10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

xQuarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the quarterly period ended June 30, 2010

or

oTransition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from                    to                   

Commission File Number: 000-20086

UNIVERSAL HOSPITAL SERVICES, INC.

(Exact name of registrant as specified in its charter)

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

7700 France Avenue South, Suite 275

Edina, Minnesota 55435-5228

(Address of principal executive offices, including zip code)

(952) 893-3200

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address, and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o  No x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o  No o

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

Large accelerated filer o	Accelerated filer o
Non-accelerated filer x	Smaller reporting company o
(Do not check if a smaller reporting company)

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

Number of shares of common stock outstanding as of August 1, 2010:  1,000

Universal Hospital Services, Inc.

Table of Contents

		Page
PART I - FINANCIAL INFORMATION
ITEM 1.	Financial Statements
	Balance Sheets — June 30, 2010 and December 31, 2009	3
	Statements of Operations — Three months ended June 30, 2010 and 2009 and Six months ended June 30, 2010 and 2009	4
	Statements of Cash Flows — Six months ended June 30, 2010 and 2009	5
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	31
ITEM 4T.	Controls and Procedures	31
PART II - OTHER INFORMATION
ITEM 1.	Legal Proceedings	32
ITEM 1A.	Risk Factors	32
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
ITEM 3.	Defaults Upon Senior Securities	32
ITEM 4.	Removed and Reserved
ITEM 5.	Other Information	32
ITEM 6.	Exhibits	35
Signatures		37

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements — Unaudited

Universal Hospital Services, Inc.

Balance Sheets

(in thousands, except share and per share information)

(unaudited)

	June 30, 2010			December 31, 2009
Assets
Current assets:
Accounts receivable, less allowance for doubtful accounts of $2,450 at June 30, 2010 and December 31, 2009	$	55,259		$	60,079
Inventories	4,673			5,236
Deferred income taxes	8,116			8,733
Other current assets	3,765			2,983
Total current assets	71,813			77,031
Property and equipment, net:
Medical equipment, net	213,068			197,859
Property and office equipment, net	20,111			19,406
Total property and equipment, net	233,179			217,265
Other long-term assets:
Goodwill	280,211			280,211
Other intangibles, net	241,719			248,653
Other, primarily deferred financing costs, net	12,718			12,243
Total assets	$	839,640		$	835,403
Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of long-term debt	$	4,327		$	4,062
Book overdrafts	7,786			3,302
Accounts payable	15,617			18,075
Accrued compensation	11,852			10,432
Accrued interest	3,644			3,696
Other accrued expenses	12,161			9,174
Total current liabilities	55,387			48,741
Long-term debt, less current portion	523,631			514,557
Pension and other long-term liabilities	6,348			6,465
Interest rate swap	20,013			21,286
Payable to Parent	7,032			6,342
Deferred income taxes	59,892			64,021
Commitments and contingencies (Note 7)
Shareholders’ equity
Common stock, $0.01 par value; 1,000 shares authorized, issued and outstanding at June 30, 2010 and December 31, 2009	—			—
Additional paid-in capital	248,794			248,794
Accumulated deficit	(65,585		)	(58,165		)
Accumulated other comprehensive loss	(15,872		)	(16,638		)
Total shareholders’ equity	167,337			173,991
Total liabilities and shareholders’ equity	$	839,640		$	835,403

The accompanying notes are an integral part of the unaudited financial statements.

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Universal Hospital Services, Inc.

Statements of Operations

(in thousands)

(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Revenue
Medical equipment outsourcing	$	60,818		$	56,524		$	125,992		$	114,806
Technical and professional services	11,152			10,696			21,965			21,108
Medical equipment sales and remarketing	4,763			5,616			8,950			10,852
Total revenues	76,733			72,836			156,907			146,766
Cost of Sales
Cost of medical equipment outsourcing	22,452			19,760			45,069			40,229
Cost of technical and professional services	8,064			7,568			15,848			14,938
Cost of medical equipment sales and remarketing	3,724			4,440			7,071			8,826
Medical equipment depreciation	17,358			15,904			34,815			31,766
Total costs of medical equipment outsourcing, technical and professional services and medical equipment sales and remarketing	51,598			47,672			102,803			95,759
Gross margin	25,135			25,164			54,104			51,007
Selling, general and administrative	20,982			21,158			42,052			43,173
Operating income	4,153			4,006			12,052			7,834
Interest expense	11,855			11,845			23,362			23,562
Loss before income taxes	(7,702		)	(7,839		)	(11,310		)	(15,728		)
Benefit for income taxes	(2,562		)	(3,036		)	(3,890		)	(6,135		)
Net loss	$	(5,140	)	$	(4,803	)	$	(7,420	)	$	(9,593	)

The accompanying notes are an integral part of the unaudited financial statements.

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Universal Hospital Services, Inc.

Statements of Cash Flows

(in thousands)

(unaudited)

	Six Months Ended June 30,
	2010			2009
Cash flows from operating activities:
Net loss	$	(7,420	)	$	(9,593	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation	39,054			35,971
Amortization of intangibles and deferred financing costs	8,226			8,709
Provision for doubtful accounts	74			720
Provision for inventory obsolescence	116			(113		)
Non-cash stock-based compensation expense	691			908
Loss (gain) on sales and disposals of equipment	(136		)	50
Deferred income taxes	(3,574		)	(4,271		)
Changes in operating assets and liabilities:
Accounts receivable	4,746			(3,007		)
Inventories	447			660
Other operating assets	(802		)	(495		)
Accounts payable	(2,996		)	(1,841		)
Other operating liabilities	3,792			(2,351		)
Net cash provided by operating activities	42,218			25,347
Cash flows from investing activities:
Medical equipment purchases	(47,250		)	(15,539		)
Property and office equipment purchases	(2,642		)	(1,953		)
Proceeds from disposition of property and equipment	1,239			1,828
Net cash used in investing activities	(48,653		)	(15,664		)
Cash flows from financing activities:
Proceeds under senior secured credit facility	86,579			42,000
Payments under senior secured credit facility	(70,379		)	(52,000		)
Payments of principal under capital lease obligations	(2,557		)	(2,178		)
Payment of deferred financing costs	(1,746		)	—
Repayment of 10.125% senior notes	(9,945		)	—
Change in book overdrafts	4,483			(6,011		)
Net cash provided by (used in) financing activities	6,435			(18,189		)
Net change in cash and cash equivalents	—			(8,506		)
Cash and cash equivalents at the beginning of period	—			12,006
Cash and cash equivalents at the end of period	$	—		$	3,500
Supplemental cash flow information:
Interest paid	$	22,122		$	22,563
Income taxes paid	$	263		$	192
Non-cash activities:
Medical equipment purchases included in accounts payable (at end of period)	$	5,233		$	3,244
Capital lease additions	$	5,641		$	1,731

The accompanying notes are an integral part of the unaudited financial statements.

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Universal Hospital Services, Inc.

NOTES TO UNAUDITED QUARTERLY FINANCIAL STATEMENTS

1.Basis of Presentation

The interim financial statements included in this Quarterly Report on Form 10-Q have been prepared by Universal Hospital Services, Inc. (“we,” “our”, “us”, the “Company”, or “UHS”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted, pursuant to such rules and regulations.  These condensed financial statements should be read in conjunction with the financial statements and related notes included in the Company’s 2009 Annual Report on Form 10-K (“2009 Form 10-K”), filed with the SEC.

The interim financial statements presented herein as of June 30, 2010, reflect, in the opinion of management, all adjustments necessary for a fair presentation of the financial position and the results of operations and cash flows for the periods presented.  These adjustments are all of a normal, recurring nature.  The results of operations for any interim period are not necessarily indicative of results for the full year.

The December 31, 2009 balance sheet amounts were derived from audited financial statements, but do not include all disclosures required by GAAP.

We are required to make estimates and assumptions about future events in preparing financial statements in conformity with GAAP.  These estimates and assumptions affect the amounts of assets, liabilities, revenues and expenses at the date of the unaudited condensed financial statements.  While we believe that our past estimates and assumptions have been materially accurate, our current estimates are subject to change if different assumptions as to the outcome of future events are made.  We evaluate our estimates and judgments on an ongoing basis and predicate those estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances.  We make adjustments to our assumptions and judgments when facts and circumstances dictate.  Since future events and their effects cannot be determined with absolute certainty, actual results may differ from the estimates used in preparing the accompanying unaudited condensed financial statements.

