0001104659-04-013468.txt : 20040510 0001104659-04-013468.hdr.sgml : 20040510 20040510134642 ACCESSION NUMBER: 0001104659-04-013468 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEALTHTRONICS SURGICAL SERVICES INC CENTRAL INDEX KEY: 0001018871 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 582210668 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-30406 FILM NUMBER: 04792142 BUSINESS ADDRESS: STREET 1: 1841 WEST OAK PARKWAY STREET 2: SUITE A CITY: MARIETTA STATE: GA ZIP: 30062 BUSINESS PHONE: 7704190691 MAIL ADDRESS: STREET 1: 1841 WEST OAK PARKWAY STREET 2: SUITE A CITY: MARIETTA STATE: GA ZIP: 30062 FORMER COMPANY: FORMER CONFORMED NAME: HEALTHTRONICS INC /GA DATE OF NAME CHANGE: 19980623 10-Q 1 a04-4553_110q.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the quarterly period ended March 31, 2004

o TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-30406

HealthTronics Surgical Services, Inc.

(Exact name of registrant as specified in its charter)

Georgia		58-2210668
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1841 West Oak Parkway, Suite A Marietta, Georgia		30062
(Address of principal executive offices)		(Zip Code)

(770) 419-0691
(Registrant’s telephone number, including area code)

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 ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes ý No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock.

12,384,000 Shares of No Par Value Common Stock as of April 30, 2004

HEALTHTRONICS SURGICAL SERVICES, INC.

INDEX TO FORM 10-Q

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

		Condensed Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003

		Condensed Consolidated Statements of Income for the three-month periods ended March 31, 2004 and 2003

		Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2004 and 2003

		Notes to Condensed Consolidated Financial Statements

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.	Quantitative and Qualitative Disclosure of Market Risk

Item 4.	Controls and Procedures

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings

Item 2.	Changes in Securities and Use of Proceeds

Item 6.	Exhibits and Reports on Form 8-K

	Signatures

Part 1. Financial Information

Item 1. Financial Statements

HealthTronics Surgical Services, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(000’s omitted)

	March 31, 2004			December 31, 2003
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	10,399		$	9,040
Trade accounts receivable, less allowance for doubtful accounts of $1,743 and $1,669 at March 31, 2004 and December 31, 2003, respectively	15,831			14,484
Other receivables	706			—
Inventory	13,550			7,819
Prepaid expenses and other current assets	2,667			1,224
Deferred income taxes	800			774
Total current assets	43,953			33,341

Property and equipment, at cost:
Land	349			349
Building and leasehold improvements	2,039			1,182
Medical devices placed in service	25,872			24,420
Office equipment, furniture and fixtures	1,895			1,646
Vehicles and accessories	3,605			3,604
	33,760			31,201
Less accumulated depreciation	(11,076		)	(11,768		)
Net property and equipment	22,684			19,433

Investments in unconsolidated entities	2,265			2,207
Goodwill	59,613			48,317
Other assets	3,333			3,585
Total assets	$	131,848		$	106,883

	March 31, 2004		December 31, 2003
	(Unaudited)
Liabilities and shareholders’ equity
Current liabilities:
Trade accounts payable	$	6,375	$	5,035
Income taxes payable	1,517		1,605
Other accrued expenses	9,840		5,507
Deferred profit on service contracts	542		375
Short-term borrowings	22,054		11,714
Current portion of capital lease obligations	278		281
Current portion of long-term debt	1,227		5,906
Total current liabilities	41,833		30,423

Deferred profit on medical device sales to related parties (subject to debt guarantees)	256		248
Noncurrent deferred income taxes	623		669
Capital lease obligations, less current portion	362		409
Long-term debt, less current portion	9,382		4,718
Minority interest in consolidated subsidiaries	30,309		28,085
Other liabilities	3,237		1,953
Total liabilities	86,002		66,505

Shareholders’ equity:
Common stock – no par value, voting:
Authorized – 30,000 shares at March 31, 2004 and December 31, 2003; Issued – 12,386 and 11,639 shares at March 31, 2004 and December 31, 2003, respectively; Outstanding – 12,384 and 11,584 at March 31, 2004 and December 31, 2003, respectively	24,120		19,034
Accumulated other comprehensive expense	—		(32		)
Retained earnings	21,726		21,376
Total shareholders’ equity	45,846		40,378
Total liabilities and shareholders’ equity	$	131,848	$	106,883

See accompanying notes.

HealthTronics Surgical Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(Unaudited)

(000’s omitted except per share information)

	Three months ended March 31,
	2004			2003

Net revenue	$	23,740		$	20,888
Cost of devices, service parts and consumables	4,974			4,260
Salaries, general and administrative expenses	11,351			9,580
Depreciation and amortization	1,562			1,380
	5,853			5,668
Equity in earnings of unconsolidated entities	329			259
Partnership distributions from cost basis investments	202			118
Gain on sale of partnership investment interest	245			2,075
Gain on sale of fixed assets	147			5
Interest expense	(588		)	(533		)
Interest income	15			35
Income before minority interest and income taxes	6,203			7,627
Minority interest of consolidated subsidiaries	(5,549		)	(4,129		)
Income before income taxes	654			3,498
Provision for income taxes	(304		)	(1,369		)
Net income	$	350		$	2,129
Income per common share:
Basic	$	0.03		$	0.19
Diluted	$	0.03		$	0.18
Weighted average common shares outstanding:
Basic	11,814			11,328
Diluted	11,836			11,542

See accompanying notes.

HealthTronics Surgical Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(000’s omitted)

	Three months ended March 31,
	2004			2003

Operating activities
Net income	$	350		$	2,129
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Net change in fair value of interest rate swap	32			53
Depreciation and amortization	1,562			1,380
Amortization of loan costs	504			71
Provision for doubtful accounts	25			50
Deferred profit on service contracts	175			465
Deferred income taxes	(72		)	—
Equity in earnings of unconsolidated partnerships, net of dividends	(58		)	52
Minority interest in subsidiaries, net of distributions to minority interests	530			(724		)
Gain on sale of subsidiary and investment interest	(246		)	(2,075		)
Gain on sale of fixed assets	(147		)	(5		)
Changes in operating assets and liabilities, net of businesses acquired:
Trade accounts receivable	1,617			346
Other receivables	304			115
Inventory	(1,403		)	(199		)
Prepaid expenses and other assets	(546		)	38
Trade accounts payable	(1,195		)	(257		)
Income taxes payable	221			(1,468		)
Accrued expenses and other liabilities	(1,560		)	(849		)
Net cash provided by (used in) operating activities	$	93		$	(878	)

	Three months ended March 31,
	2004			2003

Investing activities
Purchases of property and equipment, net of businesses acquired	$	(1,205	)	$	(1,664	)
Proceeds from sales of investment interest	845			3,670
Proceeds from sale of property and equipment	262			77
Acquisition of businesses, net of cash acquired	341			(33		)
Net cash provided by investing activities	243			2,050

Financing activities
Proceeds from issuance of common stock	—			526
Proceeds from issuance of long-term debt	1,772			—
Principal payments on long-term debt and capital leases	(2,563)			(8,161		)
Proceeds from issuance of short-term borrowings	4,591			—
Principal payments on short-term borrowings	(2,777		)	(1,000		)
Net cash provided by (used in) financing activities	1,023			(8,635		)

Net increase (decrease) in cash and cash equivalents	1,359			(7,463		)
Cash and cash equivalents at beginning of period	9,040			16,808
Cash and cash equivalents at end of period	$	10,399		$	9,345

See accompanying notes.

HealthTronics Surgical Services, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of HealthTronics Surgical Services, Inc. (“HealthTronics” or the “Company”) and its subsidiaries. All significant intercompany transactions have been eliminated.

In the opinion of HealthTronics management, the accompanying consolidated financial statements include all the necessary adjustments (consisting of normal recurring adjustments) for a fair presentation of its consolidated financial position and results of operations for the interim periods presented. The information presented in these financial statements was prepared in conformity with accounting principles generally accepted in the United States for interim financial information and instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Although management believes that the disclosures in these financial statements are adequate to make the information presented not misleading, certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 filed with the Securities and Exchange Commission.

Preparation of these interim condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The interim results may not be indicative of the results that may be expected for the year.

Certain prior year balances have been reclassified to conform to the 2004 presentation.

2. Summary of Significant Accounting Policies

Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Revenue Recognition, Gain Recognition and Allowance for Doubtful Accounts

Net revenue includes treatment fees for medical procedures in the clinical setting. Treatment revenue is primarily “wholesale” or “retail”. Wholesale revenue is generated primarily from fixed fee contracts with various medical facilities and is recorded in the month the related treatments are performed. Retail revenue, when third party payors are billed directly for medical facility and technical fees, is recorded at the time services are rendered. These third party billings may or may not be contractual. Adjustments that

reduce revenue from established contractual or estimated non-contractual billing rates to amounts estimated to be reimbursable are recognized in the period the services are rendered. Differences in estimates recorded and final settlements are reported during the period final settlements are made. The Company has certain negotiated agreements with third party payors that provide for payments to the Company or its subsidiaries. These payment arrangements may be based upon negotiated rates or per diem payments. Revenues are reported at the estimated net realizable amounts from medical facilities, contracted and non-contracted third party payors and individual patients for services rendered.

For sales of medical devices to unaffiliated entities, revenue is recognized upon delivery at the customer’s destination and customer acceptance.

Revenue generated from service contracts is recognized ratably over the life of the related contract.

Accounts receivable consist primarily of amounts due from the medical facilities or partnerships, managed care health plans, commercial insurance companies and individual patients. The Company does not charge interest on its accounts receivable. Estimated provisions for doubtful accounts are recorded to the extent it is probable that a portion or all of a particular account will not be collected. In evaluating the collectibility of accounts receivable, the Company considers a number of factors, including the age of the accounts, changes in collection patterns, the composition of accounts by payor type, the status of ongoing negotiations with third party payors and general industry conditions. Changes in these estimates are charged or credited to the results of operations in the period of the change. The Company writes off accounts receivable when all collection efforts have been exhausted.

Inventory

Inventory is carried at the lower of historical cost (first-in, first-out) or market and consists of medical devices, spare parts, assemblies and consumables.

Consolidation and Partnership Investments

Historically, the Company has made a number of investments in various entities including general and limited partnerships. The majority of these investments are consolidated based upon the Company’s ability to exercise control. The remaining

investments are recorded using the cost or equity method of accounting, depending upon the Company’s ability to exercise significant influence over the operating and financial policies of the partnership.

Variable Interest Entities

In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 (“FIN 46”). In December 2003, the FASB modified FIN 46 to make certain technical corrections and address certain implementation issues that had arisen. FIN 46 provides a new framework for identifying variable interest entities (“VIEs”) and determining when a company should include the assets, liabilities, noncontrolling interests and results of activities of a VIE in its consolidated financial statements.

In general, a VIE is a corporation, partnership, limited-liability corporation, trust, or any other legal structure used to conduct activities or hold assets that either (1) has an insufficient amount of equity to carry out its principal activities without additional subordinated financial support, (2) has a group of equity owners that are unable to make significant decisions about its activities, or (3) has a group of equity owners that do not have the obligation to absorb losses or the right to receive returns generated by its operations.

FIN 46 requires a VIE to be consolidated if a party with an ownership, contractual or other financial interest in the VIE (a variable interest holder) is obligated to absorb a majority of the risk of loss from the VIE’s activities, is entitled to receive a majority of the VIE’s residual returns (if no party absorbs a majority of the VIE’s losses), or both. A variable interest holder that consolidates the VIE is called the primary beneficiary. Upon consolidation, the primary beneficiary generally must initially record all of the VIE’s assets, liabilities and noncontrolling interests at fair value and subsequently account for the VIE as if it were consolidated based on majority voting interest. FIN 46 also requires disclosures about VIEs that the variable interest holder is not required to consolidate but in which it has a significant variable interest. The Company does not have any significant variable interests in a VIE and the Company does not consolidate any VIEs.

Impairment of Long-Lived Assets

In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, management reviews long-lived assets used in operations for impairment when there is an event or change in circumstances that indicates the carrying amount of the asset may not be recoverable and

the future undiscounted cash flows expected to be generated by the asset are less than its carrying amount. If such assets are considered to be impaired, the Company records impairment losses and reduces the carrying amount of impaired assets to an amount that reflects the fair value of the assets at the time impairment is evident. The Company’s impairment review process relies on management’s judgment regarding the indicators of impairment, the remaining lives of assets used to generate assets’ undiscounted cash flows, and the fair value of assets at a particular point in time. Management uses historical experience, current market appraisals and various other assumptions to form the basis for making judgments about the impairment of real estate assets. Under different assumptions or conditions, the asset impairment analysis may yield a different outcome, which would alter the gain or loss on the eventual disposition of the asset.

Property and Equipment

Property and equipment is stated at cost. Depreciation (which includes amortization of assets under capital leases) is computed based on the straight-line method over three to seven years based on the estimated useful lives of the related equipment or over the term of the related lease or over 39 years for buildings.

Income Taxes

The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered or settled.

The Company recognizes deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. The Company regularly reviews its deferred tax assets for recoverability and establishes a valuation allowance based upon projected future taxable income and the expected timing of the reversals of existing temporary differences.

Stock Based Compensation

The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations in accounting for employee stock options and adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation

(“SFAS 123”) as amended by Statements of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation – Transitional Disclosure, an Amendment to SFAS No. 123, (“SFAS 148”) for option grants to employees. The Company generally grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant and, accordingly, recognizes no compensation expense for the employee stock option grants.

The following table illustrates the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of SFAS 123 as amended by SFAS 148.

	Three months ended March 31,
	2004			2003

Net income — as reported	$	350		$	2,129
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	(366		)	(165		)
Net (loss) income — pro forma	$	(16	)	$	1,964

Earnings per share — as reported:
Basic	$	0.03		$	0.19
Diluted	$	0.03		$	0.18
Earnings per share — pro forma:
Basic	$	0.00		$	0.17
Diluted	$	0.00		$	0.17

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates and such differences may be material.

Related Party Transactions

Transactions between related parties and between different subsidiaries of the Company occur in the normal course of business. The Company eliminates transactions with its consolidated subsidiaries and appropriately discloses significant related party transactions.

Concentrations of Credit Risk

The Company sells its products primarily in the United States. Credit is extended based on an evaluation of the customer’s financial condition and collateral is generally not required. Accounts receivable are generally receivable from medical facilities, insurance companies or patients.

Fair Value of Financial Instruments

The Company’s financial instruments are comprised principally of cash and cash equivalents, trade accounts receivable, amounts due from affiliated partnerships, trade accounts payable, customer deposits, short-term borrowings and long-term debt. The carrying amounts of these financial instruments approximate their fair values.

Long-Lived Assets

The Company has recorded property, plant and equipment and intangible assets at cost less accumulated depreciation and amortization. The determination of useful lives and whether or not these assets are impaired involves significant judgment. The Company reviews long-lived assets, including identifiable intangible assets whenever events or changes in circumstances indicate the carrying amounts of such assets may not be recoverable. Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations accounted for as purchases. Goodwill is subject to annual testing for impairment at the reporting unit level unless events or circumstances indicate the carrying amount is impaired.

Other Comprehensive Income or Expense

Effective February 12, 2002, the Company entered into two two-year interest rate swap agreements which qualified as cash flow hedges and matured on February 12, 2004. These hedges were highly effective and, thus, the change in fair values for the three months ended March 31, 2004 and 2003 are reported as other comprehensive income of $32,000 and $53,000, respectively.

3. Description of Business

HealthTronics Surgical Services, Inc. (the “Company”) was incorporated in the state of Georgia in 1995. On July 21, 1997, the Company received FDA approval to market the LithoTron^®, a kidney lithotripsy device manufactured by HMT High Medical Technologies AG (“HMT”). On October 12, 2000, the Company received FDA approval to market the OssaTron^®, an HMT manufactured orthopaedic shock wave medical device, for treatment of chronic plantar fasciitis. On March 13, 2003, HealthTronics also received FDA approval to market the OssaTron^® for treatment of chronic lateral

epicondylitis. The Company is currently establishing additional test sites for OssaTron FDA clinical trials for additional applications.

In October 2000, with the FDA approval of the OssaTron the Company began establishing orthopaedic partnerships for the purpose of purchasing, owning and operating OssaTron devices. HealthTronics contributed certain capital to partnerships and offered equity interests to third parties. As sole general partner, through its subsidiary, HT Orthotripsy Management Company, LLC, the Company maintains control and, therefore, consolidates the second tier orthopaedic partnerships. The Company has equity interests in these partnerships ranging from 5% to 100%.

The Company operates under the terms of distribution agreements with HMT that grant the Company the exclusive right to use, sell and lease the OssaTron and related devices and parts in the United States, Canada and Mexico. On March 5, 2004, the Company purchased the outstanding capital stock of HMT Holding AG (“HMT Holding”) which holds a 72.4% voting interest and a 39.7% financial interest in HMT.

It is the Company’s intent to generate revenues from four sources: 1) fees for clinical services provided by consolidated subsidiaries; 2) recurring revenues from sales of consumable products and maintenance of equipment; 3) sales of medical devices including related accessories; and 4) management, leasing and licensing fees. The Company also generates gains from sales of partnership investment interests.

In December 2001, the Company purchased 100% of the outstanding stock of Litho Group, Inc. (“LGI”) for $42,500,000 in cash. Through its various 100% subsidiaries, LGI is the sole general partner of several separate second and third tier lithotripsy partnerships with equity interests ranging from 15% to 100%, operating in the northern, eastern and southern United States. As sole general partner, LGI consolidates the second and third tier partnerships. The Company is also general partner or managing partner in various separate lithotripsy partnerships, which it controls and, therefore, consolidates.

The accompanying consolidated financial statements include the accounts of each of the Company’s subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

4. Business Acquisitions and Dispositions

On March 5, 2004, the Company, through a wholly owned subsidiary, purchased all of the issued and outstanding capital shares of HMT Holding, a Swiss company, from its five individual shareholders for $1,000 and 800,000 of the Company’s shares valued at $5,091,000. The purchase price was determined and negotiated by the parties based on

the expected annual cash flow to be generated by HMT Holding and upon the value of certain licenses, patents and manufacturing rights to medical devices. The fair value of the Company’s common stock issued to acquire all of HMT Holding’s outstanding common stock was determined based on the average market price of the Company’s common stock over the periods just prior to and following the date of the acquisition agreement, in accordance with Emerging Issues Task Force (“EITF”) Issue No. 99-12. HMT Holding owns 72.4% of the voting shares and 39.7% of the financial interest shares of HMT, the primary supplier of the medical devices sold by the Company. HMT consolidates its Swiss manufacturing operations and its wholly owned distributorships in Japan, Germany and the United States of America. The Company, through its voting share interest, has the ability to exercise control over the operating and financial policies of HMT and its subsidiaries and therefore, the Company has consolidated the financial position and results of operations of HMT. The Company has consolidated the operations of HMT Holding and its subsidiaries since the date of acquisition as part of the Company’s manufacturing sales and service reporting unit and business segment. The Company also contributed approximately $1,550,000 to HMT Holding which HMT Holding used to repay its bank debt.

The total estimated purchase price of the acquisition has been allocated on a preliminary basis to assets and liabilities based on management’s estimate of their fair values. These allocations are subject to change pending the completion of the final analysis of the total purchase price and the fair values of the assets acquired and the liabilities assumed. The impact of any of these changes could be material.

The table below represents pro forma financial information for the three months ended March 31, 2004 and 2003 as if HMT Holding had been acquired on January 1, 2004 and 2003, respectively.

HealthTronics Surgical Services, Inc. and Subsidiaries

Pro Forma Combined Condensed Statements of Income

FOR THE THREE MONTHS ENDED MARCH 31, 2004

(UNAUDITED)

	AS REPORTED		PRO FORMA COMBINED
	(000’s omitted except per share amounts)
Net revenues	$	23,740	$	26,212
Income before income taxes	$	654	$	619
Net income	$	350	$	331
Income per common share:
Basic	$	0.03	$	0.03
Diluted	$	0.03	$	0.03

	AS REPORTED		PRO FORMA COMBINED
	(000’s omitted except per share amounts)
Net revenues	$	20,888	$	24,529
Income before income taxes	$	3,498	$	3,392
Net income	$	2,129	$	2,072
Income per common share:
Basic	$	0.19	$	0.18
Diluted	$	0.18	$	0.18

As a result of the March 5, 2004 business combination with HMT Holding, the Company has begun to establish a restructuring plan whereby it will consolidate certain of its administrative, sales and distribution activities. This may require the closing of certain facilities and the relocation or termination of certain employees employed in such activities acquired at March 5, 2004. The Company has accrued approximately $4,500,000 as a liability assumed in purchase of HMT Holding representing its best estimate to date of these costs. The Company is in the process of finalizing its estimates of the related costs which are expected to impact the final aggregate purchase price.

5. Inventory

Inventory is carried at the lower of cost (first-in, first-out) or market and consists of the following:

	March 31, 2004		December 31, 2003
	(000’s omitted)

Medical devices / other equipment	$	8,590	$	5,994
Spare parts and assemblies	3,588		738
Consumables	1,372		1,087
	$	13,550	$	7,819

6. Gain on Sale of Subsidiary and Investment Interest

The Company sold partnership investment interests in certain limited partnerships and recognized gains of $245,000 and $2,075,000 for the three months ended March 31, 2004 and 2003, respectively. The gains represent the excess of the sales price over the Company’s investment basis in the partnership interest.

7. Interest Rate Swaps

In order to protect the Company from interest rate volatility, effective February 12, 2002, the Company entered into two two-year interest rate swap agreements (“the swaps”) that matured on February 12, 2004. The total notional amount of swap agreements was $0 and $12,600,000 at March 31, 2004 and December 31, 2003, respectively. The swaps effectively converted a portion of the Company’s floating-rate debt to a fixed-rate basis through February 12, 2004, thus reducing the impact of interest-rate changes on interest expense. This fixed rate was 3.2525% plus the applicable percentage (2.25% and 2.50% during the first quarter of 2004 and 2003, respectively). The swaps qualified as cash flow hedges under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, and expired on February 12, 2004. The Company believes that its hedges were effective with changes in fair value to be reported in other comprehensive income. As of March 31, 2004 and December 31, 2003, the market value of the derivatives was a liability of approximately $0 and $32,000, respectively, which is included on the accompanying balance sheet. The change in fair values for the three months ended March 31, 2004 and 2003 is reported as other comprehensive income of approximately $32,000 and $53,000, respectively.

