008 (the “Agreement”), do hereby release and forever discharge as of the date hereof the Company and all present and former directors, officers, agents, representatives, executives, successors and assigns of the Company and its direct or indirect owners (collectively, the “Released Parties”) to the extent provided below.
1.	Except as provided in paragraph 2 below, I knowingly and voluntarily release and forever discharge the Released Parties from any and all claims, controversies, actions, causes of action, cross-claims, counter-claims, demands, debts, compensatory damages, liquidated damages, punitive or exemplary damages, other damages, claims for costs and attorneys’ fees, or liabilities of any nature whatsoever in law and in equity, both past and present (through the date hereof) and whether known or unknown, suspected, or claimed against any of the Released Parties which I, or any of my heirs, executors, administrators or assigns, may have, which arise out of or are connected with my employment with, or my separation from, the Company (including, but not limited to, any allegation, claim or violation, arising under: Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991; the Age Discrimination in Employment Act of 1967, as amended (including the Older Workers Benefit Protection Act); the Equal Pay Act of 1963, as amended; the Americans with Disabilities Act of 1990; the Family and Medical Leave Act of 1993; the Civil Rights Act of 1866, as amended; the Worker Adjustment Retraining and Notification Act; the Employee Retirement Income Security Act of 1974; any applicable Executive Order Programs; the Fair Labor Standards Act; or their state or local counterparts; or under any other federal, state or local civil or human rights law, or under any other local, state, or federal law, regulation or ordinance; or under any public policy, contract or tort, or under common law; or arising under any policies, practices or procedures of the Company; or any claim for wrongful discharge, breach of contract, infliction of emotional distress, defamation; or any claim for costs, fees, or other expenses, including attorneys’ fees incurred in these matters), (all of the foregoing collectively referred to herein as the “Claims”).
2.	I agree that this Release does not waive or release any rights or claims that I may have under: the Age Discrimination in Employment Act of 1967 which arise after the date I execute this Release; claims for benefits under any employee benefit plan maintained by the Company; rights and entitlements under the Company’s equity plans and related award agreements; claims for indemnification and coverage under any directors and officers insurance policy; or claims or claims for unemployment or worker’s compensation as provided by law.

A-1

3.	I acknowledge and intend that this Release shall be effective as a bar and shall serve as a complete defense to each and every one of the Claims and that it shall be given full force and effect according to each and all of its express terms and provisions, including those relating to unknown and unsuspected Claims (notwithstanding any state statute that expressly limits the effectiveness of a release of unknown, unsuspected and unanticipated Claims), if any, as well as those relating to any other Claims hereinabove mentioned or implied.
4.	I represent that I have not made any assignment or transfer of any Claim. I agree that neither this Release, nor the furnishing of the consideration for this Release, shall be deemed or construed at any time to be an admission by the Company or any Released Party of any improper or unlawful conduct. I agree that this Release is confidential and agree not to disclose any information regarding the terms of this Release, except to my immediate family and any tax, legal or other counsel I have consulted regarding the meaning or effect hereof or as required by law, and I will instruct each of the foregoing not to disclose the same to anyone.
5.	Each provision of this Release shall be interpreted in such manner as to be effective and valid under applicable law and any provision of this Release held to be invalid, illegal or unenforceable in any respect shall be severable. This Release cannot be amended except in a writing duly executed by the Company and me.

*     *     *    *     *

A-2

I UNDERSTAND THAT I HAVE FIFTEEN (15) DAYS AFTER THE EXECUTION OF THIS RELEASE TO REVOKE IT AND THAT THIS RELEASE SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE REVOCATION PERIOD HAS EXPIRED.

DATE:	UNIVERSAL HOSPITAL SERVICES, INC.
	By:
		Name:
		Title:
		Rex Clevenger

EX-10.19

Exhibit 10.19

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Employment Agreement”) dated as of December 31, 2008 (“Effective Date”), between UNIVERSAL HOSPITALSERVICES, INC., a Delaware corporation (the “Company”) and Walter T. Chesley (the “Executive”) amends and restates the employment agreement between the Executive and the Company dated July 17, 2007.

The Company wishes to continue to employ the Executive, and the Executive wishes to remain employed with the Company, on the terms and conditions set forth in this Employment Agreement. This Employment Agreement replaces any existing employment agreement between the Executive, on the one hand, and Company or any of its subsidiaries or predecessor entities, on the other hand, and the parties acknowledge that the Executive has no remaining rights, obligations or entitlements under any such agreement, other than (i) any rights or entitlements of the Executive to indemnification or coverage under any directors and officers indemnity insurance, (ii) with respect to any equity owned by Executive or options or other awards granted to the Executive, (iii) with respect to an excise tax gross-up in Section 4(g) of the Employment Agreement, dated as of February 2003, between the Company and the Executive, as amended on or prior to the date hereof (the “Original Agreement”) but only as such excise tax gross-up applies to an acquisition occurring prior to the date hereof.