A description of our critical accounting policies is included in our 2009 Form 10-K. There have been no material changes to these policies for the quarter ended June 30, 2010.

2.Comprehensive Loss

Comprehensive loss is comprised of net loss and other comprehensive income. Other comprehensive income includes unrealized gains from derivatives designated as cash flow hedges. Accumulated other comprehensive loss is displayed separately on the balance sheets.  A reconciliation of net loss to comprehensive loss is provided below:

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	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2010			2009			2010			2009
Net loss	$	(5,140	)	$	(4,803	)	$	(7,420	)	$	(9,593	)
Unrealized gain on cash flow hedge, net of tax	674			2,280			766			2,902
Comprehensive loss	$	(4,466	)	$	(2,523	)	$	(6,654	)	$	(6,691	)

3.Recent Accounting Pronouncement

Standard Issued Not Yet Adopted

In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2009-13, Revenue Recognition (Topic 605): Multiple Deliverable Revenue Arrangements — A Consensus of the FASB Emerging Issues Task Force. This update provides application guidance on whether multiple deliverables exist, how the deliverables should be separated and how the consideration should be allocated to one or more units of accounting. This update establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available. The Company will be required to apply this guidance prospectively for revenue arrangements entered into or materially modified after January 1, 2011. The Company is currently evaluating the impact of the provisions of ASU 2009-13 on the Company’s Financial Statements.

4.Fair Value Measurements

Financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2010 and December 31, 2009, in accordance with Accounting Standards Codification (“ASC”) Topic 820, are summarized in the following table by type of inputs applicable to the fair value measurements:

	Fair Value at June 30, 2010								Fair Value at December 31, 2009
(in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Interest Rate Swap	$	—	$	20,013	$	—	$	20,013	$	—	$	21,286	$	—	$	21,286

A description of the inputs used in the valuation of assets and liabilities is summarized as follows:

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

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

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

Fair Value of Other Financial Instruments

The Company considers the carrying amount of financial instruments, including accounts receivable, accounts payable and accrued liabilities, as the approximate fair value due to their short maturities. On June 14, 2010, the Company redeemed, at par value plus accrued interest to the date of redemption, all of its 10.125% Senior Notes. See additional information in Note 6, Long Term Debt. The fair value of our outstanding PIK Toggle Notes, Floating Rate Notes and 10.125% Senior Notes as of June 30, 2010 and December 31, 2009, based on the quoted market price for the same or similar issues of debt, is approximately:

	June 30,		December 31,
(in millions)	2010		2009
PIK Toggle Notes	$	226.6	$	227.1
Floating Rate Notes	193.2		193.8
10.125% Senior Notes	N/A		9.8

5.Stock-Based Compensation

During the six months ended June 30, 2010, activity under the 2007 Stock Option Plan of UHS Holdco, Inc. (“2007 Stock Option Plan”), our parent company (“Parent”) was as follows:

(in thousands except exercise price)	Number of Options		Weighted average exercise price		Aggregate intrinsic value		Weighted average remaining contractual term (years)
Outstanding at December 31, 2009	37,527		$	1.00	$	35,651	7.5
Granted	1,430		$	1.83	$	—
Exercised	—
Forfeited or expired	(242	)	$	1.05	$	189
Outstanding at June 30, 2010	38,715		$	1.03	$	30,972	7.1
Exercisable at June 30, 2010	14,957		$	1.00	$	12,414	7.0
Remaining authorized options available for issue	5,190

The exercise price of each stock option award is equal to the market value of Parent’s common stock on the grant date as determined reasonably and in good faith by the Parent’s board of directors (the “Parent

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Board”) and Parent’s compensation committee.  The exercise price of options issued during the six months ended June 30, 2010 was determined through a variety of factors including peer group multiples, merger and acquisition multiples, and discounted cash flow analyses.

The intrinsic value of a stock award is the amount by which the market value of the underlying stock exceeds the exercise price of the award.

We determine the fair value of options using the Black-Scholes option pricing model. The estimated fair value of options, including the effect of estimated forfeitures, is recognized as expense on a straight-line basis over the options’ expected vesting periods. The following assumptions were used in determining the fair value of stock options granted during the six months ended June 30, 2010, under the Black-Scholes model:

	Six Months Ended June 30, 2010
Risk-free interest rate	3.08	%
Expected volatility	31.90	%
Dividend Yield	N/A
Expected option life (years)	6.6

Expected volatility is based on an independent valuation of the stock of companies within our peer group.  Given the lack of a true comparable company, the peer group consists of selected public health care companies representing our suppliers, customers and competitors within certain product lines.  The risk free-interest rate is based on the U.S. Treasury yield curve in effect at the grant date based on the expected option life.  The expected option life represents the result of the “simplified” method applied to “plain vanilla” options granted during the period, as provided within ASC Topic 718, “Compensation - Stock Compensation.”  Parent used the simplified method as Parent does not have sufficient historical exercise experience to provide a basis upon which to estimate the expected term.

Although Parent grants stock options, the Company recognizes compensation expense related to these options since the services are performed for its benefit.  For the quarters ended June 30, 2010 and 2009, we recognized non-cash stock compensation expense of $0.3 and $0.9 million, respectively, which is primarily included in selling, general and administrative expenses.  At June 30, 2010, unearned non-cash stock-based compensation related to our fixed vesting options, that we expect to recognize as expense over the next 3.0 years, totals approximately $3.8 million, net of our estimated forfeiture rate of 2.0%. Unearned non-cash stock-based compensation related to the performance vesting options totaling approximately $5.2 million, net of our estimated forfeiture rate of 2.0%, would be recognized over the next 5.5 years only if the performance targets are met.  The expense could be accelerated upon the sale of Parent or the Company.

Effective August 11, 2010, the Compensation Committee of our Board of Directors recommended, and the Parent Board authorized, an amendment to the vesting provisions of certain option agreements relating to options outstanding under the 2007 Stock Option Plan, including the acceleration of vesting of certain unvested options granted under the 2007 Stock Option Plan. See Note 11 Subsequent Event, below.

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Compensation expense related to service provided by the Company’s employees is recognized in the accompanying Statements of Operations with an offsetting Payable to Parent liability, which is not expected to be settled within the next twelve months.

6.Long-Term Debt

Long-term debt consists of the following:

	June 30,			December 31,
(in thousands)	2010			2009
PIK Toggle Notes	$	230,000		$	230,000
Floating Rate Notes	230,000			230,000
Senior secured credit facility	54,600			38,400
10.125% Senior Notes	—			9,945
Capital lease obligations	13,358			10,274
	527,958			518,619
Less: Current portion of long-term debt	(4,327		)	(4,062		)
Total long-term debt	$	523,631		$	514,557

PIK Toggle Notes.  Our 8.50% / 9.25% PIK Toggle Notes (the “PIK Toggle Notes”) were issued on May 31, 2007 in the aggregate principal amount of $230.0 million under a Second Lien Senior Indenture dated as of May 31, 2007, between the Company and Wells Fargo Bank, National Association, as trustee (the “Second Lien Senior Indenture”).  The PIK Toggle Notes mature on June 1, 2015.  Interest on the PIK Toggle Notes is payable semiannually in arrears on each June 1 and December 1.  For any interest payment period through June 1, 2011, the Company may, at its option, elect to pay interest on the PIK Toggle Notes entirely in cash (“Cash Interest”), entirely by increasing the principal amount of the outstanding PIK Toggle Notes, by issuing additional PIK Toggle Notes (“PIK Interest”) or 50% Cash Interest and 50% PIK Interest.  Cash Interest on the PIK Toggle Notes accrues at the rate of 8.50% per annum.  PIK Interest on the PIK Toggle Notes accrues at the rate of 9.25% per annum.  After June 1, 2011, the Company is required to make all interest payments on the PIK Toggle Notes entirely as Cash Interest.  The PIK Toggle Notes are redeemable, at the Company’s option, in whole or in part, at specified redemption prices (as defined in the Second Lien Senior Indenture) plus accrued interest to the date of redemption. In addition, the PIK Toggle Notes have a change of control provision, which gives each holder the right to require the Company to purchase all or a portion of such holders’ PIK Toggle Notes upon a change in control, as defined in the Second Lien Senior Indenture, at a purchase price equal to 101% of the principal amount plus accrued interest to the date of purchase. The PIK Toggle Notes, subject to certain definitions and exceptions, have covenants that restrict, among other things, the incurrence of additional debt, the payment of dividends and the issuance of preferred stock. The PIK Toggle Notes are uncollateralized.