The counterparty to the interest rate swap agreements was a major commercial bank. The Company was exposed to counterparty credit risk for nonperformance and, in the event of nonperformance, to market risk for changes in interest rates.

8. Comprehensive Income

The components of comprehensive income are as follows for the three months ended March 31, 2004 and 2003:

	Three months ended March 31,
	2004		2003
	(000’s omitted)

Net income	$	350	$	2,129
Net change in fair value of interest rate swap	32		53
Comprehensive income	$	382	$	2,182

9. Earnings Per Share Information

The following table sets forth the computation of earnings per share:

	Three Months Ended March 31,
	2004		2003

Numerator: Net income	$	350	$	2,129
Weighted average shares outstanding	11,814		11,328
Effect of dilutive securities:
Stock options	22		214
Denominator for diluted earnings per share	11,836		11,542
Basic earnings per share	$	0.03	$	0.19
Diluted earnings per share	$	0.03	$	0.18

10. Segment Information

The Company applies the disclosure provisions of SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information. Effective April 1, 2003, the Company internally reorganized its operating structure and as a result the Company’s business units have been aggregated into three reportable operating segments: Lithotripsy; Orthopaedics; and Manufacturing, Sales and Service. The factors for determining the reportable segments were based on the distinct nature of their operations. They are disclosed as separate operating segments because these business units each have different marketing strategies due to differences in types of consumers, different market conditions and different capital requirements. Asset information by segment, including capital expenditures, and net income beyond operating margins are not provided to the Company’s chief operating decision maker. In fiscal 2003, the Company changed from one reportable segment to three reportable segments. For all periods presented, the corresponding items of segment information have been reclassified to conform to the current presentation.

The Lithotripsy segment provides lithotripsy services to physicians and medical facilities. The Orthopaedics segment provides non-invasive surgical solutions for a variety of orthopaedic conditions. The Manufacturing, Sales and Service segment represents manufacturing, sales and service of medical devices and related products. The “Other” category includes the Company’s non-reportable segments.

The Company primarily evaluates segment performance based on the income or loss before income taxes from its operating segments, which do not include unallocated corporate overhead and intersegment eliminations.

	For the Three Months Ended March 31, 2004 (Unaudited)
	(000’s omitted)

	Lithotripsy		Orthopaedics			Manufacturing, Sales and Service		Other		Total
Net revenue from segment	$	14,438	$	4,184		$	5,059	$	1,897	$	25,578
Less intersegment revenue	353		—			1,485		—		1,838
Total consolidated net revenues by segment	$	14,085	$	4,184		$	3,574	$	1,897	$	23,740

Segment depreciation and amortization	$	856	$	448		$	88	$	142	$	1,534
Plus unallocated depreciation and amortization										28
Total consolidated depreciation and amortization										$	1,562

Equity in earnings of unconsolidated entities	$	329	$	—		$	—	$	—	$	329

Segment income (loss) before income taxes	$	1,987	$	(534	)	$	62	$	285	$	1,800
Less unallocated corporate expenses and intersegment eliminations										(1,146		)
Total consolidated income before income taxes										$	654

	For the Three Months Ended March 31, 2003 (Unaudited)
	(000’s omitted)

	Lithotripsy		Orthopaedics			Manufacturing, Sales and Service		Other		Total
Net revenue from segment	$	13,539	$	4,136		$	3,024	$	1,186	$	21,885
Less intersegment revenue	249		—			748		—		997
Total consolidated net revenues by segment	$	13,290	$	4,136		$	2,276	$	1,186	$	20,888

Segment depreciation and amortization	$	835	$	406		$	4	$	50	$	1,295
Plus unallocated depreciation and amortization										85
Total consolidated depreciation and amortization										$	1,380

Equity in earnings of unconsolidated entities	$	259	$	—		$	—	$	—	$	259

Segment income (loss) before income taxes	$	4,728	$	(113	)	$	93	$	64	$	4,772
Less unallocated corporate expenses and intersegment eliminations										(1,274		)
Total consolidated income before income taxes										$	3,498

11. Line of Credit

On March 5, 2004 the Company amended and restated its primary bank term loan and line of credit facility (“New Facility”). The revised agreement provides for a $25.0 million line of credit, which is renewable every 90 days and matures on March 5, 2007. The New Facility is secured by certain accounts receivable, inventory and equipment and the Company’s equity interest in its subsidiaries and bears interest at the stated bank rate (3.34% at March 31, 2004). At March 31, 2004 there was $19,500,000 outstanding under the New Facility.

12. Subsequent Events

As of March 31, 2004, the Company through its wholly owned subsidiary, HT Lithotripsy Management Company, LLC, owned 30% of Tenn-Ga Stone Group Three (“Tenn-Ga III”), a Tennessee general partnership. On April 1, 2004, the Company increased its ownership interest in Tenn-Ga III from 30% to 97% for $967,800. In conjunction with this acquisition, Tenn-Ga III purchased all of the partnership interests in NGST, Inc. (“NGST”) a Tennessee limited liability company, for $1,116,000. The Company’s CEO owned approximately 9% of NGST prior to the Company’s acquisition of NGST.

The purchase price was determined and negotiated by the parties based on the expected annual cash flow to be generated by the company purchased. The Company financed the acquisitions under its current bank financing arrangement.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties or other factors which may cause actual results, performance or achievements of HealthTronics Surgical Services to be materially different from any future results, performance or achievements express or implied by such forward-looking statements. As always, these expectations and projections are based on currently available competitive, financial, and economic data, along with operating plans, and are subject to future events and uncertainties. Among the events and uncertainties which could adversely affect future periods are: inability to establish or maintain relationships with physicians and hospitals; health care regulatory developments that prevent certain transactions with health care professionals or facilities; inability of the Company or health care providers to obtain reimbursement for use of the Company’s current or future products; competition or technological change that impacts the market for the Company’s products; difficulty integrating HMT and realizing projected cost savings; unanticipated regulatory and clinical costs related to FDA clinical trials and application for approval of High-Intensity Focused Ultrasound (“HIFU”); and difficulty in managing the Company’s growth. Additional factors that might cause such a difference, include, but are not limited to the items identified under the caption “Risk Factors” in Item 1 of the Company’s

Annual Report on Form 10-K for the year ended December 31, 2003, and in subsequent documents filed by HealthTronics Surgical Services with the Securities and Exchange Commission

Overview

We provide equipment as well as technical and administrative services to physicians, hospitals, and surgery centers performing minimally invasive surgical procedures in the urologic and orthopaedic markets, including lithotripsy and orthopaedic extracorporeal shock wave surgery. We were formed in December 1995 and began offering lithotripsy services in mid-1997. In October 2000, we received FDA approval to market an orthopaedic extracorporeal shock wave surgery device, the OssaTron, and since then we have invested significant resources in developing our orthopaedic services network while expanding our lithotripsy operations. As a result of our recent acquisition of controlling interest of HMT High Medical Technologies AG, we also develop and manufacture minimally-invasive medical devices.

Our services are provided principally through limited partnerships or other entities that we manage which use lithotripsy devices or OssaTron orthopaedic shock wave devices. Many of these partnerships were formed by us, and we have retained an equity interest ranging from 5% to 100% while selling any remaining interests primarily to physicians. We generally retain the sole managing interest in the entities and manage their daily operations. We also provide equipment maintenance services to some of the partnerships and supply them with various consumables used in lithotripsy and orthopaedic extracorporeal shock wave surgery procedures. To date we have expanded our operations by securing additional facility contracts in our existing partnerships, forming partnerships in new geographic markets and acquiring interests in partnerships from third parties, and we expect to continue to do so in the future.

As a result of the control we exert over certain entities by virtue of our sole managing interest, management contract and otherwise, for financial reporting purposes we consolidate the results of operations of certain partnerships with our own even though we own less than all (and in many cases less than 50%) of their outstanding equity interests. We reflect the equity of third party partners in the partnerships’ results of operations in our consolidated statements of income and on our consolidated balance sheet as minority interest.

In other instances, we do not control partnerships or other entities in which we have ownership interests. We account for our interests in these entities either on the equity or cost basis, depending on the degree of influence we exert over the entity.

We recognize revenue in our consolidated statements of income from the following four principal sources:

• Fees for clinical services provided by the Company or partnerships. A substantial majority of our consolidated revenues is derived from technical fees relating to treatments performed using our equipment and related services. We bill for these fees under two different models. Under the “wholesale” billing model, we charge a fee to the hospital or other surgery center at which the treatment is performed. Our fee might be a set fee per

procedure, a set fee per month based on a specified number of days of service at the facility per month, or set as a percentage of revenue derived. Under the “retail” billing model, we charge the patient’s insurer, HMO or other responsible party, and we pay a fee to the health care facility for access to its premises. Under either model, the professional fee payable to the physician performing the procedure is generally billed and collected by the physician. The billing and collection cycle for wholesale fees is typically significantly shorter than for retail fees, although the gross margin for retail billing is moderately higher than for wholesale billing.

• Technical services, equipment maintenance and sale of consumables to affiliated and unaffiliated third parties. We charge fees to third parties who own or operate lithotripsy and orthopaedic shock wave surgical devices for equipment maintenance, technical support and related services. We also sell a variety of consumables used in lithotripsy, orthopaedic extracorporeal shock wave surgery, transurethral microwave therapy and cryosurgery procedures to unaffiliated third parties.

• Equipment and parts sales to third parties. We generate revenue from the sale of shock wave devices and parts to third parties.

• Providing partnership management, leasing and licensing services. We generate revenue from managing lithotripsy and cryosurgical partnerships and by entering into leasing or licensing arrangements with third parties.

We measure results in each of our areas in part based upon the number of procedures performed. The number of total kidney stone procedures in the United States should grow slightly with the aging population. Growth for the Company in lithotripsy procedures will come from new facility contracts in existing partnerships and the acquisition or affiliation of partners or partnerships. Procedures performed with the OssaTron for orthopaedic conditions have significant potential for growth as many patients currently are treated with invasive surgery or continue to suffer pain without receiving treatment. The Company believes procedures for chronic plantar fasciitis and chronic lateral epicondylitis will continue to grow as the modality is accepted by patients, physicians, and third party payors. The procedure growth for treatment of benign prostatic hyperplasia has potential for growth due to the aging population and the fact that many patients currently are treated with drugs or other alternative treatments. The number of procedures for cryosurgical treatment of prostate and other cancers should increase during the year, but such growth will be tempered by the slow process of educating and training physicians on the treatment.

We are dependent, both directly in the case of “retail” billing and indirectly in the case of “wholesale” billing, on the reimbursement policies of governmental and private third party payors. While the reimbursement status of lithotripsy is well established, orthopaedic extracorporeal shock wave surgery is a relatively new procedure in the U.S., and the reimbursement policies of third party payors for this treatment are still developing. Reimbursement for transurethral microwave therapy (“TUMT”) of benign prostatic hyperplasia (“BPH”) is currently established and favorable for in-office treatments. Cryosurgery for prostate cancer is a hospital-based procedure and reimbursement is established but was

recently adjusted by Medicare to exclude certain pass-through charges. Our results of operations could be significantly affected by changes in reimbursement policies regarding lithotripsy or by decisions made regarding the reimbursement status of orthopaedic extracorporeal shock wave surgery.

Results of Consolidated Operations

Revenues for the first three months of 2004 totaled $23.7 million, up 13.4% from $20.9 million for the first three months of 2003. Lithotripsy revenue for the first quarter of 2004 was $14.1 million compared to $13.3 million in the first quarter of 2003, a 6.0% increase. Consolidated lithotripsy procedures for the first quarter of 2004 increased 8.6% over the first quarter of 2003. We anticipate that our lithotripsy business will remain strong and continue to generate good cash flow for the Company.

Our orthopaedic business demonstrated moderate growth in revenues year over year. In what remains a challenging reimbursement climate, we performed 1,694 orthopaedic procedures during the first three months of 2004 compared to 1,693 procedures performed in the first three months of 2003; however, revenues for the orthopaedic business in the first quarter of 2004 increased 2.4% to $4.2 million from $4.1 million in the same period of 2003. We continue to make progress in training physicians and educating insurance companies.

Revenue from the equipment sales and service division was $3.6 million for the first quarter of 2004 compared to $2.3 million for the first quarter of 2003, an increase of 56.5%. The growth was due, in part, to our acquisition of HMT.

As our Company has grown, our salaries, general and administrative expenses have increased year over year from $9.6 million for the first quarter of 2003 to $11.4 million for the first quarter of 2004. The expansion of our orthopaedic business and the acquisition of HMT Holding are primarily responsible for the 18.8% increase.

Our depreciation and amortization expense increased 14.3% from $1.4 million during the first quarter of 2003 to $1.6 million during the first quarter of 2004 as a result of the addition of several cryosurgical devices consolidated upon the acquisition of certain cryosurgical partnerships in the last three quarters of 2003.

Our business strategy is to partner with physicians and healthcare providers in each of our local markets. Often we will sell equity interest in our partnerships to these strategic partners. In 2003, we commenced planned sales of portions of equity in certain lithotripsy partnerships in LGI. As a result, gains on sale of subsidiary and investment interest in 2003 were $4.5 million, of which $2.1 million was in the first quarter. We anticipate that equity sales will continue throughout 2004, although not at the levels of previous years. In the first quarter of 2004, gains on sale decreased to $0.2 million.

Our subsidiary partners’ equity in the current year net income is represented by the minority interest in consolidated subsidiaries. This minority interest will grow in total as we continue to sell interest in our subsidiaries. Our partners’ minority interest in consolidated subsidiaries grew from $4.1 million in the first quarter of 2003 to $5.5 million in the first quarter of 2004, an increase of 34.1%.

Critical Accounting Policies

Our consolidated financial statements are based on the application of accounting principles generally accepted in the United States of America, which require us to make estimates and assumptions about future events that affect the amounts reported in our financial statements and the accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Estimates and assumptions are reviewed periodically and the effects of the revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Actual results could differ from those estimates, and any such differences may be material to the financial statements. If different assumptions or conditions were to prevail, the results could be materially different from our reported results.

Consolidation

Our consolidated financial statements include the accounts of those significant subsidiaries that we control. They also include our undivided interests in these subsidiaries’ assets and liabilities. Amounts representing our percentage interest in the underlying net assets of other significant affiliates that we do not control, but over which we exercise significant influence, are included in “Investments in unconsolidated entities”; our share of the net income of these companies is included in the consolidated statement of income caption “Equity in earnings of unconsolidated partnerships”. The accounting for these non-consolidated companies is based upon the equity method of accounting. Our investments in other companies that we do not control and for which we do not have the ability to exercise significant influence as discussed above are carried at the lower of cost or fair value, as appropriate.

Revenue Recognition, Gain Recognition and Allowance for Doubtful Accounts

Net revenue includes treatment fees for medical devices in the clinical setting. Treatment revenue is primarily “wholesale” or “retail”. Wholesale revenue is generated primarily from fixed fee contracts with various medical facilities and is recorded in the month the related treatments are performed. Retail revenue, generated when we bill third party payors for medical facility and technical fees, is recorded at the time services are rendered. These third party billings may or may not be contractual. Adjustments which reduce revenue from established contractual or estimated non-contractual billing rates to amounts estimated to be reimbursable are recognized in the period the services are rendered. Differences in estimates recorded and final settlements are reported during the period final settlements are made.

We may sell medical devices to certain entities in which we have an interest and may have guaranteed a portion of the long-term obligations related to such purchases. We eliminate profits on such transactions where the purchaser is a consolidated subsidiary of ours. A pro rata portion of the profit representing our percentage of ownership will be deferred on sales to unconsolidated subsidiaries where we have accounted for our investment interest using the equity or cost basis methods of accounting (depending on our ability to exercise significant influence over the operating and financial policies of the joint venture).

Revenue is recognized upon delivery at the customer’s destination for sales of medical devices to unaffiliated entities.

Revenue generated from service contracts is recognized ratably over the life of the related contract.

We form wholly owned limited partnerships in which we are the general partner and then contribute a medical device to the partnership. We may sell interests in these partnerships to other investors. We generally recognize a gain on the interest sold as non-operating income at the time the subscription agreement is signed. Certain gains on the sale of partnership interests are deferred when payment terms exceed one year.

In order to record our accounts receivable at their net realizable value, we must assess their collectibility. A considerable amount of judgment is required in order to make this assessment including the analysis of historical bad debts and other adjustments, a review of the aging of our receivables and the current creditworthiness of our customers. We have recorded allowances for receivables which we believe are uncollectible. However, depending upon how such potential issues are resolved, or if the financial condition of any of our customers was to deteriorate and their ability to make required payments became impaired, increases in these allowances may be required.

Inventory

We are required to state our inventories at the lower of cost or market. Our inventories include medical devices, parts for servicing the medical equipment and consumables for the medical equipment. We continually evaluate the inventory for excess and obsolescence. At this time we believe that no inventory reserve is required to reduce the carrying value of our inventory to its net realizable value. However, if the demand for our products were to decline we might be required to establish such reserves.

Long-Lived Assets

We have recorded property, plant and equipment and intangible assets at cost less accumulated depreciation and amortization. The determination of useful lives and whether or not these assets are impaired involves significant judgment. We review long-lived assets, including identifiable intangible assets whenever events or changes in circumstances indicate the carrying amounts of such assets may not be recoverable. Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations accounted for as purchases. Goodwill is subject to annual testing for impairment at the reporting unit level unless events or circumstances indicate the carrying amount is impaired. Intangible assets determined to have definite lives are amortized over their remaining useful lives. Goodwill of a reporting unit is tested for impairment on an annual basis or between annual tests if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying amount.

Income Taxes

We account for income taxes in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities. They are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered or settled.

We regularly review our deferred tax assets for recoverability and establish a valuation allowance based upon projected future taxable income and the expected timing of the reversals of existing temporary differences. A valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be realized. We have established a valuation allowance for that portion of the deferred tax asset for which it is more likely than not that it will not be realized.

Derivative Instruments and Hedging

We manage risks associated with interest rates and we may use derivative instruments to hedge these risks. As a matter of policy, we do not use derivative instruments unless there is an underlying exposure and, therefore, we do not use derivative instruments for trading or speculative purposes. The evaluation of hedge effectiveness is subject to assumptions based on the terms and timing of the underlying exposures. All derivative instruments are recognized in our consolidated balance sheet at fair value. The fair value of our derivative instruments is generally based on quoted market prices.

Related Party Transactions

Transactions between related parties occur in the normal course of business. We provide services and products to our subsidiaries; our subsidiaries provide services and products to other subsidiaries. We eliminate transactions with our consolidated subsidiaries and appropriately disclose other significant related party transactions.

Recently Issued Accounting Standards

FIN 46 requires a VIE to be consolidated if a party with an ownership, contractual or other financial interest in the VIE (a variable interest holder) is obligated to absorb a majority of the risk of loss from the VIE’s activities, is entitled to receive a majority of the VIE’s residual returns (if no party absorbs a majority of the VIE’s losses), or both. A variable interest holder that consolidates the VIE is called the primary beneficiary. Upon consolidation, the primary beneficiary generally must initially record all of the VIE’s assets, liabilities and noncontrolling interests at fair value and subsequently account for the VIE as if it were consolidated based on majority voting interest. FIN 46 also requires disclosures about VIEs that the variable interest holder is not required to consolidate but in which it has a significant variable interest. We do not have any significant variable interests in a VIE and we do not consolidate any VIEs.

Liquidity and Capital Resources

We have funded our working capital requirements and capital expenditures from net cash provided by operating activities and borrowings under bank credit facilities. In conjunction with the purchase of Litho Group, we obtained a $50,000,000 credit facility. Concurrent with the acquisition of the controlling interest in HMT AG, we amended and restated the $50,000,000 credit facility to a $25,000,000 credit facility. At March 31, 2004 and December 31, 2003, we had approximately $19,500,000 and $17,737,000, respectively, outstanding under the credit facility plus additional debt of approximately $13,803,000 and $5,291,000, respectively, primarily at the subsidiary level. Under the new $25,000,000 credit facility $5,500,000 was available at March 31, 2004. Debt at the subsidiary level is typically related to 1) financing needs of our foreign operations and 2) equipment purchased and operated by our US subsidiaries and is secured by that equipment. Cash and cash equivalents increased from $9,040,000 at December 31, 2003 to $10,399,000 at March 31, 2004.

Net cash provided by operating activities for the three months ended March 31, 2004 was $93,000 compared to $878,000 used in operating activities for the three months ended March 31, 2003. This change was primarily the result of improved accounts receivable collections and the timing of distributions from subsidiaries and income tax payments offset by a decrease in after tax net income. Net cash provided by investing activities was $243,000 for the three months ended March 31, 2004 compared to $2,050,000 for the three months ended March 31, 2003. The change is due primarily to a decrease in proceeds from the sale of partnership investment interests. Net cash provided by financing activities aggregated $1,023,000 in the three months ended March 31, 2004 as compared to net cash used in financing activities of $8,635,000 for the three months ended March 31, 2003 and consisted primarily of an increase in borrowings and a decrease in payments made.

Our capital expenditures, primarily for the purchase of medical devices, aggregated $1,205,000 in the three months ended March 31, 2004. We currently estimate that our capital expenditures will aggregate approximately $4,000,000 to $5,000,000 for the year ended December 31, 2004 and will be used to purchase additional medical devices for partnerships. We continuously review new investment opportunities and believe that our financial position can support higher levels of capital expenditures, if justified by opportunities to increase revenue or decrease recurring costs. Accordingly, it is possible that our capital expenditures in 2004 could be higher than anticipated. We plan to use our cash generated from operations and borrowings under our revolving credit facility to fund these expenditures.