Accordingly, the Company and the Executive agree as follows:

1.Position; Duties.  The Company agrees to employ the Executive, and the Executive agrees to serve and accept employment, for the Term (as defined below) as Senior Vice President, Human Resources of the Company, subject to the direction and control of the Chief Executive Officer and the Board of Directors of the Company (the “Board”), and, in connection therewith, to reside in the Minneapolis, Minnesota area, to oversee and direct the development and execution of the human resources strategy of the Company and to perform such other duties as the Chief Executive Officer and Board may from time to time reasonably direct.  The Executive’s place of employment will be in the Minneapolis, Minnesota area.  During the Term, the Executive agrees to devote substantially all of his time, energy, experience and talents during regular business hours, and as otherwise reasonably necessary, to such employment, to devote his 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 the Executive receives any compensation therefore, without the prior written consent of the Board, provided, that Executive shall be entitled to engage in such other business activities as do not unreasonably conflict with the Executive’s duties and responsibilities to the Company pursuant to this Employment Agreement upon notice to and consent by the Company, which consent will not be unreasonably withheld.  The Executive will not be given duties inconsistent with his executive position.

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2.Term of Employment Agreement.  The term of the Executive’s employment hereunder began as of July 17, 2007, and will end as of the close of business on the Date of Termination (as defined in Section 4(h)) (the “Term”).

3.Compensation and Benefits.

(a)  Base Salary.  The Executive’s base salary as of July 17, 2007, is an annual rate of $197,600, payable in equal bi-weekly installments.  The Board will review the Executive’s base salary annually and make adjustments as it deems appropriate.  Necessary withholding taxes, FICA contributions and the like will be deducted from the Executive’s base salary.

(b)  Bonus.  In addition to the Executive’s base salary, the Executive will be eligible to receive a target bonus of 65% of base salary under the Company’s Executive Bonus Plan based on the Company’s achievement of the annual EBITDA target established by the Board (or any compensation committee thereof) for each calendar year (each an “EBITDA Target”), as such plan may be amended from time to time by the Board (or any compensation committee thereof). The EBITDA Target for any calendar year will be subject to adjustment by the Board (or any compensation committee thereof), in good faith, to reflect any acquisitions, dispositions and material changes to capital spending.  The bonus under this Section 3(b) will be payable in accordance with the Company’s normal payroll practices in the calendar year following the calendar year in which it is earned.

(c)  Other.  The Executive will be entitled to such health, life, disability, pension, sick leave and other benefits as are generally made available by the Company to its executive employees.  The Executive will also accrue five (5) weeks paid vacation during each year during the Term, in accordance with and subject to the Company’s vacation policy.

4.Termination.

(a)  Death.  This Employment Agreement will automatically terminate upon the Executive’s death.  In the event of such termination, the Company will pay to the Executive’s estate (i) Executive’s annual base salary (as in effect on the Date of Termination) (as defined below) and (ii) the sum of $11,350. Such amounts shall be paid to the Executive’s estate in equal monthly installments for twelve (12) consecutive months beginning on the 61st day following the Date of Termination.

(b)  Disability.  If during the Term the Executive becomes physically or mentally disabled whether totally or partially, either permanently or so that the Executive is unable substantially and competently to perform his duties hereunder for a period of ninety (90) consecutive days or for ninety (90) days during any six-month period during the Term (a “Disability”), the Company may terminate the Executive’s employment hereunder by written notice to the Executive.  In the event of such termination, the Company will pay to the Executive (i) the Executive’s annual base salary (as in effect on the Date of Termination) and (ii) the sum of $11,350. Such amounts shall be, subject to Section 19

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hereof, paid to the Executive in equal monthly installments for twelve (12) consecutive months beginning on the 61st day following the Date of Termination.

(c)  Cause.  The Executive’s employment hereunder may be terminated at any time by the Company for Cause (as defined herein) by written notice to the Executive.  In the event of such termination, all of the Executive’s rights to payments (other than payment for services already rendered) and any other benefits otherwise due hereunder will cease immediately.  The Company will have “Cause” for termination of the Executive’s emp1oyment hereunder if any of the following has occurred:

(i) the commission by the Executive of a felony for which he is convicted; or

(ii) the material breach by the Executive of his agreements or obligations under this Employment Agreement, if such breach is described in a written notice to the Executive referring to this Section 4(c)(ii), and such breach is not capable of being cured or has not been cured within thirty (30) days after receipt of such notice.

(d)  Without Cause.  The Executive’s employment hereunder may be terminated at any time by the Company without Cause by written notice to the Executive.  In the event of such termination, the Company shall pay the Executive the aggregate of:  (i) the Executive’s annual base salary (as in effect on the Date of Termination); (ii) the sum of $11,350; and (iii) the bonus that would have been payable to the Executive for the calendar year in which the Date of Termination occurs had the Company achieved 100% of the then applicable EBITDA Target for such calendar year. Amounts under clauses (i) and (ii) above shall be, subject to Section 19 hereof, paid to the Executive in equal monthly installments for twelve (12) consecutive months beginning on the 61st day following the Date of Termination and any bonus amount under clause (iii) above shall, subject to Section 19 hereof, be paid in a single lump sum on the 61st day following the Date of Termination.

(e)  Resignation Without Good Reason.  The Executive may terminate the Executive’s employment hereunder upon sixty (60) days’ prior written notice to the Company, without Good Reason (as defined herein).  In the event of such termination, all of the Executive’s rights to payment (other than payment for services already rendered) and any other benefits otherwise due hereunder will cease upon the date of such termination.

(f)  Resignation For Good Reason.  The Executive may terminate the Executive’s employment hereunder at any time upon thirty (30) days’ written notice to the Company, for Good Reason.  In the event of such termination, the Company shall pay the Executive the aggregate of: (i) the Executive’s annual base salary (as in effect on the Date of Termination); (ii) the sum of $11,350; and (iii) the bonus that would have been payable to the Executive for the calendar year in which the Date of Termination occurs had the Company achieved 100% of the then applicable EBITDA Target for such calendar year. Amounts under clauses (i) and (ii) above shall be, subject to Section 19 hereof, paid to

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the Executive in equal monthly installments for twelve (12) consecutive months beginning on the 61st day following the Date of Termination and any bonus amount under clause (iii) above shall, subject to Section 19 hereof, be paid in a single lump sum on the 61st day following the Date of Termination.