Floating Rate Notes.  OurFloating Rate Notes (the “Floating Rate Notes”) were issued on May 31, 2007 in the aggregate principal amount of $230.0 million under the Second Lien Senior Indenture.  The Floating Rate Notes mature on June 1, 2015.  Interest on the Floating Rate Notes is payable semiannually in arrears on each June 1 and December 1. Interest on the Floating Rate Notes is reset for each semi-annual interest period and is calculated at the current LIBOR rate plus 3.375%.  At June 30, 2010, our LIBOR-based rate was 4.134%, which includes the credit spread.  The Floating Rate Notes are

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redeemable, at the Company’s option, in whole or in part, at specified redemption prices (as defined in the Second Lien Senior Indenture) plus accrued interest to the date of redemption. In addition, the Floating Rate Notes have a change of control provision, which gives each holder the right to require the Company to purchase all or a portion of such holders’ Floating Rate Notes upon a change in control, as defined in the Second Lien Senior Indenture, at a purchase price equal to 101% of the principal amount plus accrued interest to the date of purchase. The Floating Rate Notes, subject to certain definitions and exceptions, have covenants that restrict, among other things, the incurrence of additional debt, the payment of dividends and the issuance of preferred stock. The Floating Rate Notes are uncollateralized.

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

The interest rate swap agreement qualifies for cash flow hedge accounting under ASC Topic 815, Derivatives and Hedging. Both at inception and on an on-going basis, we must perform an effectiveness test.  In accordance with ASC Topic 815, the fair value of the interest rate swap agreement at June 30, 2010 is included as a cash flow hedge on our balance sheet.  The change in fair value was recorded as a component of accumulated other comprehensive loss on our balance sheet, net of tax, since the instrument was determined to be an effective hedge at June 30, 2010.  We expect to reclassify approximately $6.6 million into earnings, net of tax, currently recorded in accumulated other comprehensive loss, in the next 12 months.

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

Senior Secured Credit Facility. On May 6, 2010 we entered into an Amended and Restated Credit Agreement with GE Business Financial Services, Inc., as agent for the lenders, and the lenders party thereto, which amended the senior secured credit facility dated as of May 31, 2007. The senior secured credit facility is a first lien senior secured asset based revolving credit facility. The Amended and Restated Credit Agreement increased the aggregate amount the Company may borrow from $135.0 million to $195.0 million and extended the maturity date to November 30, 2014. Additionally, we capitalized deferred financing costs related to the Amended and Restated Credit Agreement in the amount of $1.7 million. As of June 30, 2010, we had $116.1 million of availability under the senior secured credit facility based on a borrowing base of $174.8 million, less borrowings of $54.6 million, and after giving effect to $4.1 million used for letters of credit.  Our obligations under the senior secured credit facility are secured by a first priority security interest in substantially all of our assets, excluding a pledge of our and Parent’s capital stock, any joint ventures and certain other exceptions. Our obligations under the senior secured credit facility are unconditionally guaranteed by Parent.

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

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

·incur indebtedness;

·create or permit liens;

·declare or pay dividends and certain other restricted payments;

·consolidate, merge or recapitalize;

·acquire or sell assets;

·make certain investments, loans or other advances;

·enter into transactions with affiliates;

·change our line of business; and

·enter into hedging transactions.

The senior secured credit facility also contains a financial covenant that is triggered if our available borrowing capacity is less than $15.0 million for a certain period, which consists of a minimum ratio of trailing four-quarter EBITDA to cash interest expense, as such terms are defined in the senior secured credit facility.

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

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

·at a per annum rate equal to 1.75% above the rate announced from time to time by the agent as the “prime rate” payable quarterly in arrears; and

·at a per annum rate equal to 2.75% above the adjusted LIBOR rate used by the agent, for the respective interest rate period determined at our option, payable in arrears upon cessation of the interest rate period elected.

At June 30, 2010, we had borrowings outstanding that were accruing interest at our prime rate, which was 5.000%, which includes the credit spread noted above. At June 30, 2010, we had borrowings outstanding that were accruing interest at our LIBOR-based rate of 3.102%, which includes the credit spread noted above.

10.125% Senior Notes. On June 14, 2010, we redeemed, at par value plus accrued interest to the redemption date, all of our 10.125% Senior Notes. The funds used to redeem our 10.125% Senior Notes were obtained from our senior secured credit facility. The 10.125% Senior Notes were redeemable, at our option, in whole or in part of, at specified redemption prices (as defined) plus accrued interest to the date of redemption. The transaction resulted in a redemption price of $10.0 million of which $9.9 million related to principal and $0.1 million related to interest.

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7.Commitments and Contingencies

On July 13, 2010, the U.S. Food and Drug Administration (“FDA”) issued a final order and transition plan to Baxter Healthcare Corporation (“Baxter”) to recall all Colleague infusion pumps currently in use in the United States. The FDA order establishes the framework for the recall by providing for a cash refund, generally, $1,500 for single channel pumps and $3,000 for triple channel pumps, or a replacement pump to owners within a two-year period.

At June 30, 2010, we owned approximately 11,900 Colleague pumps. We are currently in the process of evaluating the course of action that best meets the infusion technology needs of our customers and our business. As such, while we expect to recognize gains and also expect to increase purchases of infusion pumps to replace recalled units, the timing and extent of those gains or capital expenditures are not readily estimable.

The Company, from time to time, may become involved in litigation arising out of operations in the normal course of business. Asserted claims are subject to many uncertainties and the outcome of individual matters is not predictable with assurance.

On October 19, 2009, Freedom Medical, Inc. filed a lawsuit against the Company and others in U.S. District Court for the Eastern District of Texas. The federal complaint alleges violation of state and federal antitrust laws, tortious interference with business relationships, business disparagement and common law conspiracy. Freedom Medical, Inc. is seeking unspecified damages and injunctive relief. Although it is not possible to reliably predict the outcome of the lawsuit, we believe that we have meritorious defenses against the claims and will vigorously defend against them.

As of June 30, 2010, we were not a party to any other pending legal proceedings the adverse outcome of which could reasonably be expected to have a material adverse effect on our operating results, financial position or cash flows.

8.Related Party Transactions

Management Agreement

On May 31, 2007, we and Irving Place Capital entered into a professional services agreement pursuant to which Irving Place Capital provides general advisory and management services to us with respect to financial and operating matters.  Irving Place Capital is a principal owner of Parent, and the following members of our Board of Directors are associated with Irving Place Capital:  John Howard, Robert Juneja, Bret Bowerman and David Crane. We paid Irving Place Capital professional services fees of $0.4 million for each of the six-month periods ended June 30, 2010 and 2009, respectively.

Business Relationship

In the ordinary course of business, we entered into an operating lease for our Minneapolis, Minnesota district office with Ryan Companies US, Inc. (“Ryan”), which began on May 1, 2007.  One member of our Board of Directors is also a director of Ryan.  We made payments to Ryan totaling $181,000 and $167,000 during the six months ended June 30, 2010 and 2009, respectively.

One of our directors, who joined the Board of Directors on April 1, 2008, is also a director of Broadlane, Inc. (“Broadlane”), a health care group purchasing organization that serves many of our customers.

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During the six months ended June 30, 2010 and 2009, we paid administrative fees to Broadlane of approximately $301,000 and $257,000, respectively. On June 30, 2010, accounts payable includes approximately $41,000 in amounts due to Broadlane.

The Company believes that the aforementioned arrangements and relationships were provided in the ordinary course of business at prices and on terms similar to those that would result from arm’s length negotiation between unrelated parties.