We believe that our cash generated from operations and borrowings under our revolving credit facility will be sufficient to meet our liquidity and capital spending needs at least through the end of 2004.

Quantitative and Qualitative Disclosure of Market Risk

We are subject to market risk from exposure to changes in interest rates on our variable rate debt. Although there can be no assurances that interest rates will not change significantly,

we do not expect changes in interest rates to have a material effect on income or cash flows in 2004. As of March 31, 2004 and December 31, 2003, our corporate-level fixed-rate debt was $0 and $12,600,000, respectively, and our corresponding corporate-level variable-rate debt was $19,500,000 and $5,100,000, respectively. Based on our variable-rate debt at March 31, 2004 and December 31, 2003, in the absence of the swaps discussed below, a one-percent change in interest rates would result in an annual change in interest rate expense calculated on a simple interest basis of approximately $195,000 and $51,000, respectively.

In order to protect us from interest rate volatility, effective February 12, 2002, we entered into two two-year interest rate swap agreements (“the swaps”) that matured on February 12, 2004. The total notional amount of swap agreements was $0 and $12,600,000 at March 31, 2004 and December 31, 2003, respectively. The swaps effectively converted a portion of our floating-rate debt to a fixed-rate basis through February 12, 2004, thus reducing the impact of interest-rate changes on interest expense. This fixed rate was 3.2525% plus the applicable percentage (2.25% and 2.50% during the first quarter of 2004 and 2003, respectively). The swaps qualified as cash flow hedges under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, and expired on February 12, 2004. We believe that our hedges were effective with changes in fair value to be reported in other comprehensive income. As of March 31, 2004 and December 31, 2003, the market value of the derivatives was a liability of approximately $0 and $32,000, respectively, which is included on the accompanying balance sheet. The change in fair values for the three months ended March 31, 2004 and 2003 is reported as other comprehensive income of approximately $32,000 and $53,000, respectively.

The counterparty to the interest rate swap agreements was a major commercial bank. We were exposed to counterparty credit risk for nonperformance and, in the event of nonperformance, to market risk for changes in interest rates.

Cautionary Statements

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties or other factors which may cause actual results, performance or achievements of HealthTronics Surgical Services to be materially different from any future results, performance or achievements express or implied by such forward-looking statements. As always, these expectations and projections are based on currently available competitive, financial, and economic data, along with operating plans, and are subject to future events and uncertainties. Among the events and uncertainties which could adversely affect future periods are: inability to establish or maintain relationships with physicians and hospitals; health care regulatory developments that prevent certain transactions with health care professionals or facilities; inability of the Company or health care providers to obtain reimbursement for use of the Company’s current or future products; competition or technological change that impacts the market for the Company’s products; difficulty integrating HMT and realizing projected cost savings; unanticipated regulatory and clinical costs related to FDA clinical trials and application for approval of HIFU; and difficulty in managing the Company’s growth. Additional factors that might cause such a difference, include, but are not limited to those discussed in the Management’s Discussion and Analysis of Financial Condition and Results of Operations in this

report and the items identified under the caption “Risk Factors” in Item 1 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003.

Item 3. Quantitative and Qualitative Disclosure of Market Risk

The information called for by this item is provided under the caption “Quantitative and Qualitative Disclosure of Market Risk” under Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 4. Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13(a)-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Form 10-Q, our disclosure controls and procedures provide reasonable assurances that the information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time period required by the United States Securities and Exchange Commission’s rules and forms.

There have been no changes in our internal control over financial reporting (as such term is defined in Rules 12a-15(f) and 15(d)-15(f) under the Exchange Act) during the period covered by this Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

In the ordinary course of its business, the Company is periodically involved as a plaintiff or defendant in various legal actions. Management believes that those claims in which the Company is a defendant are without merit or that the ultimate liability, if any, resulting from them will not materially affect the Company’s financial condition. The Company is aware that certain class action lawsuits have been filed against it alleging securities fraud. The Company believes the claims alleged in each lawsuit are without merit. The Company will vigorously defend against these claims. Given the early stage of the litigation, the Company is not in a position to determine any potential liability but it currently does not believe the lawsuits will have a significant financial impact on the Company.

Item 2. Changes in Securities and Use of Proceeds

The Company issued 800,000 shares of its common stock on March 5, 2004 in exchange for all of the shares of HMT Holding AG which gave the Company controlling interest in HMT

High Medical Technologies AG. This transaction was exempt from registration pursuant to Section 4(2) under the Securities Act of 1933.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

10.1 Distribution Agreement between HT Prostate Therapy Management Company, LLC, EDAP TMS, S.A., EDAP S.A. and Technomed Medical Systems, S.A. dated February 5, 2004 (portions of this agreement have been omitted and marked confidential [*****] and filed separately with the Commission)

31.1 Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer

31.2 Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer

32.1 Certifications required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) of Chief Executive Officer and Chief Financial Officer

(b) Reports on Form 8-K

During the first quarter of 2004, the Company filed the following current reports on Form 8-K:

	Date of Report		Description

	February 2, 2004		Furnished presentation slides of an investor presentation

	February 23, 2004		Furnished text of press release announcing an agreement to purchase HMT Holding AG

	March 9, 2004		Furnished text of press release reporting the Company’s financial results for the fourth quarter and full year 2004

	March 12, 2004		Announced acquisition of HMT Holding AG, which holds a 72.4% voting interest in HMT High Medical Technologies AG

	March 23, 2004		Furnished presentation slides of an investor presentation

SIGNATURES

Pursuant to the requirements 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.

	HEALTHTRONICS SURGICAL SERVICES, INC.

	By:	/s/ Victoria W. Beck

		Victoria W. Beck
		Chief Accounting Officer

	Date:	May 7, 2004

Exhibit Index

	Exhibit No.		Description

	10.1		Distribution Agreement between HT Prostate Therapy Management Company, LLC, EDAP TMS, S.A., EDAP S.A. and Technomed Medical Systems, S.A. dated February 5, 2004 (portions of this agreement have been omitted and marked confidential [*****] and filed separately with the Commission)

	31.1		Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer

	31.2		Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer

	32.1		Certifications required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) of Chief Executive Officer and Chief Financial Officer

EX-10.1 2 a04-4553_1ex10d1.htm EX-10.1

Exhibit 10.1

(Portions of this agreement have been omitted and marked confidential [*****] and filed separately with the Commission)

Distribution Agreement

THIS DISTRIBUTION AGREEMENT (hereinafter this “Agreement”) is made and entered into this 25th day of February, 2004 (the “Effective Date”), by and between HT Prostate Therapy Management Company, LLC, a Delaware Limited Liability Company (“HT Prostate”), and EDAP TMS S.A., a French société anonyme (“Parent Corporation”), EDAP S.A., a French société anonyme (“HIFU Subsidiary”) and Technomed Medical Systems S.A., a French société anonyme (“Manufacturing Subsidiary” and, collectively with Parent Corporation and HIFU Subsidiary, “EDAP”).

WHEREAS, HT Prostate is a wholly owned subsidiary of HealthTronics Surgical Services, Inc., a Georgia corporation (“HealthTronics”). HealthTronics and HT Prostate have expertise in gaining United States Food and Drug Administration (“FDA”) approval for the marketing of medical devices in the United States. HT Prostate and HealthTronics also have expertise in the United States of America (the “Territory”) in distributing, and providing services for, such medical devices;

WHEREAS, EDAP desires to utilize the services of HT Prostate and HealthTronics to obtain FDA approval to market a medical device that utilizes High Intensity Focused Ultrasound (“HIFU”) to provide minimally invasive treatment of prostate cancer (such medical device, the “Ablatherm”); and

WHEREAS, EDAP recognizes the substantial cost and time involved in obtaining FDA approval and therefore desires to grant HT Prostate in accordance with the terms set forth in the Transaction Documents (as defined below) (i) the exclusive distribution rights to market the Ablatherm in the Territory and (ii) a warrant to purchase 1,000,000 ordinary shares of the Parent Corporation.

NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, HT Prostate and EDAP, intending to be legally bound, agree as follows:

1. Definitions and Interpretations

1.1.	*Defined Terms*. Unless the context shall otherwise require, terms used and not defined herein shall have the following meanings:

	“Ablapak” has the meaning assigned to such term in Section 3.1.

	“Ablatherm” has the meaning assigned to such term in the recitals.

	“Ablatherm Related Devices” has the meaning assigned to such term in Section 4.1.

	“Ablatherm Related Marks” has the meaning assigned to such term in Section 8.1.

	“Agreement” has the meaning assigned to such term in the preamble.

	“Approved Limited Use” has the meaning assigned to such term in Section 5.1(c).

	“Base Year Price List” has the meaning assigned to such term in Section 6.1(c).

	“Board of Directors Resolution” has the meaning assigned to such term in Section 12.1(a).

	“Confidential Information” has the meaning assigned to such term in Section 11.

	“Disclosing Party” has the meaning assigned to such term in Section 11.

	“EDAP” has the meaning assigned to such term in the preamble.

	“EDAP Indemnified Parties” has the meaning assigned to such term in Section 10.2.

	“EDAP IP” has the meaning assigned to such term in Section 8.3.

	“EDAP Party” has the meaning assigned to such term in Section 2.1.

	“Effective Date” has the meaning assigned to such term in the preamble.

	“Escrow Agent” means Euro Emetteurs Finance S.A..

	“Escrow Agreement” means that certain Contrat de Service de Titres et de Sequestre, set forth as Exhibit D by and between Parent Corporation, HT Prostate and the Escrow Agent.

	“Exclusive Distribution Rights” has the meaning assigned to such term in Section 4.1.

	“FDA” has the meaning assigned to such term in the recitals.

	“First Renewal Term” has the meaning assigned to such term in Section 9.1.

	“HealthTronics” has the meaning assigned to such term in the recitals.

	“HIFU” has the meaning assigned to such term in the recitals.

	“HIFU Subsidiary” has the meaning assigned to such term in the preamble.

	“HT Prostate” has the meaning assigned to such term in the preamble.

	“HT Prostate Corporate Headquarters” has the meaning assigned to such term in Section 6.1(a).

	“HT Prostate Indemnified Parties” has the meaning assigned to such term in Section 10.1.

	“Initial Term” has the meaning assigned to such term in Section 9.1.

	“INSERM” has the meaning assigned to such term in Section 5.

	“Losses” means any and all liabilities, obligations, duties, demands, claims, actions, causes of action, assessments, losses, costs, damages, deficiencies, fines or expenses, including, interest, penalties, reasonable attorneys’ fees and all amounts paid in investigation, defense or settlement of any of the foregoing.

	“Manufacturing IP” has the meaning assigned to such term in Section 5.

	“Manufacturing Subsidiary” has the meaning assigned to such term in the preamble.

	“New Treatment” has the meaning assigned to such term in Section 4.1(a).

	“Parent Corporation” has the meaning assigned to such term in the preamble.

	“PMA” has the meaning assigned to such term in Section 3.1.

	“Products” has the meaning assigned to such term in Section 3.1.

	“Product Liability Claim” has the meaning assigned to such term in Section 10.3.

	“Receiving Party” has the meaning assigned to such term in Section 11.

	“Rules” has the meaning assigned to such term in Section 13.11(b).

	“Sample Devices” has the meaning assigned to such term in Section 3.3.

	“Specifications” has the meaning assigned to such term in Section 6.3.

	“Subsequent Renewal Term” has the meaning assigned to such term in Section 9.1.

	“Trainers” has the meaning assigned to such term in Section 3.5.

	“Training Program” has the meaning assigned to such term in Section 6.3.

	“Transaction Documents” means this Agreement and the Escrow Agreement.

	“Territory” has the meaning assigned to such term in the recitals.

	“Warrant Exercise Milestone” has the meaning assigned to such term in Section 12.1(b).

	“Warrants” has the meaning assigned to such term in Section 12.1(a).

1.2.	*Terms Generally.* The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. Unless the context requires otherwise, (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth therein); (b) any reference herein to any person or entity shall be construed to include such person’s or entity’s successors and permitted assigns; and (c) the words “herein”, “hereof” and “hereunder,” and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision of this Agreement and all references herein to Sections, Exhibits and Schedules shall be construed to refer to Sections, Exhibits and Schedules of this Agreement.

2. Representations and Warranties.

2.1.	*Representations and Warranties of EDAP.* Parent Corporation, HIFU Subsidiary and Manufacturing Subsidiary (each, an “EDAP Party”) represent to HT Prostate that, as of the date hereof:

	(a) Each EDAP Party is a société anonyme duly organized and validly existing under the laws of the Republic of France, with power and authority (corporate and other) to conduct its business, and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it conducts any business so as to require such qualification, except where the failure to be so qualified would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on HT Prostate.

	(b) Each EDAP Party has the corporate power and authority to execute and deliver each Transaction Document to which it is a party and to perform its obligations thereunder, and the Transaction Documents to which each EDAP Party is a party have been duly and validly authorized by such EDAP Party, and have been duly and validly executed and delivered by such EDAP Party and, assuming due authorization, execution and delivery by the other parties thereto, are valid and binding obligations of such EDAP Party, enforceable against such EDAP Party in accordance with their terms.

	(c) The execution, delivery and performance by each EDAP Party of the Transaction Documents to which it is a party will not conflict with or result in a breach or violation of any of the terms or provisions

	of, or constitute a default under, any agreement or instrument to which such EDAP Party is a party or by which such EDAP Party or any material portion of its properties or assets is bound, or result in any violation of any statute or any order, rule or regulation of any governmental authority having jurisdiction over such EDAP Party, except, in each case, as would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on HT Prostate, nor will such action result in any violation of the provisions of the statuts, corporate charter, by-laws or other constituent document of such EDAP Party.

	(d) HIFU Subsidiary is the owner of the Ablatherm Related Marks and all goodwill associated therewith and has the right and ability to grant the trademark license granted in Section 8.1. To the knowledge of HIFU Subsidiary, the use of the Ablatherm Related Marks in accordance with the terms hereof does not infringe any United States intellectual property rights of any third party.

	(e) Subject, in each case, to the rights and interests held by INSERM, EDAP owns all rights in and to the Products, is the exclusive owner of all intellectual property rights associated with the Products, and has the right to license the Products to HT Prostate in accordance with the terms of this Agreement. To the knowledge of EDAP, the use of the Products in accordance with the specification for such Products, a copy of which is attached as Schedule B, does not infringe upon the intellectual property rights of any third party. EDAP is not aware of any invention, device or equipment that is owned, operated or marketed by any third party which infringes upon EDAP’s intellectual property rights in and to the Products.

2.2.	*Representations and Warranties of HT Prostate.* HT Prostate represents to each EDAP Party that, as of the date hereof:

	(a) HT Prostate is a limited liability company duly organized and validly existing under the laws of the State of Delaware, with power and authority (corporate and other) to conduct its business, and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it conducts any business so as to require such qualification, except where the failure to be so qualified would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on any EDAP Party.

	(b) HT Prostate has the corporate power and authority to execute and deliver each Transaction Document to which it is a party and to perform its obligations thereunder, and the Transaction Documents to which HT Prostate is a party have been duly and validly authorized by HT Prostate, and have been duly and validly executed and delivered by HT Prostate and, assuming due authorization, execution and delivery by the other parties thereto, are valid and binding obligations of HT Prostate, enforceable against HT Prostate in accordance with their terms.

	(c) The execution, delivery and performance by HT Prostate of the Transaction Documents to which it is a party will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any agreement or instrument to which HT Prostate is a party or by which HT Prostate or any material portion of its properties or assets is bound, or result in any violation of any statute or any order, rule or regulation of any governmental authority having jurisdiction over HT Prostate, except, in each case, as would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on any EDAP Party, nor will such action result in any violation of the provisions of the corporate charter, by-laws or other constituent document of HT Prostate.

3.	FDA Pre-Market Approval.

3.1.	(a) HT Prostate hereby agrees to use commercially reasonable efforts to begin enrollment of patients and commence treatment on the initial patient or patients as part of the human clinical trials necessary to obtain Pre-Market Approval from the FDA (“PMA”) to market the Ablatherm and the single-use consumable used with the Ablatherm in patient treatment (the “Ablapak”, and together with the Ablatherm, the “Products”) in the Territory as a primary treatment for prostate cancer within one (1) year of the Effective Date of this Agreement. HT Prostate shall use commercially reasonable efforts to complete the necessary patient enrollment in the requisite clinical trials for the Products not later than eighteen (18) months following its receipt of full approval of the investigational device exemption for the Products from

	the FDA. HT Prostate shall use its best efforts to obtain the PMA from the FDA to market the Products in the Territory within five (5) years of the Effective Date of this Agreement.

	(b) On a twice-yearly basis, HT Prostate shall provide EDAP with a written update regarding HT Prostate’s progress in obtaining a PMA for the Products and, as applicable, any Ablatherm Related Device. Such updates shall include details regarding the clinical trials (including patient enrollment numbers) and all submissions to, and correspondence with, the FDA during such period. In addition, prior to making any submission to the FDA regarding the Products or any Ablatherm Related Device, HT Prostate shall (i) provide EDAP copies of any such proposed submission materials and (ii) reasonably consider any comments or proposed changes EDAP may make with respect to such submission materials.

3.2.	HT Prostate will pay all costs associated with obtaining a PMA for the Products, except as specifically detailed in Sections 3.3, 3.4, 3.5 and 3.6 of this Agreement.

3.3.	EDAP shall provide **** Ablatherm devices (the “Sample Devices”) to HT Prostate during the clinical trial period prior to submitting the PMA application to the FDA. Upon submission of the PMA application and continuing until 6 months after approval of the PMA application, HT Prostate will have the option to purchase the Sample Devices at ************************ determined as of the date the PMA application is submitted to the FDA,****************************************************************.

3.4.	During the clinical trials and prior to receipt of PMA for the Products, EDAP shall provide to HT Prostate at no cost, (a) all the Ablapaks required for and used in clinical trials and (b) the parts required to keep the Sample Devices in proper working order. EDAP’s requirement to provide Ablapaks at no cost to HT Prostate, however, shall not exceed the amount necessary for use in clinical trials on the total number of patients required to be enrolled in order to obtain PMA for the Products, plus an additional amount for ordinary course spoilage and/or breakage, not to exceed 10 Ablapaks.

3.5.	EDAP shall provide training at the offices of EDAP to 4 technicians of HT Prostate (or its service affiliate) (the “Trainers”) to enable the Trainers to (a) maintain and service the Products and any Ablatherm Related Devices and (b) train and authorize other HT Prostate technicians to service the Products and any Ablatherm Related Devices and to provide treatment services with the Products and any Ablatherm Related Devices, at no charge to HT Prostate until PMA is obtained; provided that HT Prostate shall pay the cost of any honorariums that EDAP is required to pay in connection with such training. Further, HT Prostate shall pay all travel, accommodation and other reasonable expenses for such Trainers in connection with their training. HT Prostate shall bear all costs associated with the training of all HT Prostate technicians other than the Trainers. No person, other than a Trainer, may authorize or train any other HT Prostate technician.

3.6.	For so long as HT Prostate is conducting clinical trials of the Products in accordance with the terms of this Agreement, EDAP shall pay the cost of any honorariums in connection with not more than three healthcare educational experts’ visits to the United States each year. EDAP’s requirement to pay the cost of any such honorariums, however, shall be limited to those costs associated with visits not exceeding, in the aggregate, twenty-one (21) days per year. The identity of such visiting experts and the schedule of visits shall be mutually agreed by the parties. HT Prostate will arrange and pay all travel, accommodation and other reasonable expenses for such experts.

3.7.	HT Prostate shall pay all associated costs for testing the Products in Europe if required in connection with obtaining PMA.

3.8.	(a) HT Prostate shall be the sole and exclusive owner of the PMA for (i) the Products and (ii) any Ablatherm Related Device for which HT Prostate obtains Exclusive Distribution Rights pursuant to Section 4, upon approval and grant by the FDA. However, should HT Prostate abandon the Ablatherm, begin distributing a competing HIFU technology, or fail to meet its purchase commitments during the Initial Term, as described in sections 4.2 and 9.1 below, or if this Agreement is otherwise terminated in accordance with Section 9, ownership of the PMA shall transfer to EDAP, and HT Prostate, promptly and at its sole expense, shall execute such deeds, assignments, endorsements and other instruments and

	documents and shall take such further actions as shall be necessary to effect such transfer, including providing the FDA notice of such transfer. In the event of such transfer of ownership unless the transfer occurs because of a material breach by HT Prostate of Section 5 or Section 8 hereof, EDAP shall license such PMA to HT Prostate on a non-exclusive basis to market the Products purchased from EDAP prior to such transfer.

	(b) Promptly following any transfer of the PMA to EDAP as described in paragraph (a) of this Section 3.8, HT Prostate shall provide to EDAP all supportive materials and data substantiating representations made to the FDA or any other U.S. governmental authority in its filings therewith in relation to the Products and any Ablatherm Related Device, including any and all testing data in the possession, or under the control, of HT Prostate or HealthTronics, whether or not submitted to the FDA or any other U.S. governmental authority.

3.9.	HT Prostate shall deliver to EDAP in electronic format such labeling for the Products and any Ablatherm Related Device for which HT Prostate obtains Exclusive Distribution Rights in accordance with Section 4 as is required by the FDA, whether upon receipt of PMA or at any time thereafter, including physicians’ manuals, training manuals and maintenance manuals. HT Prostate shall deliver such labeling in a timely manner in order to allow EDAP to comply with any such FDA requirements in the manufacture, labeling and delivery of the Products and any Ablatherm Related Device for which HT Prostate obtains Exclusive Distribution Rights in accordance with Section 4.

3.10.	HT Prostate shall comply in all respects with all applicable laws, regulations and orders to which it may be subject that relate to its performance of obligations under this Agreement including all FDA rules, regulations and procedures. HT Prostate will use its best efforts to maintain in full force and effect all consents, approvals and clearances of any governmental or other regulatory authority that are required to be obtained by it to perform this Agreement and will use its best efforts to obtain any that may become necessary in the future.