The Executive will have “Good Reason” for termination of the Executive’s employment hereunder if, other than for Cause, any of the following has occurred:

(i) the Executive’s base salary or the bonus (as a percentage of base salary) to which the Executive may be entitled as the result of the Company reaching the then applicable EBITDA Target under the Executive Bonus Plan 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 Board establishes an unachievable and commercially unreasonable EBITDA Target that the Company must achieve in order for the Executive to receive a bonus under Section 3(b) of this Employment Agreement;

(iii) the Company has reduced or reassigned a material portion of the Executive’s duties hereunder, has required the Executive to relocate outside the greater Minneapolis, Minnesota area or has relocated the corporate headquarters of the Company outside the greater Minneapolis, Minnesota area or has removed or relocated outside the greater Minneapolis area, a material number of employees or senior management of the Company; or

(iv) the Company has breached this Employment Agreement in any material respect.

(g)  Change of Control.  If the Executive is terminated without Cause or resigns for Good Reason at any time within six (6) months prior to, or twenty-four (24) months following, a Change of Control, or the Executive terminates employment for any reason during the thirty (30) day period following the six (6) month anniversary of the Change of Control, and notwithstanding Sections 4(d) and 4(f), and in lieu of amounts provided under Sections 4(d) and 4(f), the Company shall pay the Executive the aggregate of: (i) the Executive’s annual base salary (as in effect on the Date of Termination); (ii) the sum of $11,350; and (iii) the bonus that would have been payable to the Executive for the calendar year in which the Date of Termination occurs had the Company achieved 100% of the then applicable EBITDA Target for such calendar year. Amounts under clauses (i) and (ii) above shall be, subject to Section 19 hereof, paid to the Executive in equal monthly installments for twelve (12) consecutive months beginning on the 61st day following the Date of Termination and any bonus amount under clause (iii) above shall, subject to Section 19 hereof, be paid in a single lump sum on the 61st day following the Date of Termination.  Notwithstanding any provision of this Employment Agreement to the contrary, in the event that any payment or benefit received or to be received by the Executive in connection with a Change in Control of the Company or termination of

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Executive’s employment constitutes a “parachute payment,” within the meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the “Code”) which would be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then the Company shall pay the Executive in cash an additional amount (the “Gross-Up Payment”) such that, after payment by Executive of all taxes, including but not limited to income taxes (and any interest and penalties imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed on the parachute payments. The Gross-Up Payment shall be paid to the Executive (or deposited with the government as withholding and deduction) in a single lump sum payment within ninety (90) days following the date on which the Executive is required to pay the Excise Tax to the government in respect of the Executive’s “parachute payment”, but in no event later than the end of the Executive’s taxable year next following the Executive’s taxable year in which the Executive remits the related taxes.

For purposes of this Section 4(g) “Change of Control” shall mean (i) when any “person” (as defined in Section 13(d) and 14(d) of the Securities Exchange Act of 1934), other than the Company, Bear Stearns Merchant Manager III (Cayman), L.P. (on November 1, 2008, Bear Stearns Merchant Banking, which was affiliated with Bear, Stearns & Co. Inc., spun out into an independent firm and changed its name to “Irving Place Capital”) or its affiliates, 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, in a single transaction or a series of transactions (whether by merger, consolidation, reorganization or otherwise), (A) “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), or (B) substantially all or all of the assets of the Company and its Subsidiaries on a consolidated basis or (ii) a merger, consolidation, reorganization or similar transaction of the Company with a person (as defined above) if, following such transaction, the holders of a majority of the Company’s outstanding voting securities in the aggregate immediately prior to such transaction do not own at least a majority of the outstanding voting securities in the aggregate of the surviving corporation immediately after such transaction.  For purposes of this Section 4(g), “Subsidiary” shall mean any corporation in an unbroken chain of corporations beginning with the Company if, at the time of a Change of Control, 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. In the event of any merger, consolidation, reorganization or similar transaction with, into or involving another corporation or other entity, such entity shall be a “person” for purposes of this Section 4(g).

(h)  Date and Effect of Termination.  The date of termination of the Executive’s employment hereunder, pursuant to this Section 4 will be, (i) in the case of Section 4(a), the date of the Executive’s death, (ii) in the case of Sections 4(b), (c) or (d), the date

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specified as the last day of employment in the Company’s notice to the Executive of such termination, (iii) in the case of Section 4(e) or 4(f), the date specified in the Executive’s notice to the Company of such termination, or (iv) in the case of Section 4(g), the date specified in the Executive’s resignation notice to the Company or the Company’s notice to the Executive for termination without Cause (in each case, the “Date of Termination”).  Upon any termination of the Executive’s employment pursuant to this Section 4, the Executive will 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 or the Stockholders’ Agreement between the Company and the equity security holders of the Company (the “Stockholders’ Agreement”), in any stock option plans adopted by the Company, or as may be required by law.

(i)  Terminations Not a Breach.  The termination of the Executive’s employment pursuant to this Section 4 shall not constitute a breach of this Employment Agreement by the party responsible for the termination, and the rights and responsibilities of the parties under this Employment Agreement as a result of such termination shall be as described in this Section 4.