9.Segment Information

Our reporting segments consist of Medical Equipment Outsourcing, Technical and Professional Services, and Medical Equipment Sales and Remarketing. Certain operating information for our segments as well as a reconciliation of total Company gross margin to loss before income tax was as follows:

Medical Equipment Outsourcing

(in thousands)

	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
Revenues	$	60,818	$	56,524	$	125,992	$	114,806
Cost of revenue	22,452		19,760		45,069		40,229
Medical equipment depreciation	17,358		15,904		34,815		31,766
Gross margin	$	21,008	$	20,860	$	46,108	$	42,811

Technical and Professional Services

(in thousands)

	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
Revenues	$	11,152	$	10,696	$	21,965	$	21,108
Cost of revenue	8,064		7,568		15,848		14,938
Gross margin	$	3,088	$	3,128	$	6,117	$	6,170

Medical Equipment Sales and Remarketing

(in thousands)

	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
Revenues	$	4,763	$	5,616	$	8,950	$	10,852
Cost of revenue	3,724		4,440		7,071		8,826
Gross margin	$	1,039	$	1,176	$	1,879	$	2,026

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Total Gross Margin and Reconciliation to Loss Before Income Tax

(in thousands)

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Total gross margin	$	25,135		$	25,164		$	54,104		$	51,007
Selling, general and administrative	20,982			21,158			42,052			43,173
Interest expense	11,855			11,845			23,362			23,562
Loss before income tax	$	(7,702	)	$	(7,839	)	$	(11,310	)	$	(15,728	)

10.Pension Plan

The components of net periodic pension costs are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2010			2009			2010			2009
Interest cost	$	274		$	267		$	544		$	533
Expected return on plan assets	(308		)	(304		)	(609		)	(607		)
Recognized net actuarial loss	40			4			77			6
Net periodic cost (benefit)	$	6		$	(33	)	$	12		$	(68	)

Future benefit accruals for all participants were frozen as of December 31, 2002.

11.Subsequent Event

Effective August 11, 2010, the Compensation Committee of our Board of Directors recommended, and the Parent Board approved, an amendment (the “Amendment”) to the vesting provisions contained in all outstanding option agreements of participants in the 2007 Stock Option Plan who were employed by Parent or us as of the effective date of the Amendment, or served on our Board of Directors through that date.  Performance vesting options granted under the 2007 Stock Option Plan vest over a six-year period with 16.66% vesting on December 31 of each year of the six-year period, subject to the option holder not ceasing employment with Parent or us, and to our attainment of either an adjusted EBITDA target for current fiscal year, or an aggregate adjusted EBITDA target calculated in each subsequent fiscal year, as provided in the respective form of option agreement.  The Amendment, among other things, does away with the requirement that the EBITDA-based performance objectives be achieved in order for performance vesting options to vest, in effect providing for time-based vesting of these options rather than performance vesting.  The Amendment does not change the number of options granted, the strike price, or any continued service requirements.  The Amendment also provides for the acceleration of vesting, for 2007 Stock Option Plan participants who were employed by Parent or us as of the effective date of the Amendment and who were granted options prior to December 31, 2009, of options (the “Accelerated Options”) to purchase approximately 2,996,000 shares of common stock of Parent that were eligible for vesting on December 31, 2009, but did not vest because we did not achieve the applicable adjusted EBITDA target for the fiscal year ended December 31, 2009.  At the time vesting was accelerated, the Accelerated Options remained eligible for vesting in future years based on our achievement of an aggregate adjusted EBITDA target.  Except as described above, all other terms and conditions applicable to the Accelerated Options remain in effect. The Amendment also amends the provisions relating to time vesting options granted under the 2007 Stock Option Plan to achieve greater

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consistency between the treatment of these options and the treatment of performance vesting options in the event of a sale of substantially all of the assets of Parent or us.

The Parent Board recognized the increased level of difficulty in achieving the original performance targets relating to performance vesting options (which were established in 2007), taking into consideration continued economic challenges, and authorized the Amendment in an effort to ensure that Parent continues to provide long-term incentives that drive core operating performance, while creating a meaningful retention benefit.

Aggregate performance vesting options affected by the Amendment, including the Accelerated Options, are detailed below by original grant date:

Summary of Performance Vesting Options

(in thousands)

		Vested
		Performance
		Options
	Performance	Outstanding at
	Options	August 10, 2010	Options
	Outstanding at	(Prior to	Affected by	Accelerated
Grant Date	August 10, 2010	Amendment)	Amendment (1)	Options (2)
June 18, 2007	17,109	5,707	11,402	2,851
December 3, 2007	283	48	235	47
April 1, 2008	28	5	23	5
April 1, 2009	564	—	564	94
April 13, 2010 (3)	707	—	707	N/A
Total	18,691	5,760	12,931	2,996

(1) Includes Accelerated Options

(2) Accelerated Options vesting on August 11, 2010

(3) Options issued subsequent to December 31, 2009 were not affected by the accelerated vesting

An aggregate of approximately 2,996,000 options vested on August 11, 2010 as a result of the Parent Board’s acceleration of vesting performance vesting options.  The remaining unvested options affected by the Amendment will vest and become exercisable on each December 31, in accordance with the vesting schedule provided in the option agreements, through the remaining term of the applicable option. We are currently in the process of valuing the amended performance vesting options affected by the Amendment and the related impact to our financial statements.

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

The following should be read in conjunction with the accompanying financial statements and notes.

BUSINESS OVERVIEW

Our Company

Universal Hospital Services, Inc. (“we”, “our”, “us”, the “Company”, or “UHS”) is a leading nationwide provider of medical equipment management and service solutions to the United States health care industry. Our customers include national, regional and local acute and long-term acute care hospitals, alternate site providers (such as long-term acute care hospitals, skilled nursing facilities, specialty hospitals, nursing homes, and home care providers) and medical equipment manufacturers.  We provide our customers equipment management and service solutions across the spectrum of the equipment life cycle as a result of our position as one of the industry’s largest purchasers and outsourcers of medical equipment. During the twelve months ended June 30, 2010, we owned or managed over 565,000 pieces of medical equipment consisting of 370,000 owned or managed pieces in our Medical Equipment Outsourcing segment and 195,000 pieces of customer owned equipment we manage in our Technical and Professional Services segment. Our diverse medical equipment outsourcing customer base includes more than 4,250 acute care hospitals and approximately 4,350 alternate site providers.  We also have relationships with more than 200 medical equipment manufacturers and many of the nation’s largest group purchasing organizations (“GPOs”) and many of the integrated delivery networks (“IDNs”).  All of our solutions leverage our nationwide network of 84 offices and our over 70 years of experience managing and servicing all aspects of medical equipment.  Our fees are paid directly by our customers rather than from direct reimbursement from third-party payors, such as private insurers, Medicare, or Medicaid.  We commenced operations in 1939, originally incorporated in Minnesota in 1954 and reincorporated in Delaware in 2001.  Historically, we have experienced significant and sustained growth. Our overall growth strategy is to continue to grow both organically and through strategic acquisitions.  In 2010, the Company has increased its focus on potential acquisitions and international growth opportunities.

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

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Our reporting segments consist of Medical Equipment Outsourcing, Technical and Professional Services and Medical Equipment Sales and Remarketing.  We evaluate the performance of our reporting segments based on gross margin and gross margin before purchase accounting adjustments. The accounting policies of the individual reporting segments are the same as those of the entire Company.

We present the non-generally accepted accounting principles (“GAAP”) financial measure gross margin, before purchase accounting adjustments, because we use this measure to monitor and evaluate the operational performance of our business and to assist analysts, investors and lenders in their comparisons of operational performance across companies, many of whose results will not include similar adjustments. A reconciliation of the non-GAAP financial measure to its equivalent GAAP measure is included in the respective tables.

Medical Equipment Outsourcing Segment - Manage & Utilize

Our flagship business is our Medical Equipment Outsourcing segment, which accounted for $60.9 million, or approximately 79.3% of our revenues, for the quarter ended June 30, 2010 and $126.0 million, or approximately 80.3% of our revenues, for the six months ended June 30, 2010. As of June 30, 2010, we owned or managed over 370,000 pieces of medical equipment in our Medical Equipment Outsourcing segment, primarily in the categories of respiratory therapy, newborn care, critical care, patient monitors, patient handling (such as beds, stretchers and wheelchairs), pressure area management (such as therapy surfaces) and wound therapy.  Historically, we have purchased and directly owned the equipment used in our medical equipment outsourcing programs. During 2007, we entered into “revenue sharing” agreements with a select few manufacturers of equipment where the manufacturers retain ownership of the equipment, but UHS takes possession and manages the rental of the equipment to customers.   We may enter into more of such arrangements in the future.  Such arrangements are less capital-intensive for us.  In January 2010, one of these agreements was modified such that we purchased $16.6 million of the manufacturer’s equipment that we previously managed, but did not own. With this January 2010 purchase, the revenue share portion of the agreement was terminated and we began to recognize 100% of the revenue associated with this equipment.