4.	Exclusive Distributor.

4.1.	Subject to receipt by HT Prostate of PMA for the Products and pursuant to the terms of this Agreement:

	(a) EDAP hereby appoints HT Prostate, and HT Prostate hereby accepts its appointment, as the exclusive distributor of the Products in the Territory. Such distribution rights (the “Exclusive Distribution Rights”) shall also include the exclusive distribution rights for any and all devices or processes currently or subsequently manufactured or distributed at any time by EDAP for the treatment of prostate cancer in each case, that are an improvement, new model or new version of the Ablatherm (such devices, together with their related consumable, if any, “Ablatherm Related Devices”), all pursuant to the terms of this Agreement; provided, that HT Prostate at its own cost and expense obtains the necessary FDA approvals for distribution of such devices in the Territory; provided, further that in the event HT Prostate does not desire Exclusive Distribution Rights with respect to any Ablatherm Related Device, it shall nonetheless use its best efforts to obtain the necessary FDA approvals for such device so long as EDAP reimburses HT Prostate for any reasonable costs so incurred. In the event EDAP wishes to obtain a PMA for, and distribute (or have distributed) in the Territory any device or process manufactured or distributed by EDAP for the treatment of prostate cancer other than the Products or any Ablatherm Related Device (a “New Treatment”) then EDAP shall offer HT Prostate the right to obtain the PMA and to act as the exclusive distributor for such New Treatment on terms (including timing, price and quantity) reasonably negotiated by EDAP and HT Prostate. If EDAP and HT Prostate fail to negotiate the terms of such agreement within 90 days, EDAP shall be free to itself, or through any third party of its choosing, obtain a PMA for, and distribute such New Treatment in the Territory; provided that EDAP shall not permit a third party to obtain such PMA or distribute such New Treatment in the Territory except on terms substantially equivalent to the terms initially offered to HT Prostate.

	(b) EDAP agrees that it will not, directly or indirectly, sell, distribute, or offer treatment with, the Ablatherm or any Ablatherm Related Device, in the Territory, other than pursuant to this Agreement.

	EDAP shall include in its contracts for sale of the Ablatherm or any Ablatherm Related Device for which HT Prostate has Exclusive Distribution Rights in accordance with this Section 4 outside the Territory limitations prohibiting resale or shipment by the purchaser of such Ablatherms or such Ablatherm Related Devices into the Territory (and requiring any such subsequent purchaser to include such contractual limitations upon its resale or shipment of the Ablatherm or other such devices); provided, that such provisions are legally enforceable in the relevant jurisdictions in the reasonable judgment of EDAP. EDAP will use commercially reasonable efforts to monitor and enforce such contractual restrictions for sales outside the Territory.

	(c) HT Prostate agrees that it will not, directly or indirectly, sell, distribute, or offer treatment with, the Ablatherm or any Ablatherm Related Device, outside the Territory. HT Prostate shall include in its contracts for sale of the Ablatherm or any Ablatherm Related Devices in the Territory limitations prohibiting resale or shipment by the purchaser of such Ablatherms or Ablatherm Related Devices outside the Territory (and requiring any such subsequent purchaser to include such contractual limitations upon its resale or shipment of the Ablatherm or other such devices); provided, that such provisions are legally enforceable in the relevant jurisdictions in the reasonable judgment of HT Prostate. HT Prostate will use commercially reasonable efforts to monitor and enforce such contractual restrictions for sales in the Territory.

	(d) EDAP will refer all inquiries for purchase or use of the Products or Ablatherm Related Devices in the Territory to HT Prostate. HT Prostate will refer all inquiries for purchase or use of the Products or Ablatherm Related Devices outside the Territory to EDAP.

4.2.	In order to retain the Exclusive Distribution Rights, following receipt of PMA for the Products, HT Prostate must purchase Products, Ablatherm Related Devices, or repair parts or services for the Products or the Ablatherm Related Devices from EDAP worth at least ************************ per year and an average of ************************************* per year, such average to be calculated at the end of each *********** term in accordance with Section 9.1; provided, however, that HT Prostate shall have no further purchase requirement in the event it receives manufacturing rights for all Products and Ablatherm Related Devices for which HT Prostate obtains Exclusive Distribution Rights under Section 5.

4.3.	EDAP shall deliver those Products and Ablatherm Related Devices ordered by HT Prostate in a manner ready for distribution by HT Prostrate in the Territory. HT Prostate shall not relabel, repackage or otherwise modify any such Product or device and shall distribute any such Product or device as the same was received by HT Prostate from EDAP, unless as otherwise negotiated pursuant to Section 4.4 below.

4.4.	Upon request of either party and as permitted by applicable law, the parties shall negotiate in good faith the terms of a co-branding arrangement for the Products and any Ablatherm Related Devices in the Territory.

5.	Manufacturing Rights.

5.1.	(a) In the event EDAP is unable and unwilling to manufacture and deliver any medical device for which HT Prostate has Exclusive Distribution Rights (or any consumable of such device) and for which HT Prostate has received the necessary FDA approvals, HT Prostate may request manufacturing rights for such device (or the related consumable).

	(b) Following delivery of any such manufacturing rights request, if EDAP:

		(i) consents to such request; or

		(ii) otherwise remains unable or unwilling to manufacture and deliver any such device (or related consumable), as evidenced by EDAP’s failure to make available for delivery to HT Prostate any such device or consumable (other than any such failure caused by any of the factors described in Section 13.1) for a period exceeding (A) 180 days following such request if EDAP is

		unable to manufacture and deliver any such device or consumable due to regulatory or legal constraints or (B) 90 days following such manufacturing rights request in other circumstances, then EDAP shall comply with such manufacturing rights request as set forth in paragraph (c) of this Section 5.

	(c) EDAP shall grant to HT Prostate an exclusive, royalty-free, non-transferable, non-sublicensable, non-assignable license to EDAP’s patents and know-how (including technical drawings), in each case, that directly relate to the manufacture of such device or consumable solely as and to the extent necessary to enable HT Prostate to manufacture and distribute such device or consumable in the Territory (the “Approved Limited Use”) for a period of ten (10) years from the date granted (such patents and know-how, the “Manufacturing IP”); provided, that in the case of any such patents which EDAP jointly owns with the Institut National de la Santé et de Recherche Médicale (“INSERM”), EDAP shall use commercially reasonable efforts to itself license or to cause INSERM to license such patents to HT Prostate. From and after the date HT Prostate is granted any such license, HT Prostate shall be liable for any royalty or other amounts owing to INSERM (including amounts owed by EDAP as a result of the grant of such license to HT Prostate), if any, in connection with the use of any such patent by HT Prostate. EDAP shall use commercially reasonable efforts to provide HT Prostate access to such accessories, disposables or service parts necessary in order to maintain or use any such devices which EDAP is no longer willing to manufacture or is unable to manufacture on the terms provided herein at such cost as is mutually agreeable to the parties at such time. Upon such grant, EDAP, with the cooperation and assistance of HT Prostate and at HT Prostate’s sole expense, shall use commercially reasonable efforts to prepare and record the license as it pertains to patents before the National Patent Registry in France and before the European Patent Office.

6.	Device Sales.

6.1.	(a) EDAP shall supply the Ablatherm or any Ablatherm Related Device as distributed pursuant to the terms of this Agreement to HT Prostate at a price of [***] per device due 30 days after receipt of such device by HT Prostate in the Territory at its offices, at the address set forth on the signature page below or at any other address HT Prostate designates by notice to EDAP (such address, the “HT Prostate Corporate Headquarters”). In the event that HT Prostate obtains Exclusive Distribution Rights with respect to any Ablatherm Related Device, the parties shall negotiate in good faith the applicable price for such device. However, EDAP agrees to renegotiate the price of the Ablatherm or any Ablatherm Related Device if HT Prostate is not able, after diligent efforts, to secure at least a [***] margin on the resale of such Ablatherm or Ablatherm Related Device in the Territory.

	(b) EDAP shall supply Ablapaks used by the Ablatherm or any consumable required for use with any Ablatherm Related Device as distributed pursuant to the terms of this Agreement to HT Prostate at a price of [**] per unit due 30 days after receipt of such consumable by HT Prostate at the HT Prostate Corporate Headquarters. However, EDAP agrees to renegotiate the price of the Ablapak if HT Prostate is not able, after diligent efforts, to secure at least a [****] margin on the resale or use of the Ablapak.

	(c) EDAP shall supply to HT Prostate all repair parts and supplies for the Ablatherm or any Ablatherm Related Device at the US dollar equivalent price of the prices listed in EDAP’s 2004 Ablatherm Distributors Price List (“Base Year Price List”), a copy of which is attached as Schedule C. EDAP agrees that the prices listed in the Base Year Price List shall not increase until one year following receipt of PMA for the Products. Thereafter, EDAP further agrees that the prices in the Base Year Price List shall not increase by more than [*******] for a period of 10 years; provided, that EDAP shall use reasonable efforts to pass along any cost savings it realizes on such parts and supplies to HT Prostate.

	(d) EDAP will deliver ordered Products “Ex-Works,” as defined in Incoterms 2000 (published by the International Chamber of Commerce) by placing the Products at the disposal of HT Prostate at EDAP’s manufacturing facility in Lyon, France on the specified delivery date.

6.2.	The prices quoted in Section 6.1(a) and Section 6.1(b) shall not increase during the first ********* following receipt of PMA for the Products. Thereafter, the parties shall negotiate prices but in no event will any price quoted herein increase by more than *******.

6.3.	EDAP warrants that, for a period of **** months, each Product and Ablatherm Related Device shall be free of defects and shall perform substantially in accordance with the specifications for such Product or device (the “Specifications”), as such Specifications may be amended from time to time by notice to HT Prostate. (A copy of the Product Specifications as of the date hereof is attached as Schedule B.) The -month period will begin upon HT Prostate’s placement of such Product or Ablatherm Related Device in service, however the warranty period shall not extend beyond ** months after shipment to HT Prostate in accordance with Section 6.1(d). During the warranty period, HT Prostrate’s sole remedy for breach of the warranty shall be that EDAP will repair or replace all Products or Ablatherm Related Devices that are defective; provided, that EDAP shall not be obligated to repair or replace any Product or Ablatherm Related Device not functioning as a result of damage caused or misuse by HT Prostate, any sub-distributor or the end user and provided, further, that any warranty provided by EDAP shall be void if the applicable Product or Ablatherm Related Device is repaired or serviced by any person not trained or authorized by EDAP to make such repair or provide such service or if it is repaired using parts not provided by EDAP. Any person trained by a Trainer to make such repair or provide such service in accordance with the training materials and other certification guidelines provided by EDAP (as such materials may be updated from time to time, the “Training Program”) shall be deemed to be authorized by EDAP upon its receipt of written confirmation from HT Prostate that such person has been trained in accordance with the Training Program. EDAP will supply to HT Prostate at no charge a basic stock of spare parts that will include at least one of each component used in the Ablatherm and any Ablatherm Related Device.

6.4.	Following receipt of PMA for the Products, HT Prostate shall provide EDAP with a six (6) month rolling forecast of HT Prostate’s anticipated product needs during the term of this Agreement. The forecast will contain two levels of order commitment. The first ninety (90) days will be a firm order and will be fixed with respect to both quantity and delivery date, as mutually agreed upon by EDAP and HT Prostate. The second ninety (90) days will be a forecast and will contain HT Prostate’s current estimate of demand for the Products and Ablatherm Related Devices and will be provided only for EDAP’s planning purposes.

7.	Training. EDAP agrees to provide, at no charge to HT Prostate, a mutually agreed upon reasonable amount of training and education at the offices of the Parent Corporation to 5 designated employees of HT Prostate with respect to the sales, marketing and use of the Products described in this Agreement; provided, that HT Prostate shall pay the cost of any honorariums that EDAP is required to pay in connection with such training. HT Prostate shall pay all travel, accommodation and other reasonable expenses for the trainees identified by HT Prostate.

8.	Intellectual Property.

8.1.	*License.* HIFU Subsidiary hereby grants HT Prostate, and HT Prostate hereby accepts, an exclusive, royalty-bearing, non-assignable, non-transferable, non-sublicensable license to use the trademarks, proprietary names and other marks set forth in Schedule A (the “Ablatherm Related Marks”) in the Territory during the term of this Agreement solely for the purpose of marketing, distributing and providing services for the Products and Ablatherm Related Devices as permitted herein. In consideration for this exclusive license, HT Prostate agrees to pay EDAP an amount equal to 10% of the sales price of the Products sold to HT Prostate by EDAP. Both EDAP and HT Prostate agree that this royalty is included in the sales prices referenced in, or determined pursuant to, Section 6 of this Agreement. In marketing and distributing the Products and Ablatherm Related Devices, HT Prostate shall use the Ablatherm Related Marks only and shall not use any other trademark, proprietary name or other mark on any Product or Ablatherm Related Device except as may be provided pursuant to Section 4.4. HT Prostate shall use the Ablatherm Related Marks in the same style, typeface and graphic appearance as specified by HIFU Subsidiary, unless otherwise approved in writing by HIFU Subsidiary. HT Prostate shall not use the Ablatherm Related Marks in any other manner, either alone or in combination with any other word, mark, logo or symbol, except with the prior written consent of HIFU Subsidiary. The exercise of HT Prostate’s rights to manufacture the Products under Section 5 and the subsequent removal of purchase requirements or

	royalty fees shall not terminate or affect the license provided herein. At HT Prostate’s expense, EDAP shall record the trademark license granted herein with the National Trademark Registry. Following termination of this Agreement (other than a termination for material breach by HT Prostate of Section 5 or this Section 8), HT Prostate shall have a limited non-exclusive, non-assignable, non-transferable, non-sublicensable license to use the Ablatherm Related Marks solely for the purpose of (i) providing services for Products or Ablatherm Related Devices purchased during the term of this Agreement and (ii) advertising its provision of such services. The limited license shall continue only for so long as HT Prostate continues to provide such services and shall automatically terminate, without the need for any action by any party, thereafter.

8.2.	*Quality Control.* HT Prostate acknowledges that the Ablatherm Related Marks have established extremely valuable goodwill and reputation, and are well recognized among EDAP’s customers, and that it is of great importance to HIFU Subsidiary that these high standards and reputation be maintained. Accordingly, in its use of the Ablatherm Related Marks, HT Prostate shall at all times maintain the high quality control standards for products and services relating to the use of such trademarks that are substantially equivalent to or stricter than the standards used by HT Prostate relating to the use of its trademarks or such other standards as may be provided by written notice by HIFU Subsidiary to HT Prostate. HIFU Subsidiary shall have the right to exercise quality control over the use by HT Prostate of the Ablatherm Related Marks to the degree necessary, in its reasonable opinion, to maintain the validity and enforceability of the Ablatherm Related Marks and to protect the goodwill associated therewith. In furtherance of the foregoing, upon the reasonable request of HIFU Subsidiary, HT Prostate shall supply HIFU Subsidiary with samples of any marketing or promotional materials used by HT Prostrate in connection with the Products or any other Ablatherm Related Device.

8.3.	*Ownership.* HT Prostate acknowledges that, as between the parties: (a) one of the EDAP Parties is the owner of all right, title and interest in and to (i) the Ablatherm Related Marks (including all goodwill associated therewith) and (ii) all of the Manufacturing IP, (together with the Ablatherm Related Marks, the “EDAP IP”), and all legal protections with respect to the EDAP IP remain exclusively with the EDAP Party that is the owner thereof; and (b) except as expressly provided herein, it receives no proprietary rights whatsoever in or to the EDAP IP; (c) all goodwill and improved reputation generated by its use of any Ablatherm Related Marks shall inure solely to the benefit of HIFU Subsidiary; and (d) upon the termination of (i) this Agreement and (ii) the trademark licenses granted herein for any reason, all goodwill in the Ablatherm Related Marks that may be held by HT Prostate notwithstanding the foregoing shall be and hereby is assigned to HIFU Subsidiary, without the need for any further action by an person or entity, and, in any event, HT Prostate shall cooperate with EDAP to take any action reasonably necessary to effect such assignment, which cooperation shall be provided without any additional consideration. For the avoidance of doubt, nothing herein is intended to give any EDAP Party any rights in any trademark of HT Prostate.

8.4.	*Notification.* During the term of this Agreement and for any period thereafter during which HT Prostate is using any EDAP IP pursuant to a license from EDAP, HT Prostate shall notify EDAP immediately of any threat, warning or notice of any claim or action adverse to any EDAP Party’s rights in the EDAP IP of which HT Prostate may become aware from time to time.

8.5.	*No Inconsistent Action.* HT Prostate shall not take any action inconsistent with the acknowledgments or agreements set forth in this Section 8, or inconsistent with any EDAP Party’s rights in the EDAP IP. Without limiting the foregoing, HT Prostate shall not during the term of this Agreement and for any period thereafter during which HT Prostate is using any EDAP IP pursuant to a license from EDAP undertake to apply for intellectual property protection for the EDAP IP or any portion thereof. HT Prostate shall not: (a) use the EDAP IP in any way that may tend to impair the validity of any EDAP Party’s rights therein; or (b) take any other action that in any EDAP Party’s reasonable opinion would jeopardize or impair such EDAP Party’s rights in the EDAP IP or its validity or enforceability.

8.6.	*Valuable Property.* HT Prostate acknowledges and agrees that since the EDAP IP incorporates valuable trade secrets, any material violation by it of its obligations with respect to the EDAP IP hereunder may cause the EDAP Parties irreparable injury not compensable by money damages and for which the EDAP Parties may have no adequate remedy at law.

8.7.	*Enforcement and Protection of Intellectual Property Rights; Cooperation of HT Prostate.* The enforcement and protection, including the decision of whether or not to prosecute infringements or maintain registrations of the EDAP Parties’ rights in any EDAP IP will be in the sole discretion and control of the applicable EDAP Party and any and all recoveries resulting from such actions will be retained by such EDAP Party. HT Prostate agrees that it shall execute such documents and provide such additional cooperation to the applicable EDAP Party, at such EDAP Party’s expense, as such EDAP Party reasonably may request in order to perfect, evidence, protect or secure the EDAP IP and to conduct such prosecution, registration or defense.

8.8.	*Modifications.* To the extent any EDAP Party improves or modifies any Product or any Ablatherm Related Device in response to information supplied to any EDAP Party by HT Prostate, HT Prostate acknowledges and agrees that any such improvement or modification and all intellectual property rights therein are the sole and exclusive property of the EDAP Party making such modification or improvement.

8.9.	*Abandonment.* All limitations on HT Prostate provided in this Section 8 in regards to EDAP IP shall terminate with respect to any EDAP IP abandoned by EDAP.

9.	Term and Termination.

9.1.	*Term.* The term of this Agreement will commence on the date first written above and, unless earlier terminated as set forth below, continue for a period of ************ from the date HT Prostate receives PMA for the Products (the “Initial Term”). This Agreement will renew automatically for an additional successive ********** term (the “First Renewal Term”) upon the termination of the Initial Term; provided, that (a) HT Prostate has met its commitment to purchase at least ******************************* per year during the Initial Term and an average of ******************************* per year during the Initial Term, such average to be calculated at the end of the Initial Term, in each case worth of Products, Ablatherm Related Devices, or repair parts or services for the Products or Ablatherm Related Devices or (b) any failure to meet such purchase commitment is waived by EDAP, in its sole discretion. Following the completion of the First Renewal Term, this Agreement will renew for additional successive *********** terms (individually, “Subsequent Renewal Term”) unless either party gives the other party written notice of termination at least thirty (30) days prior to the end of the then-current term.

9.2.	*Default.* The foregoing notwithstanding, a party by written notice of default to the other party, may terminate this Agreement (a) if the other party breaches a material provision of this Agreement and the breach is incurable or the breaching party does not cure such material breach within forty-five (45) calendar days after receipt of written notice of the material breach; or (b) immediately upon the other party’s insolvency, institution of bankruptcy, commencement of liquidation proceedings or the appointment of a trustee or receiver of the other party’s property or business. For avoidance of doubt, the following shall be considered material breaches, subject to the cure period set forth in subsection 9.2(a) above: any failure by any party to pay an amount when due and payable under the Agreement and any failure by HT Prostate to comply with its obligations pursuant to Sections 3.1(a), 3.2, 3.7, 3.8, 3.9, 3.10, 4.1, 4.2 or 8. A breach of Section 3.1(b) or 6.4 shall not constitute a material breach for purposes of this Section 9.2.

9.3.	*Termination.* Upon termination of this Agreement for any reason except for a material breach by EDAP or is EDAP meets any requirement of Section 9.2(b), HT Prostate’s Exclusive Distribution Rights and, except as otherwise expressly provided herein, all licenses to use any EDAP IP shall terminate and EDAP shall have the right to distribute the Products and any Ablatherm Related Device for which HT Prostate had obtained Exclusive Distribution Rights pursuant to Section 6 described herein directly or through another distributor in the Territory. Notwithstanding the foregoing, following any such termination (other than a termination as a result of a breach by HT Prostate of Section 8) HT Prostate shall retain the right to market and utilize any Products and Ablatherm Related Devices purchased from EDAP during the term of this Agreement and any Products or Ablatherm Related Devices manufactured by HT Prostate pursuant to, and in accordance with the terms of, any manufacturing rights it may receive under Section 5. Each party’s rights and obligations under this Section 9.3 and Sections 3.8, 9.4, 10, 11 and 13 shall survive any termination of this Agreement, as shall any other rights and obligations which the parties herein expressly agree shall survive such termination.