(j)  Release.  The Executive agrees that the Executive shall be entitled to the payments and services provided for in this Section 4, if and only if the Executive has executed and delivered the Release attached as Annex A within forty-five (45) days of the Date of Termination and fifteen (15) days have elapsed since such execution without any revocation thereof by the Executive.

5.Acknowledgment.  The Executive agrees and acknowledges that in the course of rendering services to the Company and its clients and customers, the Executive will have access to and become acquainted with confidential information about the professional, business and financia1 affairs of the Company and its affiliates. The Executive acknowledges 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.  The Executive recognizes that in order to guard the legitimate interests of the Company and its affiliates, it is necessary for the Company to protect all confidential information.  The existence of any claim or cause of action by the Executive against the Company shall not constitute and shall not be asserted as a defense to the enforcement by the Company of Section 6. The Executive further agrees that the Executive’s obligations under Section 6 shall be absolute and unconditional.

6.Confidentiality.  The Executive agrees that during and at all times after the Term, the Executive 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

6

“Confidential Information”), to which the Executive 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 people to whom the Executive has been instructed to make disclosure by the Board, in each case only to the extent required in connection with court process.  “Confidential Information” will 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 the Executive in violation of this Employment Agreement.

7.Non-Compete, Non-Solicitation.

(a)In further consideration of the compensation to be paid to the Executive hereunder, the Executive acknowledges that, during the course of his employment with the Company and its subsidiaries, he shall become familiar with the Company’s trade secrets and with other Confidential Information concerning the Company and its subsidiaries (and their respective predecessor companies) and that his services have been and shall be of special, unique and extraordinary value to the Company and its subsidiaries, and therefor, the Executive agrees that during the Term and thereafter until the end of the first anniversary of the Date of Termination, he shall not directly or indirectly own any interest in, manage, control, participate in, consult with, render services for, or in any manner engage in any Competing Business (as defined below) in the United States; provided, that the foregoing shall not prohibit the Executive from owning stock as a passive investor in any publicly traded corporation so long as the Executive’s ownership in such corporation, directly or indirectly, is less than 2% of the voting stock of such corporation.  For purposes of this paragraph, “Competing Business” means any business activity involving the outsourcing or rental of movable medical equipment and related services to the health care industry.

(b)During the Term and thereafter until the end of the second anniversary of the Date of Termination, the Executive shall not directly or indirectly through another person or entity (i) induce or attempt to induce any employee of the Company or any subsidiary to leave the employ of the Company or such subsidiary, or in any way interfere with the relationship between the Company or any subsidiary and any employee thereof, (ii) hire any person who was an employee of the Company or any subsidiary at any time within the one year period before Employee’s termination from employment or (iii) induce or attempt to induce any customer, supplier, licensee, licensor, franchisee or other business relation of the Company or any subsidiary to cease doing business with the Company or such subsidiary, or in any way interfere with the relationship between any such customer, supplier, licensee or business relation and the Company or any subsidiary, except with the prior written consent of the Board, which consent will be given at the sole discretion of the Board.

8.Intellectual Property, Inventions and Patents.  The Executive acknowledges that all discoveries, concepts, ideas, inventions, innovations, improvements, developments, methods, designs, analyses, drawings, reports, patent applications, copyrightable work and mask work (whether or not including any confidential information) and all registrations or applications related thereto, all other

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proprietary information and all similar or related information (whether or not patentable) which relate to the Company’s or any of its subsidiaries’ actual or anticipated business, research and development or existing or future products or services and which are conceived, developed or made by the Executive (whether above or jointly with others) while employed by the Company or its predecessors and its subsidiaries (“Work Product”), belong to the Company or such subsidiary.  The Executive shall promptly disclose such Work Product to the Board and, at the Company’s expense, perform all actions reasonably requested by the Board (whether during or after the Term) to establish and confirm such ownership (including, without limitation, assignments, consents, powers of attorney and other instruments).

9.Modification.  The Executive agrees and acknowledges that the perpetual duration and scope of the covenants described in Sections 6, 7 and 8 are fair, reasonable and necessary in order to protect the good will and other legitimate interests of the Company and its subsidiaries, that adequate consideration has been received by the Executive for such obligations, and that these obligations do not prevent the Executive from earning a livelihood.  If, however, for any reason any court of competent jurisdiction determines that any restriction contained in Sections 6, 7 or 8 is not reasonable, that consideration is inadequate or that the Executive has been prevented unlawfully from earning a livelihood, such restriction will be interpreted, modified or rewritten to include as much of the duration, scope and geographic area identified in Sections 6, 7 and 8 as will render such restrictions valid and enforceable.

10.Equitable Relief.  The Executive acknowledges that the Company will suffer irreparable harm as a result of a breach of this Employment Agreement by the Executive 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 the Executive of any provision of this Employment Agreement, the Company will, 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 the Executive, and the Executive hereby consents to the entry of such relief against the Executive and agrees not to contest such entry.  Such relief will 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 the Executive against the Company or any of its subsidiaries, whether predicated on this Employment Agreement or otherwise, will not constitute a defense to the enforcement by the Company of this Employment Agreement.  The Executive agrees not to defend on the basis that there is an adequate remedy at law.