We perform regular and preventative maintenance on the equipment and retain detailed records for documentation.  We repair, test and clean the equipment. Our service includes prompt replacement of non-working equipment and the flexibility to upgrade technology as a customer’s product of choice changes.  We have three primary outsourcing programs:

·Supplemental and Peak Needs Usage;

·Customized Outsourcing Agreements; and

·Asset360TM Program (formerly Asset Management Partnership Program, or “AMPP”).

We have contracts in place with many of the leading national GPOs for both the acute care and alternate site markets.  We also have agreements directly with national acute care and alternate site providers. We expect much of our future growth in this segment to be driven by our customers outsourcing more of their medical equipment needs and taking full advantage of our diversified product offering, customized outsourcing agreements and Asset360 Programs.

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On July 13, 2010, the U.S. Food and Drug Administration (“FDA”) issued a final order and transition plan to Baxter Healthcare Corporation (“Baxter”) to recall all Colleague infusion pumps currently in use in the United States. The FDA order establishes the framework for the recall by providing for a cash refund, generally, $1,500 for single channel pumps and $3,000 for triple channel pumps, or a replacement pump to owners within a two-year period.

At June 30, 2010, we owned approximately 11,900 Colleague pumps. We are currently in the process of evaluating the course of action that best meets the infusion technology needs of our customers and our business. As such, while we expect to recognize gains and also expect to increase purchases of infusion pumps to replace recalled units, the timing and extent of those gains or capital expenditures are not readily estimable.

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

Our Technical and Professional Services segment accounted for $11.2 million, or approximately 14.5% of our revenues for the quarter ended June 30, 2010 and $22.0 million, or approximately 14.0% of our revenues for the six months ended June 30, 2010. We leverage our 70 years of experience and our extensive equipment database in repairing and maintaining medical equipment.  We offer a broad range of inspection, preventative maintenance, repair, logistic and consulting services through our team of approximately 325 technicians and professionals located throughout the United States in our nationwide network of offices. During the twelve months ended June 30, 2010, we managed over 195,000 units of customer owned equipment. In addition, during the twelve months ended June 30, 2010, we serviced over 370,000 units that we own or directly manage. Our technical and professional service offerings are less capital-intensive than our Medical Equipment Outsourcing segment, and provide a complementary alternative for customers that wish to own their medical equipment, but lack the infrastructure, expertise or scale to perform routine maintenance, repair, record-keeping and lifecycle analysis and planning functions.

Medical Equipment Sales and Remarketing Segment - Redeploy & Remarket

Our Medical Equipment Sales and Remarketing segment accounted for $4.8 million, or approximately 6.2%, of our revenues for the quarter ended June 30, 2010 and $9.0 million, or approximately 5.7% of our revenues for the six months ended June 30, 2010. This segment includes three distinct business activities:

Medical Equipment Remarketing and Disposal.We are one of the nation’s largest buyers and sellers of pre-owned medical equipment.  We buy, source, remarket and dispose of pre-owned medical equipment for our customers and on our own behalf. We provide our customers with the ability to sell their unneeded medical equipment for immediate cash or credit. Customers can also take advantage of our disposal services, where we dispose of equipment that has no remaining economic value in a safe and environmentally appropriate manner.

Specialty Medical Equipment Sales and Distribution.We use our national infrastructure to provide sales and distribution services to manufacturers of specialty medical equipment on a limited basis.  Our distribution services include providing demonstrations services and product maintenance services.  We act as a distributor for only a limited number of products that are particularly suited to our national distribution network or that fit with our ability to provide technical support.  We currently sell

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equipment in selected product lines including, but not limited to, respiratory percussion vests, continuous passive motion machines, patient monitors, patient handling equipment and infant security systems.

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

RESULTS OF OPERATIONS

The following discussion addresses:

·our financial condition as of June 30, 2010 and

·the results of operations for the three and six-month periods ended June 30, 2010 and 2009.

This discussion should be read in conjunction with the financial statements included elsewhere in this Quarterly Report on Form 10-Q and the Management’s Discussion and Analysis of Financial Condition and Results of Operations section included in our 2009 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (the “2009 10-K”).

The following table provides information on the percentages of certain items of selected financial data compared to total revenues for the three and six-month periods ended June 30, 2010 and 2009.  The table below also indicates the percentage increase or decrease over the prior comparable period.

	Three Months Ended June 30,						Six Months Ended June 30,
					Percent						Percent
	Percent of Total Revenues				Increase		Percent of Total Revenues				Increase
	2010		2009		(Decrease)		2010		2009		(Decrease)
Revenue
Medical equipment outsourcing	79.3	%	77.6	%	7.6	%	80.3	%	78.2	%	9.7	%
Technical and professional services	14.5		14.7		4.3		14.0		14.4		4.1
Medical equipment sales and remarketing	6.2		7.7		(15.2	)	5.7		7.4		(17.5	)
Total revenues	100.0	%	100.0	%	5.4		100.0	%	100.0	%	6.9
Cost of Sales
Cost of medical equipment outsourcing	29.3		27.1		13.6		28.7		27.4		12.0
Cost of technical and professional services	10.5		10.4		6.6		10.1		10.2		6.1
Cost of medical equipment sales and remarketing	4.8		6.1		(16.1	)	4.5		6.0		(19.9	)
Medical equipment depreciation	22.6		21.9		9.1		22.2		21.6		9.6
Total costs of medical equipment outsourcing, technical and professional services and medical equipment sales and remarketing	67.2		65.5		8.2		65.5		65.2		7.4
Gross margin	32.8		34.5		(0.1	)	34.5		34.8		6.1
Selling, general and administrative	27.4		29.0		(0.8	)	26.8		29.4		(2.6	)
Operating income	5.4		5.5		3.7		7.7		5.4		53.8
Interest expense	15.4		16.3		0.1		14.9		16.1		(0.8	)
Loss before income taxes	(10.0	)	(10.8	)	(1.7	)	(7.2	)	(10.7	)	(28.1	)
Benefit for income taxes	(3.3	)	(4.2	)	(15.6	)	(2.5	)	(4.2	)	(36.6	)
Net loss	(6.7	)%	(6.6	)%	7.0		(4.7	)%	(6.5	)%	(22.7	)

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Results of Operations for the three month period ended June 30, 2010 compared to the three month period ended June 30, 2009

Medical Equipment Outsourcing Segment — Manage & Utilize

(in thousands)

	Three Months Ended
	June 30,
	2010			2009			Change			% Change
Total revenue	$	60,818		$	56,524		$	4,294		7.6	%
Cost of revenue	22,452			19,760			2,692			13.6
Medical equipment depreciation	17,358			15,904			1,454			9.1
Gross margin	$	21,008		$	20,860		$	148		0.7
Gross margin %	34.5		%	36.9		%
Gross margin	$	21,008		$	20,860		$	148		0.7
Purchase accounting adjustments, primarily non-cash charges related to step-up in carrying value of medical equipment	3,280			3,544			(264		)	(7.4	)
Gross margin, before purchase accounting adjustments	$	24,288		$	24,404		$	(116	)	(0.5	)
Gross margin %, before purchase accounting adjustments	39.9		%	43.2		%

Total revenue in the Medical Equipment Outsourcing segment increased $4.3 million, or 7.6%, to $60.9 million in the second quarter of 2010 as compared to the same period of 2009.  This increase resulted primarily from increased activity in our Asset360TM Programs (formerly AMPP), patient handling and wound therapy solutions, partially offset by sluggish patient census and what we believe has been an increased customer effort to control outsourcing expenses. Beginning January 2010, our patient handling revenues reflect the benefit of recognizing 100% of the revenue previously covered under a revenue share agreement. Our Asset360 Programs increased from 55 programs at June 30, 2009 to 69 programs at June 30, 2010.