9.4.	*Disclaimer of Warranties.* EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN SECTION 2 AND SECTION 6.3 OR EXCEPT AS OTHERWISE STATED HEREIN, NO EDAP PARTY, ANY OF THEIR RESPECTIVE AFFILIATES, THIRD-PARTY VENDORS, CONTRACTORS, OR TECHNOLOGY SUPPLIERS, OR ANY OF THE FOREGOING PERSONS’ RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS MAKES ANY REPRESENTATION OR WARRANTY TO HT PROSTATE OR ANY OTHER PERSON AS TO THE ABLATHERM, ABLAPAK, OR ANY ABLATHERM RELATED DEVICE OR ANY CONSUMABLE RELATED THERETO (INCLUDING, IN EACH CASE, ANY SOFTWARE THEREIN OR USED IN CONNECTION THEREWITH), WHETHER EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, ANY WARRANTY OF NON-INFRINGEMENT, OR ANY WARRANTY REGARDING THE USE OF OR INABILITY TO USE, OR THE RESULTS OF, THE ABLATHERM, ABLAPAK, ANY ABLATHERM RELATED DEVICE AND ANY CONSUMABLE RELATED THERETO (INCLUDING, IN EACH CASE, ANY SOFTWARE THEREIN OR USED IN CONNECTION THEREWITH) OR ANY WARRANTY THAT THEY WILL CONFORM TO ANY DESCRIPTION THEREOF, BE FREE OF ERRORS OR DEFECTS OR PERFORM ANY DESIRED OPERATIONS OR FUNCTIONS. HT PROSTATE AGREES THAT, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN OR AS EXPRESSLY SET FORTH IN SECTION 2 AND SECTION 6.3, THE ABLATHERM, ABLAPAK, OR ANY ABLATHERM RELATED DEVICE OR ANY CONSUMABLE RELATED THERETO (INCLUDING, IN EACH CASE, ANY SOFDTWARE THEREIN OR USED IN CONNECTION THEREWITH) ARE PROVIDED ON AN “AS IS” BASIS AT HT PROSTATE’S SOLE RISK. FURTHER, WITHOUT LIMITING THE WARRANTIES EXPRESSELY STATED HEREIN, EACH EDAP PARTY EXPRESSLY DISCLAIMS, AND HT PROSTATE WAIVES, ANY AND ALL IMPLIED WARRANTIES, INCLUDING WARRANTIES OF NON-INFRINGEMENT, MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.

10.	Indemnification.

10.1.	*Indemnification by EDAP.* Subject to the terms and conditions of this Section 10, EDAP agrees to indemnify and hold harmless HT Prostate, including any of its directors, officers, employees or agents (the “HT Prostate Indemnified Parties”) from and against any and all Losses resulting from any third-party claim arising from a breach of any of the representations and warranties or covenants of any EDAP Party contained in this Agreement.

10.2.	*Indemnification by HT Prostate.* Subject to the terms and conditions of this Section 10, HT Prostate agrees to indemnify and hold harmless each EDAP Party, including any of its directors, officers, employees or agents (the “EDAP Indemnified Parties”) from and against any and all Losses resulting from any third- party claim arising from a breach of any of the representations and warranties or covenants of HT Prostate contained in this Agreement.

10.3.	*Indemnification for Product Liability Claims.* Subject to Section 6.3:

	(a) each of the EDAP Parties will also indemnify and hold harmless the HT Prostate Indemnified Parties, against all Losses arising from any claims, threatened or actual, for product liability, including product liability claims brought under the Employee Retirement Income Security Act of 1974 (each, a “Product Liability Claim”) in so far as such Losses result from (i) subject in each case to the exceptions to EDAP’s warranty in Section 6.3, the failure of a Product or Ablatherm Related Device to operate in accordance with the specifications therefor, (ii) a material defect in the design or manufacture by any EDAP Party of any such Product or device, (iii) the servicing or repair by any EDAP Party, any Trainer or any technician trained by a Trainer in accordance with the Training Program of the Products or any Ablatherm Related Device relating thereto, (iv) the training by EDAP of the Trainers or (v) actions or omissions directly attributable to any EDAP Party; and

	(b) HT Prostate will also indemnify and hold harmless the EDAP Indemnified Parties, against all Losses arising from any Product Liability Claim in so far as such Losses result from (i) the manufacture or modification by HT Prostate or any of its affiliates of the Products, any Ablatherm Related Device or repair parts relating thereto, (ii) the servicing or repair by any person or any Product, Ablatherm Related Device

	or repair parts other than as authorized by EDAP, (iii) the marketing, distribution or installation of any Product or Ablatherm Related Devices in the Territory, (iv) the training of any technicians, other than the Trainers, for servicing, repair or use of the Products or the Ablatherm Related Devices to the extent such training was not in accordance with the Training Program, (v) any use by HT Prostate or any of its customers or transferees of any Product or Ablatherm Related Device other than in accordance with the labeling therefore, (vi) failure to properly maintain any such Product or device or to properly train any user of any such Product or device or (vii) actions or omissions directly attributable to HT Prostate or any of its affiliates, employees or sub-distributors.

	For avoidance of doubt, the parties hereby agree that the indemnification rights and obligations set forth in this Section 10.3 shall be the sole indemnifications rights and obligations of the parties in relation to any Product Liability Claim.

10.4.	*IP Claims.* In regards to any third party claim, action or demand relating to use by HT Prostate of the EDAP IP in accordance with the terms hereof in the event that any such intellectual property in the opinion of EDAP is likely to or does become the subject of a claim, action, suit or other proceeding EDAP shall at its option and expense, procure for HT Prostate the right to continue using such intellectual property, modify the intellectual property to make it non infringing or substitute intellectual property of similar capability.

10.5.	Each party’s indemnification obligations under this Section 10 are conditioned on the indemnified party’s giving the indemnifying party (a) prompt written notice of any claim for which indemnification is sought; (b) complete control of the defense and settlement of such claim if requested by the indemnifying party; and (c) assistance and cooperation in such defense as the indemnifying party may reasonably request; provided, that reasonable out-of-pocket expenses incurred by the indemnified party in connection with such assistance shall be reimbursed promptly by the indemnifying party.

10.6.	This indemnity shall survive the termination of this Agreement.

10.7.	Each of EDAP on the one hand, and HT Prostate on the other, must maintain, at its own cost, product liability insurance from an insurance carrier acceptable to the other with respect to the Products and Ablatherm Related Devices sold and/or used in the Territory in an amount and form acceptable by the other until such date as HT Prostate notifies EDAP that no Products or Ablatherm Related Devices purchased or manufactured by HT Prostate pursuant to this Agreement are being used in the Territory and for a 10 year period following such date. Each party shall use commercially reasonable efforts to include the other as an “also insured” party on such product liability insurance and deliver to the other party a certificate of insurance from its insurance carrier confirming such coverage prior to the shipment of the first Product in accordance with Section 6.1(d) and thereafter within sixty (60) days of the annual renewal of such policy..

10.8.	Notwithstanding any other provision of the Agreement, the foregoing states the entire liability and obligation of each party with respect to claims of infringement of any intellectual property made by third parties arising under or related to this Agreement.

10.9.	*Limitation of Liability.* EXCEPT WITH RESPECT TO CLAIMS UNDER SECTION 10 AND 11 OR CLAIMS RESPECTING GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, IN NO EVENT SHALL ANY PARTY OR ITS AFFILIATES, THIRD PARTY VENDORS, CONTRACTORS OR TECHNOLOGY SUPPLIERS OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, OR AGENTS BE LIABLE FOR ANY SPECIAL, INDIRECT, EXEMPLARY, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES RELATING IN ANY MANNER TO THIS AGREEMENT OR USE OF OR INABILITY TO USE THE ABLATHERM, ABLAPAK, OR ANY ABLATHERM RELATED DEVICE OR ANY CONSUMABLE RELATED THERETO (INCLUDING, IN EACH CASE, ANY SOFTWARE THEREIN OR USED IN CONNECTION THEREWITH), REGARDLESS OF THE FORM OF ACTION (INCLUDING NEGLIGENCE AND STRICT LIABILITY), WHETHER OR NOT SUCH PERSONS HAVE BEEN ADVISED OF OR ANTICIPATED THE POSSIBILITY OF SUCH DAMAGES AND REGARDLESS OF WHETHER SUCH DAMAGES COULD HAVE BEEN FORESEEN.

11.	Confidentiality.

	(a) Each party acknowledges that it may be given access to confidential information (“Confidential Information”) of the other disclosed during the term of this Agreement, including ideas, trade secrets, procedures, methods, systems, concepts, technology, program code, source code, user interfaces, displays, file layouts, algorithms, inventions, technical know-how improvements, data, files, information relating to suppliers and customer identities and lists, records, business and marketing plans, user, training and operational manuals, printed collateral documentation and all similar information and other proprietary property of the parties, whether disclosed orally or in writing or by any other media. Notwithstanding the foregoing, upon disclosure of a referral customer under the terms of this Agreement, such customer shall no longer be deemed confidential or a trade secret of the referring party in regards to the party to whom it was disclosed. Each party (the “Receiving Party”) acknowledges that the Confidential Information of the other party (the “Disclosing Party”) contains valuable trade secrets and other proprietary information of the Disclosing Party and that any such Confidential Information will remain the sole and exclusive property of the Disclosing Party.

	(b) Each party will use the Confidential Information provided hereunder only for purposes directly related to the purpose for which it was provided and will further restrict disclosure of Confidential Information solely to its officers, employees and consultants with a need to know and who have agreed to be bound by the terms of this Section 9. Neither party will disclose such Confidential Information to any other parties, and will otherwise protect the Confidential Information with no less restrictive measures than it uses to protect its own Confidential Information which measures shall in no event be less than reasonably prudent measures. Information will not be deemed “Confidential Information” if such information: (a) was in the public domain at the time it was communicated to the Receiving Party; (b) becomes generally available to the public other than as result of a disclosure by the Receiving Party; (c) is rightfully communicated to the Receiving Party free of any obligation of confidence subsequent to the time it is communicated to the Receiving Party pursuant to this Agreement; (d) is independently developed or acquired by the Receiving Party without violation of this Agreement or (e) was in the Receiving Party’s possession free of any obligation of confidence at the time it was communicated to the Receiving Party pursuant to this Agreement.

	(c) Notwithstanding the above, the Receiving Party shall not be in violation of this Section 11 with regard to a disclosure that was in response to a valid order by a court or other governmental body; provided that the Receiving Party provides the Disclosing Party with prompt written notice of such required disclosure where reasonably possible in order to permit the Disclosing Party to seek confidential treatment of such Confidential Information; and provided, further that the disclosure is made only to the extent required by the applicable order. The obligations of confidentiality with respect to a trade secret under applicable law shall continue until such information or data ceases to be a trade secret under applicable law and with respect to all other Confidential Information continue for the term of this Agreement and ten (10) years thereafter, or such longer period as may be required by applicable United States federal or state laws.

12.	Warrants.

12.1.	*Warrants.* (a) As additional consideration for the time, expense and effort HT Prostate shall expend in obtaining PMA from the FDA for the Products and any Ablatherm Related Device and for distribution by HT Prostate of certain lithotripters (as described more fully in a separate agreement between the parties), on January 28, 2005 Parent Corporation shall issue to HT Prostate 1,000,000 warrants (bons de souscription d’actions) (the “Warrants”), each of which shall entitle the owner thereof to purchase from Parent Corporation one newly-issued ordinary share of the Parent Corporation at a price of U.S. $1.50 per share subject to the terms and restrictions set forth in the Escrow Agreement (including restrictions on transferability of the Warrants and any ordinary shares resulting from the exercise thereof). The Warrants shall be issued pursuant to the terms set forth in a resolution of the Board of Directors of the Parent Corporation, substantially in the form set forth as Exhibit A (the “Board of Directors Resolution”), in accordance with the authority granted to the Board of Directors in respect of such issuance pursuant to the resolution of the shareholders of the Parent Corporation, dated January 29, 2004 (a copy of which is attached hereto as Exhibit B).

	(b) At any time following the occurrence of any of the events described in the Board of Directors Resolution (each, a “Warrant Exercise Milestone”), HT Prostate shall be entitled to exercise an amount of Warrants equal to the amount set forth therein corresponding to such Warrant Exercise Milestone, in each case subject to the terms, procedures and restrictions set forth in the Escrow Agreement and the Board of Directors Resolution.

	(c) The parties hereby agree that promptly following the occurrence of any Warrant Exercise Milestone, each of HT Prostate and Parent Corporation shall execute and deliver to the other party and to the Escrow Agent a written acknowledgement that such Warrant Exercise Milestone has occurred, which acknowledgement shall be substantially in the form set forth as Exhibit C.

13.	General.

13.1.	*Force Majeure.* Neither party hereto shall be responsible for any failure to perform its obligations under this Agreement (other than obligations to pay money) if such failure is caused by acts of God, force majeure, strikes, revolutions, lack or failure of electrical or telecommunications facilities, including failure of the public Internet, laws or governmental regulations or other causes that are beyond the reasonable control of such party; provided, however, that the party suffering such delay notifies the other party of the delay within a reasonable period after it learns of the delay.

13.2.	*Governing Law.* This Agreement will be construed and enforced in accordance with the laws of the State of Georgia.

13.3.	*Severability.* If any one or more provisions of this Agreement shall be held by a court of competent jurisdiction to be illegal, invalid, unenforceable, or void, the remainder of this Agreement shall remain in full force and effect.

13.4.	*Amendment.* This Agreement may be amended or supplemented only by a writing that refers specifically to this Agreement and is signed by duly authorized representatives of all parties.

13.5.	*Waiver.* Any failure of an EDAP Party or HT Prostate to comply with any obligation, provision or condition herein may be waived by HT Prostate or the EDAP Parties, respectively, only by a written instrument signed by the party granting such waiver, but such waiver shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.

13.6.	*Notices.* All notices required to be sent by any party under this Agreement shall be in writing and deemed given: (a) three (3) business days after being sent by commercial overnight courier with written verification of receipt; or (b) when received after being mailed postage prepaid by certified or registered mail, return receipt requested to the party to be notified, at the respective addresses set forth on the signature page below, or at such other address which may hereinafter be designated in writing.

13.7.	*Successors and Assigns.* This Agreement and the rights, duties and obligations arising hereunder shall be binding upon and inure to the benefit of the parties and to their respective successors and permitted assigns. Neither HT Prostate nor any EDAP Party may assign this Agreement or its rights, duties or obligations hereunder without the prior written consent of the EDAP Parties or HT Prostate, respectively, such consent not to be unreasonably withheld or delayed, and any prohibited assignment of this Agreement shall be null and void; provided, however that, except as otherwise provided herein, any party may assign its rights, duties or obligations hereunder to the successor of its business in connection with a merger, acquisition or another event resulting in the sale of all, or substantially all, of the stock or assets of such party.

13.8.	*Relationship.* The relationship between the EDAP Parties, on the one hand, and HT Prostate, on the other hand, under this Agreement shall be that only of an independent contractor. Nothing contained in this Agreement shall be construed as creating or deemed to create the relationship of employer and employee, a partnership, a joint venture, agency or other association between the EDAP Parties and HT Prostate.Each

	party agrees at all times to comply with all applicable laws and regulations in its performance of this Agreement. Nothing in this Agreement, expressed or implied, confers on any person other than the parties hereto (or their successors and permitted assigns), any rights, remedies, obligations or liabilities.

13.9.	*Customers.* Each party acknowledges that upon its entering into an agreement with a customer, the contractual agreement shall be exclusively between the customer and the contracting party. The termination of any contractual agreement between the customer and such party, if any, shall have no effect on the ongoing relationship of such customer and the other parties.¹

13.10.	*Entire Agreement.* This Agreement, the Escrow Agreement and any attachments hereto or thereto (all of which are incorporated herein by reference), when executed constitutes the entire agreement between the parties and supersedes any prior, collateral or contemporaneous negotiations, representations and agreements, oral or written, between the parties with respect to the subject matter hereof, including all representations made by each party which induced the other party, or parties to enter into this Agreement. This Agreement may be executed in one or more counterparts, each of which when executed shall be deemed to be an original, but all of which taken together shall constitute one and the same instrument. The Section headings and captions used in this Agreement are included merely for convenience of reference and are not to be considered part of, or to be used in the interpretation of the Agreement.

13.11.	*Dispute Resolution.*

	(a) Any dispute between HT Prostate and any EDAP Party arising out of or in connection with or relating to this Agreement (or any agreements or documents delivered by the parties hereto pursuant to the terms of this Agreement) or any alleged breach hereof may, at the option of either HT Prostate or such EDAP Party, be submitted for discussion and possible resolution by senior officers of HT Prostate and such EDAP Party, as designated by their respective chief executive officers.

	(b) All disputes arising out of or in connection with or relating to this Agreement, including those pertaining to the validity, interpretation, construction or breach hereof or of any legal obligation owed or claimed to be owed by any party hereto to any other party hereto, that is not otherwise amicably settled between the parties shall exclusively be resolved by arbitration between EDAP and HT Prostate pursuant to the Commercial Arbitration Rules of the American Arbitration Association (the “Rules”), with the arbitration to be conducted in the English language and taking place in New York, New York, United States of America.

	(c) The arbitral tribunal shall be composed of three arbitrators appointed in accordance with the Rules. The Chairman of the arbitral tribunal shall be nominated by the two arbitrators nominated respectively by the Parent Corporation and HT Prostate, and if they fail to agree upon such Chairman within 30 days after the second arbitrator has been appointed, such Chairman shall be appointed by the American Arbitration Association. No arbitrator shall be or have been a present or past employee, officer, director, legal counsel, consultant or agent of either party or its affiliates. All arbitrators shall be of legal education, unless the parties agree otherwise at the time. Unless prohibited or restricted by applicable law, each party agrees to provide to the arbitrators and the other party, subject to a strict confidentiality agreement, such documents, other evidence, witness testimony as may reasonably be requested by the other party and as are relevant to the issues being arbitrated. The arbitrators may restrict or terminate discovery requests that they conclude are unreasonable, unduly burdensome or not relevant to the issues being arbitrated. Such discovery shall occur during a reasonable time period. The arbitrators shall not have the power to act as “amiable compositeurs” with respect to any dispute submitted to such arbitration, but rather shall make their decision based on their understanding and interpretation of the applicable law and facts. The fees and disbursements of the arbitrators shall be allocated between the disputing party and the other party to the dispute in the same proportion that the disputed items so submitted to the arbitrators that are unsuccessfully disputed by each (as finally determined by the arbitrators) bears to the total amount of all disputed items so submitted. Notwithstanding any provision of this Agreement to the contrary, (i) any party shall be entitled to seek a judicial order for interim relief to the extent necessary to safeguard the

	property that is the subject matter of an arbitration proceeding hereunder, and (ii) judgment upon the award rendered in any arbitration proceeding hereunder may be entered in any court having jurisdiction or application may be made to such court in a judicial acceptance of the award and an order by enforcement, as the case may be.

	(d) The arbitrators shall have no authority to award punitive, consequential or incidental damages nor any other damages not measured by the prevailing party’s actual damages. Furthermore, either party, before or during any arbitration, may apply to a court having jurisdiction for a temporary restraining order or preliminary injunction where such relief is necessary to protect its interests pending completion of the arbitration proceedings.

	(e) Notwithstanding any other provision in this Section 13.11 to the contrary, either party may bring court proceedings or claims against the other as part of separate litigation commenced by an unrelated third party.

13.12.	*Currency.* All transactions between EDAP and HT Prostate pursuant to this Agreement shall be consummated with United States dollars.

Signatures on following page

IN WITNESS WHEREOF, the parties hereto have executed this Agreement, under seal, as of the date first written above.

“HT Prostate”			“EDAP”

HT PROSTATE THERAPY MANAGEMENT COMPANY, LLC			EDAP TMS S.A.

By: /s/ Argil J. Wheelock			By: /s/ Philippe Chauveau

	Argil J. Wheelock, M.D., CEO			Philippe Chauveau, Chairman and CEO

Address:		1841 West Oak Parkway	Address:					4-6 rue du Dauphiné
		Suite A						69120 Vaulx-en-Velin
		Marietta, GA 30062						FRANCE

Telephone No.: 770-419-0691			Telephone No.: +33 4 72 15 31 50
Facsimile No.: 770-419-9490			Facsimile No.: +33 4 72 15 31 51


			EDAP S.A.


			By:		/s/ Hugues de Bantel

					Hugues de Bantel, President

			Address:					4-6 rue du Dauphiné
								69120 Vaulx-en-Velin
								FRANCE

			Telephone No.: +33 4 72 15 31 50
			Facsimile No.: +33 4 72 15 31 51


			TECHNOMED MEDICAL SYSTEMS S.A.