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 the Executive’s life, in such amount and in such form or forms as the Company may determine.  The Executive will have no right or interest whatsoever in such policy or policies, but the Executive agrees that the

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Executive will, at the request of the Company, submit himself 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.           Cooperation.  During the Term and thereafter, the Executive shall reasonably cooperate with the Company and its Subsidiaries in any internal investigation or administrative, regulatory or judicial proceeding as reasonably requested by the Company (including, without limitation, being available to the Company upon reasonable notice for interviews and factual investigations, appearing at the Company’s request to give testimony without requiring service of a subpoena or other legal process, making available to the Company all pertinent information requested by the Company and all relevant documents requested by the Company which are or may come into the Executive’s possession, all at times and on schedules that are reasonably consistent with the Executive’s other activities and commitments, with due regard for such activities and commitments).  In the event the Company requires the Executive’s cooperation in accordance with this Section after the termination of the Term, the Company shall reimburse the Executive for all of his reasonable costs and expenses incurred, in connection therewith, including legal fees, plus pay the Executive a reasonable amount per day for his time spent and such payments shall be made by Company on a monthly basis, but in no event later than March 15th of the calendar year following the calendar year to which such amounts relate.  The Company shall indemnify the Executive and hold him harmless from any claim, loss or damage as a result of his cooperation hereunder.

13.           Indemnification.  The Company shall indemnify the Executive (including, for the avoidance of doubt, advancement of legal expenses) to the fullest extent permitted by applicable law in the event he was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, or in the event a claim or demand for information is made or threatened to be made against him, in each case by reason of the fact that he is or was a director, officer, employee, fiduciary or agent of the Company or, at the request of the Company, any other entity or benefit plan (except with respect to the Executive’s fraud, gross negligence, or willful misconduct).  Such obligation shall continue after any termination of employment or directorship with regard to actions or inactions prior thereto, and shall survive the termination of this Agreement.  The Executive shall be covered by the Company’s directors and officers insurance policy upon terms and conditions no less favorable than the terms provided by the Company to any member of the Board or other senior executive of the Company.

14.           Successors; Assigns; Amendment; Notice.  This Employment Agreement will be binding upon and will inure to the benefit of the Company and will not be assigned by the Company without the Executive’s prior written consent This Employment Agreement will be binding upon the Executive and will inure to the benefit of the Executive’s heirs, executors, administrators and legal representatives, but will not be assignable by the Executive.  This Employment Agreement may be amended or altered only by the written agreement of the Company and the Executive.  All notices or other communications permitted or required under this Employment Agreement will be

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in writing and will 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 the Executive or the Company at the last known address of the party, or such other address as will be furnished in writing by like notice by the Executive or the Company to the other.

15.           Entire Agreement.  This Employment Agreement, together with the agreements specifically referred to herein, embodies the entire agreement and understanding between the Executive and the Company with respect to the subject matter hereof and supersedes all such prior agreements and understandings (including the Original Agreement), except as otherwise specifically provided herein.

16.           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 will remain in full force and effect and will in no way be affected, impaired or invalidated.

17.           Governing Law.  This Employment Agreement will be governed by and construed and enforced in accordance with the laws of the state of Minnesota applicable to contracts made and to be performed in such state without giving effect to the principles of conflicts of laws thereof.

18.           Withholding. All amounts payable to the Executive as compensation hereunder shall be subject to all customary withholding, payroll and other taxes.  The Company shall be entitled to deduct or withhold from any amounts payable to the Executive any federal, state, local or foreign withholding taxes, excise tax, or employment taxes imposed with respect to the Executive’s compensation or other payments or the Executive’s ownership interest in the Company (including, without limitation, wages, bonuses, dividends, the receipt or exercise of equity options and/or the receipt or vesting of restricted equity).

19.           Section 409A Compliance.

(a)            Compliance.  It is the intention of the parties to this Employment Agreement that no payment or entitlement pursuant to this Employment Agreement will give rise to any adverse tax consequences to the Executive under Section 409A of the Code.  The Employment Agreement shall be interpreted to that end and, consistent with that objective and notwithstanding any provision herein to the contrary, the Company and the Executive shall, to the extent necessary to comply with Section 409A of the Code, agree to act reasonably and in good faith to mutually reform the provisions of this Employment Agreement to avoid the application of or excise tax under Section 409A of the Code.  To this end, the parties agree that the severance benefits payable under this Employment Agreement will be paid only upon a “separation from service” (within the meaning of Section 409A of the Code) that occurs coincident with or following the Date of Termination.  Notwithstanding any other provision herein, if the Executive is a “specified employee”, as defined in, and pursuant to, Reg. Section 1.409A-1(i) or any

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successor regulation, on the Date of Termination, any payment provided hereunder that is designated as being “subject to Section 19” shall be made to the Executive no earlier than  (i) the date which is six (6) months from the Date of Termination; or (ii) the date of the Executive’s death (the “Delay Period”).  If any payment to the Executive is delayed pursuant to the foregoing sentence all payments due during the Delay Period will be paid to the Executive or his estate in a lump sum on the first business day following the expiration of the six-month period referred to in the prior sentence or the date of the Executive’s death, as applicable, and all remaining amounts shall be paid in accordance with the normal payment dates specified in this Employment Agreement.

(b)           Payment Period.  Whenever a payment under this Agreement specifies a payment period with reference to a number of days (e.g., “payment shall be made within ninety (90) days following the Date of Termination), the actual date of payment within the specified period shall be within the sole discretion of the Company.