Total cost of revenue in the segment increased $2.7 million, or 13.6%, to $22.5 million in the second quarter of 2010 as compared to the same period of 2009.  This increase is attributable to higher employee-related, vehicle-related, and other expenses of $2.2, $0.2, and $0.3 million, respectively.

Medical equipment depreciation increased $1.5 million, or 9.1%, to $17.4 million in the second quarter of 2010 as compared to the same period of 2009. The increase in medical equipment depreciation primarily relates to the increase in medical equipment purchases related to select patient handling medical equipment, which we previously only managed under a revenue share agreement. Medical equipment depreciation for the quarter ended June 30, 2010 and 2009 included $3.3 million and $3.4 million, respectively, of purchase accounting adjustments related to the step-up in carrying value of our medical equipment.

Gross margin percentage for the Medical Equipment Outsourcing segment decreased from 36.9% in the second quarter of 2009 to 34.5% in the second quarter of 2010. Gross margin percentage, before purchase accounting adjustments, decreased from 43.2% in the second quarter of 2009 to at 39.9% in the second quarter of 2010.  These decreases resulted primarily from an overall decrease in patient census, increased depreciation expense, and what we believe to be an increased customer effort to control outsourcing expenses, partially offset by increased activity in our Asset360 Programs, patient handling and wound therapy solutions.

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

(in thousands)

	Three Months Ended
	June 30,
	2010			2009			Change			% Change
Total revenue	$	11,152		$	10,696		$	456		4.3	%
Cost of revenue	8,064			7,568			496			6.6
Gross margin	$	3,088		$	3,128		$	(40	)	(1.3	)
Gross margin %	27.7		%	29.2		%
Gross margin	$	3,088		$	3,128		$	(40	)	(1.3	)
Purchase accounting adjustments, primarily non-cash charges related to favorable lease commitments	3			5			(2		)	(40.0	)
Gross margin, before purchase accounting adjustments	$	3,091		$	3,133		$	(42	)	(1.3	)
Gross margin %, before purchase accounting adjustments	27.7		%	29.3		%

Total revenue in the Technical and Professional Services segment increased $0.5 million, or 4.3%, to $11.2 million in the second quarter of 2010 as compared to the same period of 2009. This increase resulted from increases in our manufacturer services unit of $0.6 million, partially offset by a decrease in our supplemental service programs of $0.1 million.

Total cost of revenue in the segment increased $0.5 million, or 6.6%, to $8.1 million in the second quarter of 2010 as compared to the same period of 2009.  The increase is attributable to increases in our third-party vendor costs and other expenses of $0.3 and $0.2, respectively.

Gross margin percentage for the Technical and Professional Services segment decreased from 29.2% for the second quarter of 2009 to 27.7% for the same period of 2010. Gross margin percentage will fluctuate based on the variability of third-party vendor expenses in our BioMed360TM Programs (formerly Customized Healthcare Asset Management Programs, or “CHAMP”) and supplemental service programs.

Medical Equipment Sales and Remarketing Segment — Redeploy & Remarket

(in thousands)

	Three Months Ended
	June 30,
	2010			2009			Change			% Change
Total revenue	$	4,763		$	5,616		$	(853	)	(15.2	)%
Cost of revenue	3,724			4,440			(716		)	(16.1	)
Gross margin	$	1,039		$	1,176		$	(137	)	(11.6	)
Gross margin %	21.8		%	20.9		%
Gross margin	$	1,039		$	1,176		$	(137	)	(11.6	)
Purchase accounting adjustments, primarily non-cash charges related to the step-up in carrying value of our medical equipment	81			278			(197		)	(70.9	)
Gross margin, before purchase accounting adjustments	$	1,120		$	1,454		$	(334	)	(23.0	)
Gross margin %, before purchase accounting adjustments	23.5		%	25.9		%

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Total revenue in the Medical Equipment Sales and Remarketing segment decreased $0.9 million, or 15.2%, to $4.8 million in the second quarter of 2010 as compared to the same period of 2009.  The decrease was primarily driven by decreases in new and other equipment sales of $1.1 and $0.3 million, respectively, partially offset by an increase in disposable sales of $0.5 million.

Total cost of revenue in the segment decreased $0.7 million, or 16.1%, to $3.7 million in the second quarter of 2010 as compared to the same period of 2009.  The decrease was primarily due to decreases in the costs of new and other equipment of $0.6 and $0.4 million, respectively, partially offset by an increase in the cost of disposables sales of $0.3 million. During the quarters ended June 30, 2010 and 2009, purchase accounting adjustments related to medical equipment sold increased cost of revenue by $0.1 and $0.3 million, respectively.

Gross margin percentage for the Medical Equipment Sales and Remarketing segment increased from 20.9% in the second quarter of 2009 to 21.8% for the same period of 2010.  Gross margin percentage, before purchase accounting adjustments, decreased from 25.9% in the second quarter of 2009 to 23.5% for the same period of 2010.  We expect margins and activity in this segment to fluctuate based on the transactional nature of the business.

Selling, General and Administrative

Selling, General and Administrative and Interest Expense

(in thousands)

	Three Months Ended
	June 30,
	2010		2009		Change			% Change
Selling, general and administrative	$	20,982	$	21,158	$	(176	)	(0.8	)%
Interest expense	11,855		11,845		10			0.1

Selling, general and administrative expense decreased $0.2 million, or 0.8%, to $21.0 million for the second quarter of 2010 as compared to the same period of 2009.  Selling, general and administrative expense consists primarily of employee-related expenses, professional fees, occupancy charges, bad debt expense and depreciation and amortization.  Selling, general and administrative expense during the quarter ended June 30, 2010 benefited from lower employee-related expenses, travel and entertainment, and other expense of $0.4, $0.3, and $0.1 million, respectively, partially offset by higher outside service expenses of $0.6 million. Selling, general and administrative expense as a percentage of total revenue was 27.4% and 29.0% for each of the quarters ended June 30, 2010 and 2009, respectively.

Interest Expense

Interest expense remained relatively flat at $11.9 million for the second quarter of 2010 as compared to the same period of 2009.

Income Taxes

Benefit for income taxes decreased $0.5 million to $2.6 million during the second quarter of 2010 as compared to the same period of 2009.

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Net Loss

Net loss increased $0.3 million to $5.1 million in the second quarter of 2010 as compared to the same period of 2009.

Results of Operations for the Six Months Ended June 30, 2010 compared to the Six Months Ended June 30, 2009

Medical Equipment Outsourcing Segment — Manage & Utilize

(in thousands)

	Six Months Ended June 30,
	2010			2009			Change			% Change
Total revenue	$	125,992		$	114,806		$	11,186		9.7	%
Cost of revenue	45,069			40,229			4,840			12.0
Medical equipment depreciation	34,815			31,766			3,049			9.6
Gross margin	$	46,108		$	42,811		$	3,297		7.7
Gross margin %	36.6		%	37.3		%
Gross margin	$	46,108		$	42,811		$	3,297		7.7
Purchase accounting adjustments, primarily non-cash charges related to step-up in carrying value of medical equipment	6,738			7,125			(387		)	(5.4	)
Gross margin, before purchase accounting adjustments	$	52,846		$	49,936		$	2,910		5.8
Gross margin %, before purchase accounting adjustments	41.9		%	43.5		%

Total revenue in the Medical Equipment Outsourcing segment increased $11.2 million, or 9.7%, to $126.0 million in the first six months of 2010 as compared to the same period of 2009.  This increase resulted primarily from increased activity in our Asset360TM Programs (formerly AMPP), patient handling and wound therapy solutions, partially offset by sluggish patient census and what we believe has been an increased customer effort to control outsourcing expenses. Beginning January 2010, our patient handling revenues reflect the benefit of recognizing 100% of the revenue previously covered under a revenue share agreement. Our Asset360 Programs increased from 55 programs at June 30, 2009 to 69 programs at June 30, 2010.

Total cost of revenue in the segment increased $4.8 million, or 12%, to $45.1 million in the first six months of 2010 as compared to the same period of 2009.  This increase is primarily related to employee-related, vehicle-related, and other expenses of $3.9, $0.5, and $0.4 million, respectively.