			By:			/s/ Hugues de Bantel

						Hugues de Bantel, President

			Address:				4-6 rue du Dauphiné
							69120 Vaulx-en-Velin
							FRANCE

			Telephone No.: +33 4 72 15 31 50
			Facsimile No.: +33 4 72 15 31 51

Schedule A

The Ablatherm Marks

ABLATHERM

ABLAPAK

ABLASONIC

Schedule B

Technical Specifications for the Products

[***************]

[The omitted portion consists of eight (8) pages]

Schedule C

2004 Ablatherm Distributors Price List

ABLATHERM: DISTRIBUTOR MAJOR SPARE PARTS LIST

TECHNICAL CALCULATOR / CALCULATEUR TECHNIQUE

Part Name / Désignation	Ref / Code	Distributor Prices / Prix Distributeur
Supply Module / Alimentation	223066	**********
CPU PC 104 Board / Carte CPU PC 104	222606	**********
Interface Board / Carte Interface	222601	**********
IEEE Board / Carte IEEE	222607	**********
A Mode Board / Carte Mode A	222605	**********
I/O Board / Carte I/O	224540	**********
I/O Rack / Rack E/S	223308	**********

SHOOTING UNIT / ENSEMBLE DE TIR

Part Name / Désignation		Ref / Code		Distributor Prices / Prix Distributeur
Case of Probes / Valise de Sondes		223048		**********

COOLING UNIT / GROUPE FROID

Part Name / Désignation	Ref / Code	Distributor Prices / Prix Distributeur
Cooling Tank / Bac de Refroidissement	220516	**********
Pump / Pompe	223316	**********
PT 100 Probe / Sonde PT 100	223016	**********
Valve 1/4 / Vanne 1/4 de Tour	223073	**********

USER INTERFACE / INTERFACE UTILISATEUR

Part Name / Désignation	Ref / Code	Distributor Prices / Prix Distributeur
Movement Keyboard / Clavier Mouvement	222799	**********
Sector Keyboard / Clavier Secteur	223004	**********
Treatment Keyboard / Clavier Traitement	222800	**********

CONTROL MODULE / MODULE DE CONTRÔLE

Part Name / Désignation	Ref / Code	Distributor Prices / Prix Distributeur
Control Module Wheel (dia 0.75) / Roue du MDC (dia 0.75)	223091	**********
Control Module Wheel (dia 125) / Roue du MDC (dia 125)	223090	**********

X-Y-Z MOVEMENT / MOUVEMENT X-Y-Z

Part Name / Désignation	Ref / Code	Distributor Prices / Prix Distributeur
Rotation System / Platine Rotation	223463	**********
X Motion System (100mm) / Platine Translation X (100mm)	223461	**********
Z Motion System (50mm) / Platine Translation Z (50mm)	223462	**********
Automotion Rack / Rack Automatisme	220507	**********
IEEE Cable / Câble IEEE	223292	**********
Y Encoder / Encodeur Y	222796	**********
L Encoder / Encodeur L	222797	**********
T Encoder / Encodeur T	222795	**********
Actuator / Vérin	223346	**********

ULTRASOUND RACK / RACK ECHOGRAPHE

Part Name / Désignation	Ref / Code	Distributor Prices / Prix Distributeur
Part Name / Désignation	Ref / Code	Distributor Prices / Prix Distributeur
Ultrasound Rack / Rack Echographe	217381	**********

POWER OSCILLATOR / RACK PUISSANCE

Part Name / Désignation	Ref / Code	Distributor Prices / Prix Distributeur
Power Amplifier / Amplificateur	223322	**********
706705 Cable / Câble 706705	223639	**********
712713 Cable / Câble 712713	223672	**********
Calorimeter / Calorimètre	220521	**********
Generator 15 Mhz / Générateur de Fonction 15 Mhz	223323	**********
Wattmeter Rack / Sous-Ensemble Wattmètre	223324	**********
Wattmeter / Wattmètre	223892	**********

PATIENT SUPPORT UNIT / SUPPORT PATIENT

Part Name / Désignation	Ref / Code	Distributor Prices / Prix Distributeur
Patient Movement Detector / Détecteur de Mouvement Patient	223467	**********
Treatment Module Wheel / Roue pour le Module de Traitement	223011	**********

COMPUTER RACK / ENSEMBLE INFORMATIQUE

Part Name / Désignation	Ref / Code	Distributor Prices / Prix Distributeur
Video Frame Grabber PC Board / Carte Acquisition Vidéo	223335	******
SCSI Controller PC Board / Carte Contrôleur SCSI	223337	******
Sound PC Board / Carte Son	223332	******
Keyboard / Clavier	223341	******
15’’ LCD Screen / Ecran LCD 15’’	223329	******
Printer / Imprimante	218129	******
Software / Logiciel	223302	******
Computer / Ordinateur (UC)	223336	******
External CD Player / Lecteur CD Externe	223338	******
ASSY Computer / Ordinateur Equipé (UC)	223331	******
Mouse / Souris	223340	******

MAINTENANCE TOOLS / OUTILS DE MAINTENANCE

Part Name / Désignation	Ref / Code	Distributor Prices / Prix Distributeur
Testing Tank / Cuve Test	221840	******
Focal Point Test Tool / Ensemble Coupelle Point Focal	220549	******

SALES CONDITIONS		CONDITIONS DE VENTE

WARRANTY		GARANTIE
For each order of spare parts under warranty, a warranty replacement request will have to be filled in and sent to us.		Pour toute commande de pièces au titre de la garantie, un formulaire de demande d’échange sous garantie devra être complété et nous être adressé.

These prices are without VAT and Ex-Works.		Ces prix sont hors TVA et Départ Usine.
Minimum billing: EUR 450.00.		Minimum de commande facturable : 450,00 EUR.
For any order below this amount, order processing costs in the amount of EUR 75.00 will be charged. Should you hesitate on a reference, please send us a diagram or a description of the required part at : SAV@edap-tms.fr		Pour toute commande d’un montant inférieur, il sera facturé 75,00 EUR de frais de dossier. En cas de doute sur une référence, merci de nous adresser un schéma ou un plan de la pièce à : SAV@edap-tms.fr

Purchase orders to be sent to:		Toute commande de pièces sera adressée à :
Carine BUIRON		Carine BUIRON
		Téléphone : 33 (0)4 72 15 31 50

Telefax Nr.: 33 (0)4 72 15 31 51		Fax : 33 (0)4 72 15 31 51
E-mail: CBuiron@edap-hifu.com		E-mail : CBuiron@edap-hifu.com

Only confirmed and written orders with an order number (mail, fax or e-mail) will be entered.		Seules les commandes écrites avec un numéro de commande (fax, courrier ou e-mail) seront traitées.

For economic or technical reasons, the prices and references can be modified at anytime.		Les prix et références peuvent être modifiés à tout moment pour des raisons économiques ou techniques.

Exhibit A

Form of Resolution of Board of Directors of EDAP TMS S.A.

EDAP TMS S.A.

Limited Company with capital of [•] Euros

Registered office: Parc d’activité La Poudrette Lamartine

4, rue du Dauphiné

69120 Vaulx-en-Velin (France)

RCS: Lyon B 316 488 204

MEETING MINUTES OF THE

BOARD OF DIRECTORS

ON 28 JANUARY 2005

[ January 28 ], 2005, at [ ] hours, the members of the Board of Directors of EDAP TMS S.A. (the “Company”) met [ with the registered office ], on convocation of the President of the Board of Directors carried out in accordance with the statutes of the Company, in order to deliberate the agenda of the next day:

1. Approval of the official report of the meeting of the Board of Directors on [date ]

2. Emission of share warrants for the profit of HT Prostate Therapy Management Company L.L.C and fixing the methods of these shares.

3. Other issues

Present and Registered in the Attendance Book:

• Mr. Philippe Chauveau, President of the Board of Directors and General Manager,

• Mr. Pierre Beysson, Director,

• Professeur Guy Vallancien, Director,

• Doctor Karim Fizazi, Director,

• Mr. Olivier Missoffe, Director, and

• Siemens France S.A., represented by Mr. Holger Schmidt.

Repesented:

• [•].]

Excused absent:

• [•].]

Also Present :

• Mr. Hugues de Bantel, President of the Board of Directors of Technomed Medical Systems S.A. and EDAP S.A., and

• Ms. Blandine Confort, General Attachée.

The council is chaired by Mr. Chauveau, President

Ms. Blandine Confort is acting, on the request of the President, as Secretary.

Mr. President notes that the quorum is reached and that the Board can deliberate. A review of the agenda questions is conducted:

1. Approval of the minutes of the meeting of the Board of Directors on [ date ]

Mr. President submits to the Board the official report of the board meeting of [ date ].

After having deliberated, the Council, unanimously, approves the official report on [ date ].

2. Emission of share warrants for the profit of HT Prostate Therapy Management Company L.L.C and fixing the method of these shares

The President reminds the Board that the General Assembly meeting of the shareholders of the Company on January 29, 2004, in the 1st resolution, has, in accordance with the provisions of the L.228-95 article of the Commercial law, authorized the Board of Directors to carry out the emission, once or several times, of a maximum of 1,000,000 (a million) share warrants, of one or more categories, giving the right to subscribe to shares of the Company at a rate of one stock per share and for a price of 1.50 US dollars, or the exchange value in euros, per share. It has decided that these shares would be allotted free to HT Prostate Therapy Management Company L.L.C. and removed the preferential duty of subscription of the shareholders for these shares and the stocks to which they give right, and authorized the Council to increase the Company’s capital accordingly with the exercise of these shares. In addition, it is delegated to the Council all powers to carry out the emission of the shares, to stop the characteristics and the methods of exercise, to take measurements necessary for the reservation of the rights of the shareholders, to carry out the new issues of capital resulting from their exercise and the correlative statutory modifications and to generally do what is deemed necessary.

The President points out that the emission of these shares lies within the scope of the overall agreement reached with the HealthTronics group for the distribution of Ablatherm in the United States, an signed distribution agreement (Distribution Agreement) materialized on February [ ], 2004 between the Company, EDAP S.A., Technomed Medical Systems S.A. and HT Prostate Therapy Management Company L.L.C.

Consequently, it proposes that the Board establish the methods and issue these 1,000,000 share warrants reserved at HT Prostate Therapy Management Company L.L.C.

After having deliberated on it, the Board, making use of the authorization and the powers which were delegated to it by the General Assembly meeting referred to above in the 1st resolution, unanimously adopts the procedures of the emission of the shares warrants as follows:

1.	Number of Shares	Issue 1,000,000 (one million) autonomous share warrants, giving each one the right of subscription to the Company (a « share ») divided into seven distinct categories:

		• 200,000 Shares A
		• 200,000 Shares B
		• 100,000 Shares C
		• 100,000 Shares D

			• 100,000 Shares E
			• 100,000 Shares F
			• 200,000 Shares G.

2.	Title holder		The shares are reserved by HT Prostate Therapy Management Company L.L.C.

3.	Price of subscription		The issue is free .

4.	Date of issue		January 28, 2005.

5. Dates of exercice			In accordance with the Distribution Agreement and the trade agreement concluded between the Company, its subsidiary companies and HT Prostate Therapy Management Company L.L.C., the shares could be exercised at the following dates (“milestones”), dependent on the process of obtaining per HT Prostate Therapy Management Company L.L.C. of “Pre-Market Approval” (“PMA”) validation of Ablatherm by the American “Food and Drug Administration” (“FDA”) and acquisition by HT Prostate Therapy Management Company L.L.C. or any other HealthTronics Company (such as this term is defined in paragraph 10 below) lithotriteurs:
		•	Shares A will be exercisable, within the scope of work by HT Prostate Therapy Management Company L.L.C. of clinical trials for Ablatherm, as from the date of the last follow-up of the last patient of the clinical trial Ablatherm led by HT Prostate Therapy Management Company L.L.C., within the framework of a “IDE” (“Investigational Device Exemption”). It is understood by “last follow-up of the last patient” that this is the last evaluation such as defined in the protocol of the test concerned for constitution of the clinical file of first tender of PMA;
		•	Shares B will be exercisable from the tender by HT Prostate Therapy Management Company L.L.C. with the FDA filing of the homologation PMA (“Pre-Market Approval Application”) relating to Ablatherm, complete, in final form and in conformity with the requirements of the FDA;
		•	Shares C will be exercisable at their issue, [HT Prostate Therapy Management Company L.L.C.] [or, if necessary: [•] [ name of the HealthTronics company carrying out the purchase], having

			purchased along with the company and its subsidiaries [indicate, if necessary, the company or the subsidiary of the company that HT Prostate bought lithotriteurs from during 2004] more than four (4) lithotriteurs during 2004,
		•	Shares D will be exercisable as of January 1, 2006 in the event of the purchase of the Company or its subsidiaries, by HT Prostate Therapy Management Company L.L.C. or any other HealthTronics Company, of at least four (4) lithotriteurs during 2005,
		•	Shares E will be exercisable as of January 1, 2007 in the event of the purchase of the Company or its subsidiaries, by HT Prostate Therapy Management Company L.L.C. or any other HealthTronics Company, of at least four (4) lithotriteurs during 2006,
		•	Shares F will be exercisable as of January 1, 2008 in the event of the purchase of the Company or its subsidiaries, by HT Prostate Therapy Management Company L.L.C. or any other HealthTronics Company, of at least four (4) lithotriteurs during 2007,
		•	Shares G will be exercisable from the receipt by HT Prostate Therapy Management Company L.L.C. written confirmation from the FDA of final receipt of the a valid PMA (“Pre-Market Approval”) for Ablatherm.

		In any event, and in accordance with the provisions of the L.228-95 article of the Commercial law, the shares will have to be exerted within five (5) years from the date of their issue, that is to say, at the latest, January 28 2010. The shares not having been exercised on this date will be null and void and lose any validity.

6.	Suspension of exercice	In the event of new issue of capital, fusion or scission of the Company, or any other financial transaction of the Company comprising a preferential duty of subscription or a priority right of the shareholders, the board of directors of the Company will be able to suspend, for a maximum of three months, the exercise of the shares, subject to the rules relating to the reservation of the rights of the stockholders. In this case, the Company will inform preferred stockholders of the date on which the exercise of the shares will be suspended and of the date on which it will begin again.

7. Exercise right of subscription	HT Prostate Therapy Management Company L.L.C. will have the ability to subscribe at a rate of 1 (one) stock of 0.13 euro each at face value issued by the Company, for 1 (one) share executed, at the price of 1.50 US dollar (a dollar fifty), or its exchange value in euros at the date of subscription, per stock.

	The subscriptions of stock of the Company gives right to the shares at the time of their exercise to be registered. The price of subscription referred to above will have to be deposited completely in cash at the Company.

8. Possesion of new stock	New stock issued as the result of the exercise of stocks will be subjected to all the provisions of the statutes of the Company and carry benefits the first day of the accounting period during which they will have been subscribed. They will have rights, starting on this date and with stocks of the later exercises, of the same dividends (on the basis of face value) as that which could be distributed with the other stocks carrying the same benefits.

	They will be, consequently, entirely comparable to the stocks, after payment of the dividend, with the preceding exercise or, if it were not distributed by it, after the annual assembly session ruling on the aforementioned exercise.

9. Protection of the stockholders	In accordance with the L.225-153 article of the Commercial law, as long as there are valid and non-exercises shares:

	•	the Company avoids depreciating its capital and modifying the distribution of the benefit; however, the Company can create stocks with priority dividend without voting rights on the condition under the conditions contained in L.225-154 of the Commercial law;
	•	in the event of reduction of capital moved by losses and realized by the reduction in the par value or the number of stocks, the rights of the stockholders will be reduced accordingly, as long as the aforementioned holders had been shareholders as of the date of circulation of the stock.

	Moreover, in accordance with article L.225-154 of the Commercial law, as long as there will be valid and non-exercised shares, the Company will not be able to carry

			out the issue of shares against cash reserved to the shareholders or the issue of other titles comprising a preferential duty of subscription, with incorporation of capital reserves, benefit or premiums issue, or the distribution of cash reserves, in the condition of reserving the rights of the stockholders which would exercise their shares.

			To this end, the Company will have, under the conditions described in articles 171 to 174 of the decree n° 67-236 of March 23, 1967, to allow to the stockholders which will exert the application right related to these stocks, as the case may be, to subscribe on a purely irreducible basis of the stock or new titles or to obtain new stock on a purely free basis, or to receive cash or titles similar to the titles distributed in the same quantities or proportions, except with regard to the possession, which if they had been shareholders at the time of the aforementioned emissions, incorporations or distributions; or, in the cases envisioned by the law, to allow them, if they wish to take part in the operation, to exert their application right.

			For any movable issue of securities or another operation comprising a preferential duty of subscription reserved for the shareholders, the Company will have to inform, as a preamble, the stockholders in writing (in accordance with the mentions outlined in article 174-2 of decree n° 67-236 of March 23, 1967).

			In the event of absorption of the Company by another company, of fusion with one or more other companies in a new company, or of scission by contribution of existing or new companies, the holders of the scrip Certificates will be able to subscribe to the stock of the surviving company or new or the associated companies of the scission under the same conditions as those outlined for the origin, except carrying out the adjustments made necessary by fusion or the scission in accordance with article L.225-156 of the Commercial law.

			When, because of the one of the situations mentioned above, the stockholders presenting their stocks have right to a number of actions because of this severed union, which will be presented in cash. In accordance with the provisions of article 174-5 of the decree n° 67-236 of March 23, 1967, this payment will be equal to the new value resulting from the severed union by the

		value of the action calculated on the basis of stockholders’ equity of the Company.

10.	Restrictions of Transfer	The shares could be transferred by HT Prostate Therapy Management Company L.L.C. only to companies controlled by HT Prostate Therapy Management Company L.L.C., which control HT Prostate Therapy Management Company L.L.C., or which are controlled by the same company as HT Prostate Therapy Management Company L.L.C., concept of control being defined by detention, direct or indirect, of the majority of the voting rights (these companies are collectively indicated as the “HealthTronics Companies”). The HealthTronics Companies thus become titleholders of shares and will be, in turn, prohibited to transfer their shares, except with HT Prostate Therapy Management Company L.L.C. or at other HealthTronics Companies.

Moreover, in order to comply with American legal provisions relating to transferable securities, shares, as well as the stocks which will be issued as a result of their exercise, these will be subject to sequestration, initially concluded near the company euro Transmitters Finances which ensures the stocks of the Company, under the terms of a contract of sequestration of which a copy is appended to the present official report.

The Board of Directors may then decide to carry out without delay the emission of the 1,000,000 shares terms and allot them to HT Prostate Therapy Management Company L.L.C.

In addition, the Council delegates to its President the powers necessary to carry put the exercises of shares and the new issues of resulting capital, and to carry out the modifications necessary of the statutory clauses relating to the amount of the authorized capital and the number of stocks which make it up.

After having discussed all on the agenda, the meeting is adjourned at [ ] hour.

Aforementioned included, this official report is drawn up and signed, after review, by the President and an administrator.


Président			Administrator

EDAP TMS S.A.

Limited Company with capital of [•] Euros

Registered office: Parc d’activité La Poudrette Lamartine

4, rue du Dauphiné

69120 Vaulx-en-Velin (France)

RCS: Lyon B 316 488 204

OPINION OF CONVOCATION

Date [•] 2005

Sirs,

Sirs, the administrators are requested to attend the board meeting of the company to be held on[ [January 28 ] 2005, at [? ] hours, at [ with the registered office ], for the purpose of deliberating on the following agenda:

• approval of the minutes of the meeting of the Board of Directors on [? ]

• Emission of share warrants for the profit of HT Prostate Therapy Management Company L.L.C and fixing the methods of these shares

• other issues

President, Board of Directors

Exhibit B

Resolution of Shareholders of EDAP TMS S.A. dated January 29, 2004

EDAP TMS S.A.

Société anonyme au capital de 1.087.166,73 Euros

Corporate Headquarters : Parc d’activité La Poudrette Lamartine

4, rue du Dauphiné

69120 Vaulx-en-Velin (France)

316 488 204 RCS LYON

EXCERPT OF THE MINUTES OF THE

EXTRAORDINARY GENERAL SHAREHOLDERS

MEETING HELD

ON JANUARY 29, 2004

(COPY DULY CERTIFIED BY EDAP TMS’s CHAIRMAN AND C.E.O.)

On January 29 of the year 2004,

At 14:30 p.m.,

The shareholders of EDAP TMS, attended an Extraordinary Meeting of Shareholders at the headquarters of the Company, 4 Rue du Dauphiné - 69120 Vaulx-en-Velin, France, on notification sent from the Board of Directors, as per statutory provisions.

They adopted the following resolution:

“ The shareholders, in accordance with quorum and majority conditions required by extraordinary shareholders meetings, and after hearing the Board of Directors’ report and the Statutory Auditors’ special report:

a) authorize the Board of Directors to proceed, pursuant to articles L. 228-95 of the French Commercial Code, in one or several times, to the issuance of a maximum of 1,000,000 (one million) warrants (bons de souscription d’actions), of one or more categories, each warrant (bon de souscription d’actions) giving their owners the right to subscribe to one share of the Company of par value 0.13 Euro per share;

b) authorize the Board of Directors to increase the nominal share capital of the Company by an amount up to 130,000 (one hundred and thirty thousand) Euros, as a result of the exercise of the subscription rights attached to the warrants (bons de souscription d’actions), such increase being subject to, if necessary, additional increases amounting the nominal amount of extra shares to be issued in favor of the warrants-holders, in accordance with French law;

c) decide to suppress in favor of the HT Prostate Therapy Management Company L.L.C. the shareholders’ preferential subscription rights for all of the warrants (bons de souscription d’actions) to be issued and decide that HT Prostate Therapy Management Company L.L.C. will be the sole owner of the right to subscribe to the such warrants (bons de souscription d’actions), according to the present authorization;

d) decide that the warrants (bons de souscription d’actions) will be issued to HT Prostate Therapy Management Company L.L.C. without the payment of any subscription price and that they may be exercised at a price of 1.50 US dollars (one dollar fifty) or its equivalent value in Euros per share;

e) acknowledges that the present issuance of warrants (bons de souscription d’actions) will result in the waiver, in favor of the warrants-holders, of the shareholders’ preferential subscription right to the Company’s ordinary shares resulting from the exercise of these warrants (bons de souscription d’actions);

f) acknowledges that the warrants (bons de souscription d’actions) will be allocated in one or several times, within a maximum of one year from the present decision and decides that they will have to be exercised within five (5) years from their issuance date, upon satisfaction of conditions or delays that the Board of Directors may define for each category of warrants (bons de souscription d’actions).

Furthermore, the Shareholders’ Meeting delegates all powers to the Board of Directors to:

a) proceed with the issuance of the warrants (bons de souscription d’actions) within the framework and according to the terms of the present decision.

b) determine the characteristics and terms and conditions of the exercise of the warrants (bons de souscription d’actions), as for, but not limited to, the time periods and conditions under which the warrants (bons de souscription d’actions) may be exercised, the terms of subscription and the dividend rights attached to the shares to be issued, and, as the case may be, the suspension of the right to exercise the warrants (bons de souscription d’actions) during a maximum of three months).

c) implement the necessary measures to reserve, pursuant to applicable French laws and regulations, the rights of the warrants-holders, should the Company undertake certain capital transactions as defined in said articles for as long as all warrants (bons de souscription d’actions) have not been exercised;

d) acknowledge, in accordance with French law, the amount of capital increases resulting from the exercise of the warrants (bons de souscription d’actions), and implement the relevant statutory modifications to the Company’s by-laws as well as proceed with all formalities;

e) more generally, undertake all necessary and useful measures to implement the present authorization.

This resolution has been adopted with 2.929.948 votes “FOR” and 172.378 votes “AGAINST.”