(c)           Reimbursement.  With regard to any provision herein that provides for reimbursement of costs and expenses or in-kind benefits, except as permitted by Section 409A of the Code, (i) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, (ii) the amount of expenses eligible for reimbursement, of in-kind benefits, provided during any taxable year shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year, provided that the foregoing clause (ii) shall not be violated without regard to expenses reimbursed under any arrangement covered by Section 105(b) of the Code solely because such expenses are subject to a limit related to the period the arrangement is in effect and (iii) such payments shall be made on or before the last day of the Executive’s taxable year following the taxable year in which the expense occurred.

(d)           Installments.  If under this Agreement, an amount is to be paid in two or more installments, for purposes of Section 409A of the Code, each installment shall be treated as a separate payment.

20.           Counterparts.  This Employment Agreement may be executed in two (2) or more counterparts, each of which will be deemed an original but all of which together will constitute one and the same instrument, and all signatures need not appear on any one counterpart.

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21.           Headings.  All headings in this Employment Agreement are for purposes of reference only and will not be construed to limit or affect the substance of this Employment Agreement.

DATE:	UNIVERSAL HOSPITAL SERVICES, INC.
	By:
	Name: Rex Clevenger
	Title: Executive Vice President and Chief Financial Officer
	Walter T. Chesley
	Reviewed by
		Date:
	Legal Department
	on behalf of
	UHS

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Annex A

RELEASE

I, Walter T. Chesley, in consideration of and subject to the performance by Universal Hospital Services, Inc., a Delaware corporation (together with its subsidiaries, the “Company”), of its material obligations under the Employment Agreement, dated as of December 31, 2008 (the “Agreement”), do hereby release and forever discharge as of the date hereof the Company and all present and former directors, officers, agents, representatives, executives, successors and assigns of the Company and its direct or indirect owners (collectively, the “Released Parties”) to the extent provided below.

1.Except as provided in paragraph 2 below, I knowingly and voluntarily release and forever discharge the Released Parties from any and all claims, controversies, actions, causes of action, cross-claims, counter-claims, demands, debts, compensatory damages, liquidated damages, punitive or exemplary damages, other damages, claims for costs and attorneys’ fees, or liabilities of any nature whatsoever in law and in equity, both past and present (through the date hereof) and whether known or unknown, suspected, or claimed against any of the Released Parties which I, or any of my heirs, executors, administrators or assigns, may have, which arise out of or are connected with my employment with, or my separation from, the Company (including, but not limited to, any allegation, claim or violation, arising under:  Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991; the Age Discrimination in Employment Act of 1967, as amended (including the Older Workers Benefit Protection Act); the Equal Pay Act of 1963, as amended; the Americans with Disabilities Act of 1990; the Family and Medical Leave Act of 1993; the Civil Rights Act of 1866, as amended; the Worker Adjustment Retraining and Notification Act; the Employee Retirement Income Security Act of 1974; any applicable Executive Order Programs; the Fair Labor Standards Act; or their state or local counterparts; or under any other federal, state or local civil or human rights law, or under any other local, state, or federal law, regulation or ordinance; or under any public policy, contract or tort, or under common law; or arising under any policies, practices or procedures of the Company; or any claim for wrongful discharge, breach of contract, infliction of emotional distress, defamation; or any claim for costs, fees, or other expenses, including attorneys’ fees incurred in these matters), (all of the foregoing collectively referred to herein as the “Claims”).

2.I agree that this Release does not waive or release any rights or claims that I may have under:  the Age Discrimination in Employment Act of 1967 which arise after the date I execute this Release; claims for benefits under any employee benefit plan maintained by the Company; rights and entitlements under the Company’s equity plans and related award agreements; claims for indemnification and

A-1

coverage under any directors and officers insurance policy; or claims or claims for unemployment or worker’s compensation as provided by law.

3.I acknowledge and intend that this Release shall be effective as a bar and shall serve as a complete defense to each and every one of the Claims and that it shall be given full force and effect according to each and all of its express terms and provisions, including those relating to unknown and unsuspected Claims (notwithstanding any state statute that expressly limits the effectiveness of a release of unknown, unsuspected and unanticipated Claims), if any, as well as those relating to any other Claims hereinabove mentioned or implied.

4.I represent that I have not made any assignment or transfer of any Claim.  I agree that neither this Release, nor the furnishing of the consideration for this Release, shall be deemed or construed at any time to be an admission by the Company or any Released Party of any improper or unlawful conduct.  I agree that this Release is confidential and agree not to disclose any information regarding the terms of this Release, except to my immediate family and any tax, legal or other counsel I have consulted regarding the meaning or effect hereof or as required by law, and I will instruct each of the foregoing not to disclose the same to anyone.

5.Each provision of this Release shall be interpreted in such manner as to be effective and valid under applicable law and any provision of this Release held to be invalid, illegal or unenforceable in any respect shall be severable.  This Release cannot be amended except in a writing duly executed by the Company and me.

*     *     *    *     *

A-2

I UNDERSTAND THAT I HAVE FIFTEEN (15) DAYS AFTER THE EXECUTION OF THIS RELEASE TO REVOKE IT AND THAT THIS RELEASE SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE REVOCATION PERIOD HAS EXPIRED.

DATE:	UNIVERSAL HOSPITAL SERVICES, INC.
	By:
	Name:
	Title:
	Walter T. Chesley

A-3

EX-10.20

Exhibit 10.20

Universal Hospital Services, Inc.