Medical equipment depreciation increased $3.0 million, or 9.6%, to $34.8 million in the first six months of 2010 as compared to the same period of 2009.  The increase in medical equipment depreciation primarily relates to the increase in medical equipment purchases related to select patient handling medical equipment, which we previously only managed under a revenue share agreement. Medical equipment depreciation for the six months ended June 30, 2010 and 2009 include $6.4 and $6.8 million, respectively, of purchase accounting adjustments related to the step-up in carrying value of our medical equipment.

Gross margin percentage for the Medical Equipment Outsourcing segment decreased from 37.3% in the first six months of 2009 to 36.6% for the same period of 2010. Gross margin percentage, before

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purchase accounting adjustments, decreased from 43.5% in the first six months of 2009 to 41.9% in the first six months of 2010.  We believe this decrease resulted primarily from an overall decrease in patient census and what we believe to be an increased customer effort to control outsourcing expenses and increased depreciation, partially offset by increased activity in our Asset360 Programs, patient handling and wound therapy solutions.

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

(in thousands)

	Six Months Ended June 30,
	2010			2009			Change			% Change
Total revenue	$	21,965		$	21,108		$	857		4.1	%
Cost of revenue	15,848			14,938			910			6.1
Gross margin	$	6,117		$	6,170		$	(53	)	(0.9	)
Gross margin %	27.8		%	29.2		%
Gross margin	$	6,117		$	6,170		$	(53	)	(0.9	)
Purchase accounting adjustments, primarily non-cash charges related to favorable lease commitments	6			9			(3		)	(33.3	)
Gross margin, before purchase accounting adjustments	$	6,123		$	6,179		$	(56	)	(0.9	)
Gross margin %, before purchase accounting adjustments	27.9		%	29.3		%

Total revenue in the Technical and Professional Services segment increased $0.9 million, or 4.1%, to $22.0 million in the first six months of 2010 as compared to the same period of 2009. This increase was primarily attributable to an increase in episodic business flows in our manufacturer services unit.

Total cost of revenue in the segment increased $0.9 million, or 6.1%, to $15.8 million in the first six months of 2010 as compared to the same period of 2009.  This increase was primarily attributable to an increase in expenses associated with our manufacturer services unit, third-party vendor, and other expenses of $0.4, $0.4, and $0.1 million, respectively.

Gross margin percentage for the Technical and Professional Services segment decreased from 29.2% for the first six months of 2009 to 27.8% for the same period of 2010.  Gross margin percentage will fluctuate based on the variability of third-party vendor expenses in our BioMed360TM Programs (formerly CHAMP) and supplemental service programs.

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Medical Equipment Sales and Remarketing Segment — Redeploy & Remarket

(in thousands)

	Six Months Ended June 30,
	2010			2009			Change			% Change
Total revenue	$	8,950		$	10,852		$	(1,902	)	(17.5	)%
Cost of revenue	7,071			8,826			(1,755		)	(19.9	)
Gross margin	$	1,879		$	2,026		$	(147	)	(7.3	)
Gross margin %	21.0		%	18.7		%
Gross margin	$	1,879		$	2,026		$	(147	)	(7.3	)
Purchase accounting adjustments, primarily non-cash charges related to step-up in carrying value of our medical equipment	158			602			(444		)	(73.8	)
Gross margin, before purchase accounting adjustments	$	2,037		$	2,628		$	(591	)	(22.5	)
Gross margin %, before purchase accounting adjustments	22.8		%	24.2		%

Total revenue in the Medical Equipment Sales and Remarketing segment decreased $1.9 million, or 17.5%, to $9.0 million in the first six months of 2010 as compared to the same period of 2009.  The decrease was primarily driven by a decrease in new equipment and pre-owned equipment sales of $1.8 and $0.7 million, respectively, partially offset by an increase in disposables sales of $0.6 million.

Total cost of revenue in the segment decreased $1.8 million, or 19.9%, to $7.1 million in the first six months of 2010 as compared to the same period of 2009.  The decrease was primarily due to a decrease in the cost of new equipment, pre-owned equipment, and other sales of $1.2, $0.9 and $0.2 million, respectively, partially offset by an increase in the cost of disposables sales of $0.5 million. During the six month periods ended June 30, 2010 and 2009, purchase accounting adjustments related to medical equipment sold impacted cost of revenue by $0.2 million and $0.6 million, respectively.

Gross margin percentage for the Medical Equipment Sales and Remarketing segment increased from 18.7% in the first six months of 2009 to 21.0% for the same period of 2010.  Gross margin percentage, before purchase accounting adjustments, decreased from 24.2% in the first six months of 2009 to 22.8% for the same period of 2010.  We expect margins and activity in this segment to fluctuate based on the transactional nature of the business.

Selling, General and Administrative and Interest Expense

(in thousands)

	Six Months Ended June 30,
	2010		2009		$ Change			% Change
Selling, general and administrative	$	42,052	$	43,173	$	(1,121	)	(2.6	)%
Interest expense	23,362		23,562		(200		)	(0.8	)

Selling, General and Administrative

Selling, general and administrative expense decreased $1.1 million, or 2.6%, to $42.1 million for the first six months of 2010 as compared to the same period of 2009.  Selling, general and administrative expense consists primarily of employee-related expenses, professional fees, occupancy charges, bad debt expense and depreciation and amortization.  Selling, general and administrative expense during the six months ended June 30, 2010 benefited from lower amortization, bad debt expense, employee-related

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expenses, and travel and entertainment of $0.6, $0.6, $0.4, and $0.4 million, respectively, partially offset by higher outside service and other expenses of $0.7 and $0.2 million, respectively.  Selling, general and administrative expense as a percentage of total revenue was 26.8% and 29.4% for the six month periods ended June 30, 2010 and 2009, respectively.

Interest Expense

Interest expense decreased $0.2 million, or 0.2%, to $23.4 million during the first six months of 2010 as compared to the same period of 2009.

Income Taxes

Benefit for income taxes decreased $2.2 million to $3.9 million during the first six months of 2010 as compared to the same period of 2009.  The decrease is attributable to the lower comparable loss before income taxes.

Net Loss

Net loss decreased $2.2 million to $7.4 million in the first six months of 2010 as compared to the same period of 2009. This decrease resulted primarily from increased activity in our Asset360 Programs, patient handling and wound therapy solutions, partially offset by an overall decrease in patient census and what we believe to be an increased customer effort to control outsourcing expenses.

EBITDA

Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) was $58.0 and $51.3 million for the quarters ended June 30, 2010 and 2009, respectively.  EBITDA for the quarter ended June 30, 2010, was primarily driven by increased activity in our Asset360 Programs, patient handling and wound therapy solutions.

EBITDA is defined as earnings before interest expense, income taxes, depreciation and amortization. In addition to using EBITDA internally as measure of operational performance, we disclose it externally to assist analysts, investors and lenders in their comparisons of operational performance, valuation and debt capacity across companies with differing capital, tax and legal structures.  Management also understands that some industry analysts and investors consider EBITDA as a supplementary non-GAAP financial measure useful in analyzing a company’s ability to service debt.  EBITDA, however, is not a measure of financial performance under GAAP and should not be considered as an alternative to, or more meaningful than, net income as a measure of operating performance or to cash flows from operating, investing or financing activities or as a measure of liquidity.  Since EBITDA is not a measure determined in accordance with GAAP and is thus susceptible to varying interpretations and calculations, EBITDA, as presented, may not be comparable to other similarly titled measures of other companies.  EBITDA does not represent an amount of funds that is available for management’s discretionary use. A reconciliation of EBITDA to net cash provided by operating activities is included below:

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	Six Months Ended
	June 30,
(in thousands)	2010			2009
Net cash provided by operating activities	$	42,218		$	25,347
Changes in operating assets and liabilities	(5,187		)	7,034
Other non-cash expenses	1,537			1,502
Benefit for income taxes	(3,890		)	(6,135		)
Interest expense	23,362			23,562
EBITDA	$	58,040		$	51,310

	Six Months Ended
	June 30,
(in thousands)	2010			2009
EBITDA	$	58,040		$	51,310
Other Financial Data:
Net cash provided by operating activities	$	42,218		$	25,347
Net cash used in investing activities	(48,653		)	(15,664		)
Net cash provided by (used in) financing activities	6,435			(18,189		)
Other Operating Data (as of end of period):
Medical equipment (approximate number of owned outsourcing units)	227,000			217,000
District offices	84			84
Number of outsourcing hospital customers	4,250			4,150
Number of total outsourcing customers	8,550			8,300

SEASONALITY

Quarterly operating results are typically affected by seasonal factors.  Historically, our first and fourth quarters are the strongest, reflecting increased customer utilization during the fall and winter months.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity are expected to be cash and cash equivalents, cash flows from operating activities, and borrowings under our senior secured credit facility, which provides for loans in an amount of up to $195.0 million, subject to our borrowing base. See Note 6 Long-Term Debt for details related to our Amended and Restated Credit Agreement. It is anticipated that our principal uses of liquidity will be to fund capital expenditures related to purchases of medical equipment, provide working capital, meet debt service requirements and finance our strategic plans.