	I certify that this excerpt of the minutes conforms the original


	Philippe Chauveau
	Chairman & C.E.O.
	EDAP TMS SA

Vaulx-en-Velin, January 29, 2004

Exhibit C

Form of Warrant Exercise Acknowledgement

To:	[HT Prostate Therapy Management Company, LLC 1841 West Oak Parkway Suite A Marietta, Georgia 30062]

	[EDAP TMS S.A. 4-6 rue du Dauphiné 69120 Vaulx-en-Velin FRANCE]

	Euro Emetteurs Finance S.A. 48 boulevard des Batignolles 75017 PARIS FRANCE

	[date], 200_

Re:	Occurrence of a Warrant Exercise Milestone

Dear Sirs:

Reference is made to that Distribution Agreement, dated •, 2004 by and between HT Prostate Therapy Management Company LLC (“HT Prostate”), EDAP TMS S.A. (“EDAP”) and certain subsidiaries of EDAP (the “Distribution Agreement”). Capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Distribution Agreement.

We hereby confirm that as of the date hereof the Warrant Exercise Milestone set forth below has occurred and as a result thereof, HT Prostate is entitled to exercise [number] Warrants at any time following the date hereof until January 28, 2010.

Warrant Exercise Milestone: •

Warrants exercisable as a result of the occurrence of such Warrant Exercise Milestone: •

Aggregate amount of Warrants exercisable as of the date hereof: •

Yours faithfully,

Draft of February 9, 2004

Exhibit D

Form of the Escrow Agreement

EDAP TMS

SECURITIES SERVICE and

ESCROW AGREEMENT

Warrants

SERVICING WARRANTS

HANDLING EXERCISES OF WARRANTS

ESCROW OF WARRANTS AND SHARES

SECURITIES SERVICE AND ESCROW AGREEMENT

BY AND AMONG

EDAP TMS, (hereinafter the “Issuer”), a French corporation with a board of directors, and with capital of €1,087,166.73, whose principal place of business is located at Parc d’activité de la Poudrette Lamartine, 4, rue du Dauphiné, 69120 Vaulx-en-Velin and recorded in the Commercial Register Lyon B 316 488 204, Represented by Mr. Philippe Chauveau, acting in his capacity as Chairman and Chief Executive Officer

party of the first part

HT PROSTATE THERAPY MANAGEMENT COMPANY L.L.C., (hereinafter “HT Prostate”), a limited liability company governed by the laws of the State of Delaware (United States) whose principal place of business is located at 1841 West Oak Parkway, Suite A, Marietta, GA 30062 United States, Represented by Mr. Argil J. Wheelock, acting in his capacity as Chief Executive Officer

party of the second part

EURO EMETTEURS FINANCE (EEF), (hereinafter the “Provider”), a French corporation with a managing board and a supervisory board, and with capital of €3,812,000 and recorded in the Commercial Register in Paris 430 250 183, whose principal place of business is located at 48, boulevard des Batignolles - 75017 Paris, Represented by Mr. Jean-François Martinville, acting in his capacity as Chairman of the Managing Board

party of the third part.

WHEREAS:

Pursuant to a commercial agreement between the Issuer and certain companies in the Healthtronics group (including HT Prostate), which has been formalized through the execution of a distribution agreement signed on February [ ], 2004, between the Issuer, its subsidiaries and HT Prostate (the “Distribution Agreement”), the relevant companies in the Healthtronics group have agreed, among other things, (i) to take charge of clinical studies and the authorization procedure with the American authorities to permit certain products of the Issuer to be sold in the United States and (ii) to purchase from the Issuer certain products sold by the Issuer. In consideration of these commitments, the Issuer has agreed to award to HT Prostate one million (1,000,000) warrants (the “Warrants”) entitling the holder to subscribe to shares of the Issuer, at the rate of one share per warrant (the shares that will be issued by the Issuer when the Warrants are exercised are hereinafter referred to as the “Underlying Shares”). Pursuant to the Distribution Agreement, these Warrants cannot be exercised until certain milestones are met; therefore, they will be divided into seven different categories in accordance with their terms and exercise dates (as defined in Exhibit A to this Agreement), and distributed as follows:

• 200,000 A Warrants

• 200,000 B Warrants

• 100,000 C Warrants

• 100,000 D Warrants

• 100,000 E Warrants

• 100,000 F Warrants

• 200,000 G Warrants.

The issuance of the Warrants was authorized by the Issuer’s shareholders at a special meeting on January 29, 2004. The issue will be carried out, by authorization of said shareholders, by the Issuer’s board of directors, who will establish the terms, exercise dates and other terms and conditions of these Warrants and the Underlying Shares and will decide on the issuance and award of these Warrants to HT Prostate. A certified copy of the resolution of the Issuer’s shareholders authorizing the issuance of the Warrants is attached to this Agreement in Exhibit A. A certified copy of the resolution of the Issuer’s board of directors issuing Warrants and establishing their terms and conditions will be sent by the Issuer to the Provider and to HT Prostate as soon as possible after it is adopted, and will also be attached to this Agreement in Exhibit A.

Neither the Warrants nor the Underlying Shares have been or will be registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”), and they are issued pursuant to an exemption from the registration obligation provided for by Section 4(2) of the Securities Act for sales of securities not involving a public offering. Consequently, the Issuer and HT Prostate have agreed to place the Warrants and the Underlying Shares in escrow throughout the entire period during which these securities will be restricted securities as such term is defined in Paragraph (a)(3) of Rule 144 adopted pursuant to the Securities Act , subject to HT Prostate’s ability to resell the Warrants and Underlying Shares pursuant to Rule 144 or a registration statement declared effective by the Securities and Exchange Commission.

The Issuer desires to entrust to the Provider, which is already servicing the shares issued by the Issuer, with servicing the Warrants and handling the Warrant exercise notices. Furthermore, the Issuer and HT Prostate desire to have the Provider provide the escrow services mentioned above.

NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:

I- SUBJECT MATTER OF THE AGREEMENT

The purpose of this Agreement is to define the terms on which the Provider will service the Warrants (II); handle the Warrant exercise notices (III); and hold the Warrants and the Underlying Shares in escrow (IV).

II- SERVICING OF THE WARRANTS

The Provider shall provide administrative and accounting services with respect to the Warrants issued by the Issuer.

In so doing, the Provider shall perform the following obligations:

• Establish, manage and update the records of the Warrant holders (which shall be required to be in pure registered form)(1);

• Assign a personal identification number to these holders;

• Send a certificate of registration to Warrant holders when they open an account;

• Handle all requests by Warrant holders for information by mail or telephone;

• Send to each Warrant holder an annual account statement showing the transactions carried out, the number of securities transferred and the number of securities remaining in the account. This statement shall be accompanied by a response card allowing the holder to inform the Provider of any changes;

• Examine and handle individual files (changes in type of registration, exercise of Warrants, transfer of ownership, etc.) in compliance with Articles III and IV of this Agreement;

• Prepare and send to the Issuer, upon request, lists of the registered holders classified in accordance with predefined sort criteria;

(1) [Translator’s Note: “Pure registered form” means that transfer of ownership will be handled directly by the issuer, not by a bank.]

• Keep and make available to the Issuer a statement summarizing the number of Warrants not yet exercised, the number of Warrants exercised and the number of Warrants in Escrow (as defined in Article IV of this Agreement);

• In the event of a transaction by the Issuer, inform the Warrant holders of the actions taken by the Issuer to preserve the rights of Warrant holders, or if applicable, the periods during which the Warrants may not be exercised and when they may be exercised again;

• Archive documents for as long as required by law.

III- HANDLING OF WARRANT EXERCISE NOTICES

As part of the process of handling notices that Warrants have been exercised, the Provider shall have the following obligations and duties:

• Receive and verify the exercise notices from the Warrant holders;

• Create new shares and, if applicable, handle the balances to be paid or received;

• Update the accounts of Warrant holders.

It is specified that the Provider expressly agrees to handle the Warrant exercise notices in accordance with the following provisions:

• In accordance with the Warrant exercise schedule described in the resolutions of the Issuer’s board of directors pursuant to which the Warrants were issued, as soon as a milestone indicated in the schedule is reached, the Issuer must immediately send to the Provider a written instruction sent in accordance with the terms of this Agreement and in accordance with the model set forth in Exhibit 3-1 to this Agreement, that the category of Warrants concerned has become exercisable and that the Warrants in this category may be exercised until the Expiration Date (as defined below) of the Warrants in question.

In accordance with the law and the terms of the resolution of the Issuer’s board of directors, the expiration date of the validity of the Warrants shall be five years after the date on which said Warrants are issued by the Issuer’s board of directors (the “Expiration Date”).

• Once this instruction is received by the Provider, HT Prostate or any Healthtronics Company that holds Warrants that have become exercisable may, at any time prior to the Expiration Date of the Warrants in question, inform the Provider that it is exercising all or part of the Warrants in this category, in accordance with the model appearing in Exhibit 3-2 to this Agreement, indicating the number of Warrants exercised. Said notice shall not be acceptable unless it is accompanied by a certificate from the Issuer, in the form set forth in Exhibit 3-3 to this Agreement certifying that the Issuer has received the payment by HT Prostate of the amount of the exercise price of the Warrants in question, i.e., U.S.$1.50 per Warrant (or its equivalent in euros).

IV- ESCROW OF THE WARRANTS AND THE UNDERLYING SHARES

The Provider shall escrow the Warrants and the Underlying Shares that are issued by the Issuer.

In so doing, the Provider shall perform the following obligations:

4-1 Establishment of the Warrant Escrow

The Issuer and HT Prostate hereby establish the Provider as escrow agent for the Warrants, and this task is accepted by the Provider.

As soon as they are issued and awarded by the Issuer’s board of directors to HT Prostate, the Warrants shall be immediately and irrevocably registered in an account in the name of HT Prostate in the register of Warrants kept by the Provider that are covered by this escrow (the Warrants thus escrowed shall be called the “Escrowed Warrants”). All Warrants resulting from a new issue shall be recorded in a different new account (new identification number) because these Warrants shall be issued on a different date than the Escrowed Warrants previously issued and placed in escrow.

The Provider expressly agrees not to move or release the Escrowed Warrants except in accordance with the terms of this Agreement.

4-2 Establishment of the Escrow of the Underlying Shares

The Issuer and HT Prostate hereby establish the Provider as escrow agent for the Underlying Shares, and this task is accepted by the Provider.

Whenever a Warrant is exercised, the Underlying Shares resulting from the exercise shall be immediately and irrevocably recorded in a new account (new identification number) in the name of their holder in the register of the Issuer’s shares kept by the Provider that are covered by this escrow (each new account is hereinafter referred to as an “Escrow Account” and the entirety of the shares appearing in the Escrow Accounts are referred to hereinafter as the “Escrowed Shares”).

All Underlying Shares resulting from a new exercise of Warrants or any new shares placed in escrow shall be recorded in a new Escrow Account because these shares will be received by their holder on a different date than the Escrowed Shares previously held or placed in escrow.

Moreover, all shares or other securities of the Issuer that are sent to HT Prostate or to any other Healthtronics Company as a result of its holding of Warrants or Escrowed Shares (including by way of the reservation of rights of Warrant holders in the event of a financial transaction by the Issuer, conversion, a stock split, reverse split, recapitalization, reclassification or any other change affecting the Issuer’s capital, as well as any share received as a dividend or other distribution or reduction or redemption of capital) shall be automatically classified as Escrowed Shares and shall therefore be placed in escrow pursuant to this Agreement and governed by the terms hereof. Similarly, if the Issuer participates in an absorption, merger, spin-off or contribution, entitling the holders of Warrants or Escrowed Shares to shares of the absorbing or new company or shares benefiting from the spin-off or contribution, the shares thus received shall be considered Escrowed Shares and shall therefore be placed in escrow pursuant to this Agreement and governed by the terms hereof.

The Provider expressly agrees not to move or release the Escrowed Shares except in accordance with the terms of this Agreement.

4-3 Release of Escrowed Shares

The Provider shall not release the Escrowed Shares in whole or in part except in accordance with the following provisions:

• The Provider must have received a written notice from HT Prostate (or, as the case may be, the Healthtronics Company that holds the Escrowed Shares), in accordance with this Agreement, a copy of which must be sent to the Issuer, including (x) a written instruction in the form appearing in Exhibit 4-3 to this Agreement and (y) a legal opinion (i) from an international law firm advising HT Prostate, with a recognized reputation and expertise in U.S. securities law and (ii) sent to the Issuer and judged reasonably satisfactory by the Issuer, pursuant to which either (1) HT Prostate (or, as the case may be, the Healthtronics Company in question) is not an affiliate (as this term is defined in Rule 405 under the Securities Act) of the Issuer and the Escrowed

Shares are not restricted securities (as this term is defined in Paragraph (a)(3) of Rule 144 under the Securities Act) or (2) the Escrowed Shares in question will be resold in a transaction that meets the conditions of said Rule 144 or (3) the Escrowed Shares are covered by a registration statement declared effective by the Securities and Exchange Commission.

• The Provider agrees to immediately send to the Issuer a copy of the notice thus received.

• If the Issuer agrees that the legal opinion mentioned above is reasonably satisfactory, the Provider may release the Escrowed Shares and transfer them in accordance with the instruction of HT Prostate (or of the Healthtronics Company concerned).

The Escrowed Shares that are released from escrow pursuant to this Article 4-3 shall no longer be Escrowed Shares.

4-4 Transfer of the Escrowed Warrants to another Healthtronics Company

In accordance with the terms and conditions of the Warrants, HT Prostate may only transfer all or part of its Warrants to companies controlled by HT Prostate, that control HT Prostate, or are controlled by the same company as HT Prostate as of the date of transfer; the notion of control being defined as directly or indirectly holding a majority of the voting rights (these companies are collectively referred to as the “Healthtronics Companies”). The Healthtronics Companies that thus become Warrant holders are in turn prohibited from transferring their Warrants, except to HT Prostate Therapy Management Company L.L.C. or other Healthtronics Companies.

Consequently, the Provider may transfer all or part of the Escrowed Warrants only in accordance with the following provisions:

• The Provider must have received a written notice from HT Prostate, in accordance with this Agreement, a copy of which must have been sent to the Issuer, containing (x) a written instruction in the form shown in Exhibit 4-4 to this Agreement; (y) a certificate from HT Prostate in the form shown in Exhibit 4-5 certifying that (i) the company or companies to which HT Prostate desires to transfer the Escrowed Warrants are Healthtronics Companies and (ii) the contemplated transfer does not violate any provision of the Securities Act, and (z) a commitment by the Healthtronics Company or Companies in question to comply with all provisions of this Agreement, in accordance with the form shown in Exhibit 4-6.

• The Provider agrees to immediately send to the Issuer a copy of the notice thus received.

• The Provider may then transfer the Escrowed Bonds in accordance with the instruction from HT Prostate.

The Escrowed Warrants transferred to one or more Healthtronics Companies pursuant to this Article 4-4 shall continue to be Escrowed Warrants and shall be recorded in an escrow account opened by the Provider in the name of their holder, and shall be subject to all the terms of this Agreement, by which said Healthtronics Company or Companies shall be bound.

V- LIABILITY OF THE PROVIDER

5-1 The Provider shall have no liability or obligation other than those expressly provided for in this Agreement, to the exclusion of any other. In particular, the Provider shall not be required to evaluate the merits of or the reasons for the instructions received pursuant to Article IV of this Agreement, and shall not act on instructions other than those provided for or made pursuant to this Agreement, except in the event of a legal obligation or an obligation resulting from an enforceable judgment (such as attachment of securities), in which case it shall not be liable for having complied with such obligation.

In the event of ambiguity or uncertainty with respect to any notice, instruction or other communication received by the Provider, the Provider may refrain from taking any action and request that the Issuer and HT Prostate clarify the instruction with a joint notice eliminating the ambiguity or uncertainty.

5-2 Except in cases of negligence, bad faith and/or intentional misconduct, neither the Provider nor its directors, employees or officers shall be held liable for any act or omission under this Agreement and shall be indemnified against any claim, action, liability, procedure or judgment that may be incurred by them or filed against them and against any loss, cost, charge, liability or expense incurred under this Agreement (including costs reasonably incurred in judicial proceedings).

5-3 The Provider shall not have to verify the identity or capacity of any person or company signing this Agreement or any instruction, notice or other communication received under this Agreement.

VI- REMUNERATION OF THE PROVIDER AND MISCELLANEOUS FEES

6-1 Remuneration of the Provider

The Provider shall receive a remuneration for performing its duties under this Agreement, as set forth in detail in Exhibit 6-1 to this Agreement. This remuneration shall be paid by the Issuer.

6-2 Reimbursement of Expenses

At the Provider’s request and upon presentation of receipts, the Issuer shall reimburse any expenses incurred by the Provider in performing its duties under this Agreement, including but not limited to the following: mandatory notices to the holders of Warrants and related mailing expenses, in addition to expenses for publication, advertising, mailing and attorneys, as well as the taxes thereon.

VII- FEES AND TAXES

All present and future fees and taxes applicable to the commissions provided for in Article VI above shall be paid by the Issuer.

VIII- TERM OF THE AGREEMENT

This Agreement shall take effect on the date of first issue of the Warrants and shall remain in effect until the date on which (i) all the Escrowed Shares have been released from escrow in accordance with the provisions of this Agreement, and (ii) all the Warrants have been released from escrow in accordance with the provisions of this Agreement and/or exercised and/or become null and void by expiration of their validity date. At this date, the Provider shall be released from all obligations under this Agreement.

• The Issuer and HT Prostate may release the Provider from all its duties under this Agreement at any time, by registered letter, return receipt requested, signed by the Issuer and HT Prostate, sent at least one (1) month prior to the effective date of this termination. The Issuer and HT Prostate shall inform the Provider of the name of the Provider’s successor at least ten business days prior to the term of the notice.

• Similarly, the Provider may terminate this Agreement at any time, by registered letter, return receipt requested, sent to the Issuer and to HT Prostate, in which case the termination will be not effective until the Issuer and HT Prostate have informed the Provider of the name of the Provider’s successor. The Issuer and HT Prostate agree to use their best efforts to designate said successor within one (1) month of the termination letter sent by the Provider.

• This Agreement shall be terminated by operation of law in the event that the Provider no longer services the shares issued by the Issuer. In this event, the Issuer and HT Prostate agree to use their best efforts to appoint, as soon as possible, an agency to service the Issuer’s shares and to assume the duties conferred on the Provider under this Agreement.

It is expressly agreed that, during the notice period mentioned above, all the provisions of this Agreement shall remain in full force and effect.

Once the Provider’s successor has been appointed, the Provider shall immediately transfer the Escrowed Warrants and the Escrowed Shares to the accounts designated for this purpose by the successor. As soon as this transfer is accomplished, the Provider shall be released of all obligations under this Agreement.

IX- GOVERNING LAW – DISPUTES

This Agreement shall be governed by and construed in accordance with French law.

In the event of a dispute arising under this Agreement or in connection herewith, the Parties shall endeavor to resolve the dispute amicably and in good faith.

If they are unable to do so, and without prejudice to the provisions of the Distribution Agreement regarding the resolution of disputes between the Issuer and HT Prostate under the Distribution Agreement, all disputes arising under or in connection with this Agreement shall be finally decided by arbitration administered in accordance with the International Disputes Resolution Procedures of the American Arbitration Association and shall be governed by French law. The languages of the arbitration shall be French and English. The arbitration shall be held in New York.

Notwithstanding any provision to the contrary in this Agreement, any Party may request from any French court of competent jurisdiction the interim relief necessary to protect its interests.

X- SUBSTITUTION

In the event of a change in the corporate name, legal status, merger or transfer, in whole or in part, of the activity of one of the parties, the performance of this Agreement shall continue on the same terms with the new entity without discontinuity.

The Party concerned agrees to report such change to the other Parties within a reasonable period after the change has occurred.

This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their successors and assigns, and in particular the Healthtronics Companies to which the Warrants have been transferred pursuant to Article 4-4 above.

XI- NOTICES

Any notice given in connection with this Agreement must be in writing and sent by registered mail, return receipt requested, or by fax, provided that a copy of the fax be sent by registered mail, return receipt requested (no later than the first business day following the day on which the fax is sent); however, failure to send said confirmation by mail shall not call into question the validity of the notice given by fax. The notice shall be deemed received by its addressee on the date of the acknowledgment of receipt or, in the case of a fax, on the date on which the fax is received.

Notices shall be validly sent to the persons and addresses appearing in Exhibit 11-1 to this Agreement, or to any other person or address that has been reported pursuant to this Article by the party concerned to the other two parties.

Any change thus reported shall result in a new Exhibit 11-1, which shall replace the current one.

A copy of any notice sent by or to the Provider must be sent to the other parties to this Agreement.

XII- VALIDITY OF THE AGREEMENT – ADDENDUMS

12-1 In the event that any provision of this Agreement turns out to be null and void in whole or in part, this shall not affect the validity of the rest of the Agreement. In this event, the Parties will replace the unlawful provision, if possible, with a lawful provision that is in keeping with the spirit and purpose of the unlawful provision.

12-2 Except as otherwise provided herein, this Agreement shall only be amended by an addendum signed by all Parties.

Signed in three (3) original counterparts.

For EDAP TMS	For HT Prostate		Pour Euro Emetteurs Finance
Lyon, [ ] 2005	[Paris], [ ] 2005		Paris, [ ] 2005


Philippe CHAUVEAU		Argil J. WHEELOCK		Jean-François MARTINVILLE
Chairman & CEO		Chief Executive Officer		Chairman & CEO

EXHIBIT A

RESOLUTIONS REGARDING THE ISSUANCE OF THE WARRANTS–

WARRANT TERMS AND CONDITIONS

Certified Copy of the 1^st Resolution

of the Special Meeting of the Shareholders of EDAP TMS dated January 29, 2004

Draft of the Terms and Conditions of the Warrants that will be issued by the
Board of Directors of EDAP TMS with the authorization of the special shareholders’
meeting on January 29, 2004

These terms and conditions are only a draft and shall be replaced and superseded by the final resolution of EDAP TMS’s board of directors that will issue the Warrants, and EDAP TMS agrees to inform the Provider and HT Prostate of this resolution upon its adoption.