Executive Severance Pay Plan

December 31, 2008

I.Purpose

To provide a severance pay plan for the Executives (as defined below) of Universal Hospital Services, Inc. (the “Company”) who are not eligible for severance pay under any other plan or agreement with the Company. The provisions of this Executive Severance Pay Plan (the “Plan”) will not apply to any Executive who is covered by an employment agreement. Executives who receive severance under this Plan will not be eligible to receive severance under any other plan or agreement of the Company. No severance benefits become payable pursuant to this Plan in the event of termination of employment upon an Executive’s death or disability. This Plan replaces the Executive Severance Pay Plan dated June 1, 2007.

II.Definitions.

A.“Cause” means:

(i.)Executive’s continued failure, whether willful, intentional, or grossly negligent, after written notice, to perform substantially Executive’s duties (the “Duties”) as determined by Executive’s immediate supervisor, or the Chief Executive Officer, or a Senior Vice President of the Company (other than as a result of a disability);

(ii.)dishonesty or fraud in the performance of Executive’s Duties or a material breach of Executive’s duty of loyalty to the Company or its subsidiaries;

(iii.)conviction or confession of an act or acts on Executive’s part constituting a felony under the laws of the United States or any state thereof or any misdemeanor which materially impairs such Executive’s ability to perform the Duties;

(iv.)any willful act or omission on Executive’s part which is materially injurious to the financial condition or business reputation of the Company or any of its subsidiaries; or

(v.)any breach by Executive of any non-competition, non-solicitation, non-disclosure or confidentiality agreement applicable to Executive.

B.“Date of Termination” means the date specified as Executive’s last date of employment in the Company’s notice of termination to Executive or Executive’s Notice of Resignation for Good Reason to the Company.

C.“Executive” means any Executive Vice President, Senior Vice President or any Vice President of the Company.

D.“Resignation for Good Reason” means:

Executive’s termination of employment upon 30 days’ written notice to the Company, for Good Reason.  Executive shall have “Good Reason” for termination of employment if, other than for cause, any of the following has occurred, Executive has given notice thereof within 90 days of the event, the Company has not cured within 30 days of receive of such notice, and Executive actually terminates employment within 60 days thereafter:

(i.)The Company has reduced or reassigned a material portion of Executive duties (per Executive job description);

(ii.)The Executive’s base salary has been materially reduced other than in connection with an across-the-board reduction (of approximately the same percentage) in executive compensation to employees imposed by the board of directors of the Company in response to negative financial results or other adverse circumstances affecting the Company; or

(iii.)The Company has required Executive to relocate in excess of 50 miles from the location where the Executive is currently employed.

E.“Severance Period” means the period from the Date of Termination through the date which is 12 months from the Date of Termination.

III.Severance Pay

A.Executives who separate from the Company as a result of termination by the Company without Cause (other than death or disability) or by the Executive for Good Reason and who sign the general release and other agreement described in Section IV below within 45 days of such termination and who do not rescind the general release within the time allowed by the Company are entitled to the severance pay specified below.  An Executive who is separated from employment due to dismissal for Cause is not entitled to any severance pay and an Executive who voluntarily resigns, except for Resignation for Good Reason, from employment is not entitled to severance pay.

B.Upon qualifying for severance pay subject to Section IV, Executive will be paid the following amounts in the following manner:

(i.)Executive will continue to be paid his or her salary through the Severance Period, in the manner and at the times paid during such Executive’s employment with the Company; provided, however, that the first such payment will be made on the 61st day following the date of termination, and will include any such payments that would otherwise have been made prior to the time the release was effective.

(ii.)Executive may elect to continue group health and dental benefits under COBRA to the extent he or she is eligible.  If the Executive timely elects to continue these benefits under COBRA, the Company will pay the full premium for group health and dental benefits for 12 months following the

Date of Termination (or such shorter period as such coverage is elected by Executive).  The Company will make such payments beginning on the 61st day following the date of termination for any payment then due, and thereafter on a monthly basis.  This 12 months of coverage at the Company’s expense (or such shorter period as such coverage is elected by Executive) will be considered the first 12 months (or shorter period) of the Executive’s continuation period for group health and dental benefits in accordance with COBRA.  After such period, the Executive will be responsible for the full cost of premiums if the Executive chooses to continue these benefits.

(iii.)If prior to the date which is 12 months after the Date of Termination, Executive finds other employment, the amount of severance payments payable to Executive after such termination in accordance with B(i) above will be reduced by the value of the compensation Executive receives in his or her new employment through the date which is 12 months after the Date of Termination and the amounts payable in accordance with B(ii) will be similarly discontinued if similar medical and dental benefits are secured through the new employer.

(iv.)If termination is pursuant to Resignation for Good Reason, the Company will provide the Executive a prorated portion of the bonus earned for the then current fiscal year, based upon the number of days Executive was employed during that year. Such Executive bonus will be payable in the next calendar year at the time annual bonuses are paid to the other executives employed by the Company, on that last day of the Company’s fiscal year.

(v.)Executive will be paid or otherwise provided such benefits as may be required by law.

(vi.)All severance payments are subject to any required withholding.

IV.General Release and Other Agreements.