1.	Number of Warrants	1,000,000 (one million) autonomous warrants of the Company, each entitling the holder to subscribe to one share of the Company (the “Warrants”), and divided into seven different categories:

		• 200,000 A Warrants • 200,000 B Warrants • 100,000 C Warrants • 100,000 D Warrants • 100,000 E Warrants • 100,000 F Warrants • 200,000 G Warrants

2.	Warrant Holders	The Warrants are reserved for HT Prostate Therapy Management Company L.L.C.

3.	Subscription Price	The issue is free of charge.

4.	Issue Date	[January 28] 2005.

5.	Exercise Dates	Pursuant to the Distribution Agreement and the commercial agreement entered into between the Company, its subsidiaries and HT Prostate Therapy Management Company L.L.C., the Warrants may be exercised on the following dates (“milestones”), linked to the process of HT Prostate Therapy Management Company L.L.C.’s obtaining a “Pre-Market Approval” (“PMA”) for Ablatherm from the Food and Drug Administration (“FDA”) and the acquisition by HT Prostate Therapy Management Company L.L.C. or any other Healthtronics Company (as defined in Paragraph 10 below) of lithotripters:

		• the A Warrants shall be exercisable, as part of HT Prostate Therapy Management Company L.L.C.’s clinical testing of Ablatherm, as of the date of the final follow-up of the final patient at the Ablatherm test clinic conducted by HT Prostate Therapy Management Company L.L.C., under an “IDE” (“Investigational Device Exemption”). The “final follow-up of the final patient” shall mean the final evaluation time as defined in the test protocol in question for constitution of the clinical dossier for the initial PMA submission; • the B Warrants shall be exercisable as of the submission by HT Prostate Therapy Management Company L.L.C. to the FDA of a Pre-Market Approval Application regarding Ablatherm, complete, in final form and in accordance with FDA requirements; • the C Warrants shall be exercisable upon their issuance, [HT Prostate Therapy Management Company L.L.C.] [or, as applicable: [•] [*name of the Healthtronics Company making the purchase], having purchased from the Company and its subsidiaries [indicate, as applicable, the name of the Company’s subsidiary or subsidiaries from which HT Prostate has purchased lithotripters in 2004 ]* [more than] four (4) lithotripters in 2004,

		• the D Warrants shall be exercisable as of January 1, 2006 in the event that HT Prostate Therapy Management Company L.L.C. or any other Healthtronics Company purchases at least four (4) lithotripters from the Company or its subsidiaries in 2005, • the E Warrants shall be exercisable as of January 1, 2007 in the event that HT Prostate Therapy Management Company L.L.C. or any other Healthtronics Company purchases at least four (4) lithotripters from the from the Company or its subsidiaries in 2006, • the F Warrants shall be exercisable as of January 1, 2008 in the event that HT Prostate Therapy Management Company L.L.C. or any other Healthtronics Company purchases at least four (4) lithotripters from the from the Company or its subsidiaries in 2007, • the G Warrants shall be exercisable as of receipt by HT Prostate Therapy Management Company L.L.C. of the written confirmation by the FDA that final Pre-Market Approval has been granted for l’Ablatherm.

		In any event, and pursuant to Article L.228-95 of the French Commercial Code, the Warrants shall be exercised within five (5) years of their issue date, i.e., no later than [January 28] 2010. Any Warrants that have not been exercised as of this date shall be null and void and shall lose their validity.

6.	Suspension of Exercise	In the event of a capital increase, merger or spin-off of the Company, or any other financial transaction by the Company involving preemptive rights on the part of the shareholders, the Company’s board of directors may suspend the right to exercise the Warrants for a maximum period of three months, subject to the rules regarding the Warrant holders’ reservation of rights. In this case, the Company shall inform the Warrant holders in advance, indicating the date on which exercise of the Warrants will be suspended and the date on which it will begin again.

7.	Exercise of Subscription Right	HT Prostate Therapy Management Company L.L.C. shall be entitled to subscribe at the rate of 1 (one) share with a par value of €0.13 each to be issued by the Company, for 1 (one) Warrant exercised, at the price of U.S.$ 1.50 (one dollar fifty), or its equivalent in euros on the subscription date, per share.

		The subscriptions of Company shares to which the Warrants entitle their holders when they are exercised shall be received at Company headquarters. The subscription price mentioned above must be paid in full to the Company in cash.

8.	Dividend Entitlement of New Shares	The new shares issued as a result of the exercise of Warrants shall be subject to all the provisions of the Company’s bylaws and shall be entitled to dividends as of the first day of the fiscal year during which they are subscribed to. They shall entitle their holders, for the fiscal year begun on this date and for subsequent fiscal years, to the same dividend (on the basis of the same par value) as the one that may be distributed to the other shares having the same dividend rights.

		Therefore, they shall be completely comparable to said shares after the dividend is paid for the preceding fiscal year, or if it is not distributed, after the annual meeting held to approve the financial statements for that fiscal year.

9.	Protection of the Warrant Holders’ Rights

		Pursuant to Article L.225-153 of the French Commercial Code, as long as there are valid, unexercised Warrants:

		• the Company shall not redeem its capital and shall not modify the distribution of profits; however, the Company may create non-voting shares that are entitled to preferred dividends provided that the rights of the Warrant holders are reserved on the terms established in Article L.225-154 of the French Commercial Code; • in the event of a capital decrease motivated by losses and carried out by decreasing the par value or the number of shares, the rights of the Warrant holders shall be reduced accordingly, as if said Warrant holders had been shareholders as of the date on which the Warrants were issued.

		Moreover, in accordance with Article L.225-154 of the French Commercial Code, as long as there are valid, unexercised Warrants, the Company shall not issue shares to be subscribed for in cash reserved for shareholders or issue other securities to which the shareholders have preemptive rights, or increase the capital from reserves, profits or issue premiums, or distribute reserves in cash or in portfolio securities, except on the condition that the rights of Warrant holders who exercise their Warrants are preserved.

		To this end, the Company shall, on the terms established in Articles 171 to 174 of Decree No. 67-236 of March 23, 1967, allow the holders of Warrants who exercise the subscription right attached to these Warrants, as applicable, to subscribe as of right to new shares or securities or to obtain new shares free of charge or to receive cash or securities similar to securities distributed in the same quantities or proportions as well as on the same terms, except with respect to dividend rights, as if they had been shareholders at the time of said issues, incorporations or distributions; or, in the cases provided for by law, allow them to exercise their subscription right, if they desire to participate in the transaction.

		For any issue of securities or other transaction with respect to which shareholders have preemptive rights, the Company must give prior notice thereof to the Warrant holders (in writing, indicating the information provided for in Article 174-2 of Decree No. 67-236 of March 23, 1967).

		In the event that the Company is absorbed by another company, merged with one or more other companies into a new company or is spun off by way of contribution to new or existing companies, the holders of Warrants may subscribe to the shares of the new company or absorbing company or the companies to which it is spun off on the same terms as those provided for originally, except that the adjustments made necessary by the merger or spin-off pursuant to Article L.225-156 of the French Commercial Code shall be made.

		When, because of the one of the transactions mentioned above, the holders of Warrants who present their securities are entitled to a number of shares that includes a fraction resulting in an odd lot, this odd lot will be paid to them in cash. Pursuant to Article 174-5 of Decree No. 67-236 of March 23, 1967, this payment shall be equal to the product of the fractional share forming the odd lot multiplied by the value of the share calculated on the basis of the Company’s shareholders’ equity.

10.	Restrictions on Transfer	The Warrants shall be transferred by HT Prostate Therapy Management Company L.L.C. only to companies controlled by HT Prostate Therapy Management Company L.L.C., that control HT Prostate Therapy Management Company L.L.C., or that are controlled by the same company as HT Prostate Therapy Management Company L.L.C. , and the notion of control shall be defined as directly or indirectly holding a majority of the

voting rights (these companies are referred to collectively as the “Healthtronics Companies”). The Healthtronics Companies that thus become Warrant holders shall be prohibited from transferring their Warrants except to HT Prostate Therapy Management Company L.L.C. or to other Healthtronics Companies.

Moreover, in order to comply with American law governing securities, the Warrants and the shares that will be issued upon their exercise shall be placed in escrow, initially with Euro Emetteurs Finance, which is already servicing the Company’s securities, on the terms of this Securities Service and Escrow Agreement.

EXHIBIT B

BANK DETAILS

THE COMPANY’S ACCOUNT INFORMATION

• All funds received by the Provider under this Agreement and intended for the Issuer shall be credited to the Issuer’s account as follows:

Accountholder:		EDAP TMS
Address:	c/o Technomed Medical Systems - Parc d’activité de la Poudrette Lamartine, 4, rue du Dauphiné, 69120 Vaulx-en-Velin

Bank Code		Branch Sort Code		Account No.		Rib Code
30007		53029		********		91

Name of the Bank:	Natexis Banques Populaires
Address:	19 place Tolozan, 69209 Lyon Cedex 01


SWIFT Reference:	CCBPFRPP925

Contact Person:	M. Didier Berger

THE PROVIDER’S ACCOUNT INFORMATION

• For the receipt of funds linked to billing:

Accountholder:	Euro Emetteurs Finance
Address:	48 boulevard des Batignolles 75850 Paris Cedex 17

Bank Code		Branch Sort Code		Account Number		Rib Code
30002		00570		********		09

Name of the Bank:

Crédit Lyonnais

EXHIBIT 3-1

FORM OF INSTRUCTION TO OPEN THE WARRANT EXERCISE PERIOD

Instruction to Open the Warrant Exercise Period

Euro Emetteurs Finances
48 Boulevard des Batignolles
75850 Paris Cedex 17, France
Tel: (33)(0)1.55.30.59.48 / Fax: (33)(0)1.55.30.59.50

Attention: Mrs. Edith Martinot (Customer Service)

Dear Mrs. Martinot:

Pursuant to Article III of the Securities Service and Escrow Agreement, we hereby inform you that Category [ ] of the Warrants has become exercisable as of [ ], and that the [ ] [indicate the number] Warrants in this category may be exercised by their holder(s) until their Expiration Date, i.e., until [ ].

Sincerely,

	EDAP TMS


	By: [ ]

cc: HT Prostate Therapy Management Company L.L.C.

EXHIBIT 3-2

FORM OF WARRANT EXERCISE NOTICE

Warrant Exercise Notice

Euro Emetteurs Finances

48 Boulevard des Batignolles

75850 Paris Cedex 17, France

Tel: (33)(0)1.55.30.59.48 / Fax: (33)(0)1.55.30.59.50

Attention: Mrs. Edith Martinot (Customer Service)

Dear Mrs. Martinot:

We refer to the securities service and escrow agreement dated [ ] 2005, entered into by and among Euro Emetteurs Finances, EDAP TMS and HT Prostate Therapy Management Company L.L.C. (the “Securities Service and Escrow Agreement”) and to the instruction to open the exercise period for Warrants in Category [ ] that was sent to you by EDAP TMS on [ ].

Pursuant to Article III of the Securities Service and Escrow Agreement, we hereby inform you that we have exercised [ ] Warrants in Category [ ], on [ ]. Enclosed please find a certificate from EDAP TMS that the exercise price for these Warrants has been paid.

We hereby request that in your capacity as accountholder for the Warrants and shares issued by EDAP TMS, you prepare all the paperwork for this exercise, including recording the Underlying Shares resulting from this exercise in a new account in our name.

	Sincerely,


	[HT Prostate Therapy Management Company L.L.C.]
	[*or:* *any other Healthtronics Company that holds Warrants*]


	By: [ ]

Encl.: Certificate from EDAP TMS (payment of the exercise price for the Warrants)

cc: EDAP TMS

EXHIBIT 3-3

FORM OF CERTIFICATE FROM EDAP TMS
(PAYMENT OF THE EXERCISE PRICE FOR THE WARRANTS)

Certificate from EDAP TMS (payment of the exercise price for the Warrants)

EDAP TMS, a French corporation with capital of €[1,087,166.73], having its principal place of business at Parc d’activité La Poudrette Lamartine, 4, rue du Dauphiné, 69120 Vaulx-en-Velin (France), recorded in the Commercial Register under the number Lyon B 316 488 204 (the “Issuer”) certifies:

• that it has received the sum of [ ], representing the entirety of the payments in cash made by [HT Prostate Therapy Management Company L.L.C.] [or: any Healthtronics Company that holds Warrants] in exchange for the exercise of [ ] Warrants in Category [ ];

• that the result of the payment of this exercise price is that [ ] new shares of the Issuer, with a par value of € [0.13] each, have been subscribed to by [HT Prostate Therapy Management Company L.L.C.] [or: the Healthtronics Company holding the exercised Warrants].

	Done in [ ], on [ ]

	By [ ], duly authorized

EXHIBIT 4-3

FORM OF INSTRUCTION FOR THE RELEASE OF ESCROWED SHARES

Instruction for the Release of Escrowed Shares

Euro Emetteurs Finances

48 Boulevard des Batignolles

75850 Paris Cedex 17, France

Tel: (33)(0)1.55.30.59.48 / Fax: (33)(0)1.55.30.59.50

Attention: Mrs. Edith Martinot (Customer Service)

Dear Mrs. Martinot:

Pursuant to Article 4-3 of the Securities Service and Escrow Agreement, we hereby request that you release [ ] Escrowed Shares appearing in the Escrow Account [ ] [indicate the identification number], to [ ] [identify the assignee], in an escrow account opened for this purpose by the Provider.

Pursuant to Article 4-3 of the Securities Service and Escrow Agreement, enclosed please find a copy of the legal opinion issued by the law firm of [ ] [name and address of the law firm] sent to EDAP TMS.

Please send this instruction to EDAP TMS, and if EDAP TMS does not object to it within 5 business days of receipt, please release the securities mentioned above and make the relevant entries in your records.

	Sincerely,


	[HT Prostate Therapy Management Company L.L.C.]


	By: [ ]

Encl.: Legal opinion from the law firm of [ ]

cc: EDAP TMS

EXHIBIT 4-4

FORM OF INSTRUCTION FOR THE TRANSFER OF ESCROWED WARRANTS

Instruction for the Transfer of Escrowed Warrants

Euro Emetteurs Finances

48 Boulevard des Batignolles

75850 Paris Cedex 17, France

Tel: (33)(0)1.55.30.59.48 / Fax: (33)(0)1.55.30.59.50

Attention: Mrs. Edith Martinot (Customer Service)

Dear Mrs. Martinot:

Pursuant to Article 4-4 of the Securities Service and Escrow Agreement, please transfer [ ] [number] Escrowed Warrants (in Category [ ]) to [ ] [indicate the Healthtronics Company] in account [ ] [[in the event of transfer to more than one Healthtronics Company] and [ ] Escrowed Warrants (in Category [ ]) to [ ] in account [ ].]

Pursuant to Article 4-4 of the Securities Service and Escrow Agreement, enclosed please find a copy of the certificate that the above-mentioned company or companies [is a Healthtronics Company] [are Healthtronics Companies].

Please transmit this instruction to EDAP TMS, and [if EDAP TMS does not object to it within 5 business days of receipt] please transfer the Escrowed Warrants mentioned above and make the relevant entries in your records.

	Sincerely,


	[HT Prostate Therapy Management Company L.L.C.]


	By: [ ]

Encl.: Certificate from [HT Prostate Therapy Management Company]

cc: EDAP TMS

EXHIBIT 4-5

FORM OF CERTIFICATE OF HT PROSTATE

Certificate

Reference is made to the securities service and escrow agreement dated [ ] 2005, entered into by and among Euro Emetteurs Finances, EDAP TMS and HT Prostate Therapy Management Company L.L.C. (the “Securities Service and Escrow Agreement”),

HT Prostate Therapy Management Company L.L.C., a limited liability company governed by the laws of the State of Delaware (United States), having its principal place of business at [ ] (United States), represented by [ ] (name), [ ] (capacity) certifies that [ ] [indicate the Healthtronics Company to which the Warrants are to be transferred] is as of the date hereof, and will remain as of the date on which the Warrants are transferred to it, a Healthtronics Company within the meaning of the Securities Service and Escrow Agreement.

	Done in [ ], on [ ]


	By [ ], duly authorized

EXHIBIT 4-6

FORM OF AGREEMENT OF HEALTHTRONICS COMPANIES

Agreement pursuant to the Securities Service and Escrow Agreement

Pursuant to Article 4-4 of the Securities Service and Escrow Agreement, Warrants have been transferred today to [ ] [indicate the Healthtronics Company to which the Warrants are transferred] , a [limited liability] company governed by the laws of the State of [ ](United States), having its principal place of business at [ ] (United States).

Therefore, pursuant to the Article mentioned above, [ ] [indicate the name of the Healthtronics Company to which the Warrants are transferred], represented by [ ] (name), [ ] (capacity) hereby agrees to comply with all of the provisions of the Securities Service and Escrow Agreement, to which it is now a party just as the parties that initially entered into the Agreement.

	Done in [ ], on [ ]


	By [ ], duly authorized

EXHIBIT 6-1

RATE SHEET

This exhibit sets forth the terms of remuneration of the obligations performed by the Provider under this Agreement.

The amounts indicated are all pre-tax amounts.

Actual costs (document printing costs, costs of legal announcements, publications, postage, etc.) shall be allocated pro rata.

1- HANDLING OF WARRANT EXERCISE NOTICES

A fee of €100 per file shall be applied to any warrant exercise notice.

This will be billed at the beginning of each calendar year, in arrears, on the basis of the exercises handled during the course of the past year.

2 – SERVICING OF THE WARRANTS

This service will be remunerated with an annual lump sum of €300.

This commission will be billed at the beginning of each calendar year for the fiscal year in course. For the first year, it will be pro rated from the date the services begin until December 31, 2005.

EXHIBIT 11-1

NOTICES

To the Issuer:

EDAP TMS

Parc d’activité la Poudrette Lamartine

4 rue du Dauphiné

69120 Vaulx-en-Velin, France

Attn : Blandine Confort (Responsable Juridique)

Telephone: (+33) (0)4 72 15 31 72

Fax: (+33) (0)4 72 15 31 51

E-mail: BConfort@edap-tms.com

To HT Prostate:

HT Prostate Therapy Management Company, L.L.C.

1841 West Oak Parkway, Suite A

Marietta, GA 30062, United States

Attn: Ted Biderman (General Counsel)

Telephone: (+1)-770-419-0691

Fax: (+1)-770-419-9490

E-mail: ted.biderman@healthtronics.com

To the Provider:

EURO EMETTEURS FINANCE

48 Boulevard des Batignolles

75850 Paris Cedex 17, France

Attn: Edith Martinot (Responsable Clientèle)

Telephone: (+33) (0)1.55.30.59.48.

Fax: (+33) (0)1.55.30.59.50

E-mail: edith.martinot@eef.fr

EX-31.1 3 a04-4553_1ex31d1.htm EX-31.1

Exhibit 31.1

PRINCIPAL EXECUTIVE OFFICER CERTIFICATION

I, Argil J. Wheelock, M.D., certify that:

1. I have reviewed this quarterly report on Form 10-Q of HealthTronics Surgical Services, Inc.;

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)) 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) [Reserved]

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 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 registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies in the design or operation of internal control over financial reporting which is 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; and

Date: May 7, 2004	/s/ Argil J. Wheelock
	Argil J. Wheelock, M.D.
	Chairman and Chief Executive Officer

EX-31.2 4 a04-4553_1ex31d2.htm EX-31.2

Exhibit 31.2

PRINCIPAL EXECUTIVE OFFICER CERTIFICATION

I, Martin J. McGahan, certify that:

1. I have reviewed this quarterly report on Form 10-Q of HealthTronics Surgical Services, Inc.;

b) [Reserved]

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; and

Date: May 7, 2004	/s/ Martin J. McGahan
	Martin J. McGahan
	President,Chief Operating Officer and Chief Financial Officer

EX-32.1 5 a04-4553_1ex32d1.htm EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of HealthTronics Surgical Services, Inc. (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2004 as filed with the Securities and Exchange Commission (the “Report”), I, Argil J. Wheelock, M.D., Chairman of the Board of Directors, and Chief Executive Officer of the Company and I, Martin J. McGahan, President, Chief Operating Officer and Chief Financial Officer of the Company, each certify, pursuant to 18 U.S.C. Section 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.

	/s/ Argil J. Wheelock
	Argil J. Wheelock, M.D.
	Chairman of the Board and
	Chief Executive Officer
	May 7, 2004


	/s/ Martin J. McGahan
	Martin J. McGahan
	President, Chief Operating
	Officer and
	Chief Financial Officer
	May 7, 2004

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Notes to Condensed Consolidated Financial Statements

Item 1. Financial Statements

Variable Interest Entities

Impairment of Long-Lived Assets

Related Party Transactions

Other Comprehensive Income or Expense

HealthTronics Surgical Services, Inc. and Subsidiaries

Pro Forma Combined Condensed Statements of Income

FOR THE THREE MONTHS ENDED MARCH 31, 2004

Overview

Related Party Transactions

Recently Issued Accounting Standards

Liquidity and Capital Resources

Quantitative and Qualitative Disclosure of Market Risk

Cautionary Statements

Item 3. Quantitative and Qualitative Disclosure of Market Risk

Item 2. Changes in Securities and Use of Proceeds

SERVICING WARRANTS

HANDLING EXERCISES OF WARRANTS

ESCROW OF WARRANTS AND SHARES

The Provider shall provide administrative and accounting services with respect to the Warrants issued by the Issuer.

The Provider shall escrow the Warrants and the Underlying Shares that are issued by the Issuer.

FORM OF INSTRUCTION TO OPEN THE WARRANT EXERCISE PERIOD

FORM OF WARRANT EXERCISE NOTICE

FORM OF CERTIFICATE FROM EDAP TMS (PAYMENT OF THE EXERCISE PRICE FOR THE WARRANTS)

FORM OF INSTRUCTION FOR THE RELEASE OF ESCROWED SHARES

FORM OF INSTRUCTION FOR THE TRANSFER OF ESCROWED WARRANTS

FORM OF CERTIFICATE OF HT PROSTATE

FORM OF AGREEMENT OF HEALTHTRONICS COMPANIES

RATE SHEET

FORM OF CERTIFICATE FROM EDAP TMS
(PAYMENT OF THE EXERCISE PRICE FOR THE WARRANTS)