Executive will not be entitled to receive any of the severance pay described above until such time as Executive signs (A) an effective general release of all claims against the Company and its affiliates in the form and manner prescribed by the Company and (B) an agreement further providing (i) Executive’s agreement not to disclose or use confidential information of the Company, (ii) Executive’s agreement during the Severance Period not to compete with the Company in the medical equipment rental business, (iii) Executives’ agreement during the Severance Period not to solicit for employment or hire any person who was an employee of the Company at any time within the one year period before the Executive’s Date of Termination, and (iv) Executive’s agreement during the Severance Period not to induce or attempt to induce any customer, supplier, licensee, licensor, franchisee or other business relation of the Company to cease doing business with the Company, or in any way interfere with the relationship between any such customer, supplier, licensee or business relation and the Company or any Subsidiary.  A failure to execute such a general release and other agreements within 45 days of Executive’s Date of Termination or a subsequent rescission of such general release within the

time allowed will result in the loss of any rights to receive payments or benefits under this Plan.

V.Section 409A.

Although the Company does not guarantee to the Executive any particular tax treatment relating to the payments under the Plan, it is intended that such payments be exempt from, or comply with, Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the Plan shall be construed in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A of the Code.

(a)A termination of employment shall not be deemed to have occurred for purposes of any provision of the Plan providing for the payment of amounts subject to Section 409A of the Code upon or following a termination of employment unless such termination is also a “Separation from Service” within the meaning of Section 409A of the Code and, for purposes of any such provision of the Plan references to a “resignation,” “termination,” “termination of employment” or like terms shall mean “Separation from Service” within the meaning of Section 409A of the Code.

(c)Each installment paid under the Plan shall be treated as a separate payment.

VI.Amendment and Modification of Plan. This Plan may be modified, amended or terminated at any time by the CEO and the Board of Directors of the Company.

VII.No Employment Rights. Neither this Plan for the benefits hereunder shall be a term of the employment of any employee, and the Company shall not be obligated in any way to continue the Plan. The terms of this Plan shall not give any employee the right to be retained in the employment of the Company.

EX-10.21

Exhibit 10.21

2009 Executive Incentive Plan Targets

Senior Manager	2009 Executive Incentive Plan Target as a Percent of 2009 Base Salary
Gary D. Blackford	85	%
Rex T. Clevenger	75	%
Timothy W. Kuck	70	%
Jeffrey L. Singer	70	%
Walter T. Chesley	65	%
Diana Vance-Bryan	65	%
David Lawson	65	%
William Heintze	60	%

Target Achievement*	Bonus Multiplier
110%	150	%
105%	125	%
100%	100	%
99%	95	%
98%	90	%
97%	85	%
96%	80	%
95%	75	%
94%	70	%
93%	65	%
<93%	Zero

* The target is set by the compensation committee

Scale Methodology

Directionally, every 1% variance to Target has a 5 times multiplier, with bookends at 110% and 93%, subject to the discretion of the compensation committee

EX-12.1

Exhibit 12.1

	DETERMINATION OF RATIO OF EARNINGS TO FIXED CHARGES
	Year			Seven Months			Five Months
	Ended			Ended			Ended
	December 31,			December 31,			May 31,			Year Ended December 31,
	2008			2007			2007			2006		2005			2004
(dollars in thousancds)	(Successor)			(Successor)			(Predecessor)			(Predecessor)		(Predecessor)			(Predecessor)
Income (loss) before income taxes	$	(38,855	)	$	(26,284	)	$	(46,982	)	$	664	$	(727	)	$	(2,404	)
Total Fixed charges	46,878			26,322			13,829			31,599		31,127			30,508
Earnings (loss) before fixed charges	$	8,023		$	38		$	(33,153	)	$	32,263	$	30,400		$	28,106
Total fixed charges	$	46,878		$	26,322		$	13,829		$	31,599	$	31,127		$	30,508
Ratio of earnings to fixed charges(1)	—			—			—			1.02		—			—

(1)If we consistently incur net losses before income tax, we may not be able to maintain a ratio coverage of greater than 1:1.  In 2006 we had income before taxes of $664,000 generating a ratio of 1.02 to 1.00.  Due to our losses for the year ended December 31, 2008, seven months ended December 31, 2007, five months ended May 31, 2007 and years ended December 31, 2005 and 2004 the ratio coverage in the respective years was less than 1.00 to 1.00.  We needed to generate additional earnings of $38.9, $26.3, $47.0, $0.7 and $2.4 million for the year ended December 31, 2008, seven months ended December 31, 2007, five months ended May 31, 2007 and years ended December 31, 2005 and 2004, respectively, to achieve a coverage ratio of 1.00:1.00.

EX-31.1

                Exhibit 31.1

Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Gary D. Blackford, certify that:

1.I have reviewed this Annual Report on Form 10-K of Universal Hospital Services, Inc. (the “registrant”);

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 11, 2009	/s/ Gary D. Blackford
	Gary D. Blackford
	Chairman of the Board and Chief Executive Officer

EX-31.2

                Exhibit 31.2

Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Rex T. Clevenger, certify that:

1.I have reviewed this Annual Report on Form 10-K of Universal Hospital Services, Inc. (the “registrant”);

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 11, 2009	/s/ Rex T. Clevenger
	Rex T. Clevenger
	Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of Universal Hospital Services, Inc. (the “Company”) for the period ended December 31, 2008 as filed with the Securities and Exchange Commission (the “Report”), I, Gary D. Blackford, Chairman of the Board and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)           The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 11, 2009	/s/Gary D. Blackford
	Gary D. Blackford
	Chairman of the Board and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of Universal Hospital Services, Inc. (the “Company”) for the period ended December 31, 2008 as filed with the Securities and Exchange Commission (the “Report”), I, Rex T. Clevenger, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)      The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)      The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 11, 2009

/s/Rex T. Clevenger

Rex T. Clevenger

Executive Vice President and Chief Financial Officer