We require substantial cash to operate our Medical Equipment Outsourcing programs and service our debt.  Our outsourcing programs require us to invest a significant amount of cash in medical equipment purchases.  To the extent that such expenditures cannot be funded from cash and cash equivalents, our operating cash flow, borrowing under our senior secured credit facility or other financing sources, we may not be able to conduct our business or grow as currently planned. We anticipate an additional capital investment of approximately $38.0 million during the remaining six months of 2010.

If we are unable to service our debt obligations through our cash and cash equivalents, generating sufficient cash flow from operations, and additional borrowings under our first lien senior secured asset-

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

Net cash provided by operating activities was $42.2 and $25.3 million for the six months ended June 30, 2010 and 2009, respectively. Net cash provided by operating activities during the six months ended June 30, 2010 primarily benefited from favorable changes in operating assets and liabilities and a decrease in net loss as compared to the same period of 2009.

Net cash used in investing activities was $48.7 and $15.7 million for the six months ended June 30, 2010 and 2009, respectively.  Net cash used in investing activities increased during the 2010 period when compared to the same period in the prior year primarily as a result of our purchase of select patient handling equipment that was formerly managed under a revenue share agreement as well as medical equipment purchases related to Asset360 Programs.

Net cash provided by (used in) financing activities was $6.4 and ($18.2) million for the six months ended June 30, 2010 and 2009, respectively.  During the six months ended June 30, 2010, net cash used in financing activities was impacted by net draws under our senior secured credit facility of $16.2 million compared to net borrowings of $10.0 million during the same period of 2009. Additionally, we redeemed our 10.125% Senior Notes in June 2010 for $9.9 million.

There was no cash on-hand as of June 30, 2010 compared to $3.5 million as of June 30, 2009.

Based on the level of operating performance expected in 2010, we believe our cash and cash equivalents, cash from operations, and additional borrowings under our senior secured credit facility, will meet our liquidity needs for the foreseeable future, exclusive of any borrowings that we may make to finance potential acquisitions.  However, if during that period or thereafter we are not successful in generating sufficient cash flows from operations or in raising additional capital when required in sufficient amounts and on terms acceptable to us, our business could be adversely affected.  As of June 30, 2010, we had $116.1 million of availability under our senior secured credit facility, based on a borrowing base of $174.8 million, less borrowings of $54.6 million and after giving effect to $4.1 million used for letters of credit.

Our levels of borrowing are further restricted by the financial covenants set forth in our senior secured credit facility agreement and the second lien senior indenture governing our PIK Toggle Notes and Floating Rate Notes.  As of June 30, 2010, the Company was in compliance with all covenants under the senior secured credit facility.

RECENT ACCOUNTING PRONOUNCEMENT

Standard Issued Not Yet Adopted

In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2009-13, Revenue Recognition (Topic 605): Multiple Deliverable Revenue Arrangements — A Consensus of the FASB Emerging Issues Task Force. This update provides application guidance on whether multiple deliverables exist, how the deliverables should be separated

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and how the consideration should be allocated to one or more units of accounting. This update establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available. The Company will be required to apply this guidance prospectively for revenue arrangements entered into or materially modified after January 1, 2011. We are currently evaluating the impact of the provisions of ASU 2009-13.

SAFE HARBOR STATEMENT

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: We believe statements in this Quarterly Report on Form 10-Q looking forward in time involve risks and uncertainties.  The following factors, among others, could adversely affect our business, operations and financial condition, causing our actual results to differ materially from those expressed in any forward-looking statements:

·our history of net losses and substantial interest expense;

·our substantial outstanding debt and debt service obligations;

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

·restrictions imposed by the terms of our debt;

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

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

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

·the absence of long-term commitments with customers;

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

·the impact of health care reform initiatives;

·changes in third-party payor reimbursement rates for health care items and services;

·our ability to maintain existing contracts with GPOs and IDNs and enter into new contracts with additional GPOs and IDNs;

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

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

·impacts of equipment product recalls or obsolescence;

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

·the risk factors as set forth in Item 1A of Part II of this Quarterly Report on Form 10-Q.

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Item 3.  Quantitative and Qualitative Disclosures about Market Risk

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

Interest Rates

We use both fixed and variable rate debt as sources of financing.  At June 30, 2010, we had approximately $528.0 million of total debt outstanding.  After taking into account the effect of our interest rate swap agreement, we had $54.6 million of debt bearing interest at variable rates averaging 3.102%.  Based on variable debt levels at June 30, 2010, a 1.0 percentage point change in interest rates on variable rate debt would result in annual interest expense fluctuating by approximately $0.5 million.

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

The interest rate swap agreement qualifies for cash flow hedge accounting under Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging. Both at inception and on an on-going basis, we must perform an effectiveness test.  In accordance with ASC Topic 815, the fair value of the interest rate swap agreement at June 30, 2010 is included as a cash flow hedge on our balance sheet.  The change in fair value was recorded as a component of accumulated other comprehensive loss, net of tax, on our balance sheet since the instrument was determined to be an effective hedge at June 30, 2010.  We have not recorded any amounts due to ineffectiveness for any periods presented. We expect to reclassify approximately $6.6 million into earnings, net of tax, currently recorded in accumulated other comprehensive loss, in the next 12 months. As a result of our interest rate swap agreement, we expect the effective interest rate on our $230.0 million Floating Rate Notes to be 9.065% through May 2012.

Fuel Costs

We are also exposed to market risks related to changes in the price of gasoline used to fuel our fleet of delivery and sales vehicles.  A hypothetical 10% increase in the second quarter of 2010 average price of unleaded gasoline, assuming gasoline usage levels for the quarter ended June 30, 2010, would lead to an annual increase in fuel costs of approximately $0.4 million.

Other Market Risk

Our pension obligations are also affected by market risk as discussed in Item 7A of Part II of our 2009 Form 10-K.  Continued distress in the financial markets may impact the fair value of debt and equity securities in our pension trust.

As of June 30, 2010, we have no other material exposure to market risk.

Item 4(T).  Controls and Procedures

(a)           Evaluation of disclosure controls and procedures

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Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934 as amended (the “Exchange Act”)).  Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.

(b)           Changes in internal control over financial reporting

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2010, 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

The Company, from time to time, may become involved in litigation arising out of operations in the normal course of business, including the matters discussed in Item 3 of Part I of the 2009 Form 10-K.

Asserted claims are subject to many uncertainties and the outcome of individual matters is not predictable with assurance.

As of June 30, 2010, we were not a party to any other pending legal proceedings the adverse outcome of which could reasonably be expected to have a material adverse effect on our operating results, financial position or cash flows.

Item 1A.  Risk Factors

Our business is subject to various risks and uncertainties.  Any of the risks discussed elsewhere in this Quarterly Report on Form 10-Q or our other filings with the Securities and Exchange Commission, including the risk factors set forth in our 2009 Form 10-K, could materially adversely affect our business, financial condition or results of operations.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.    Defaults upon Senior Securities

Not applicable.

Item 5.    Other Information

Amendment of Option Agreements and Acceleration of Options

Effective August 11, 2010, the Compensation Committee of our Board of Directors recommended, and the board of directors (the “Parent Board”) of UHS Holdco, Inc., our parent company ( “Parent”), approved, an amendment (the “Amendment”) to the vesting provisions contained in all outstanding option agreements of participants in the 2007 Stock Option Plan (the “2007 Stock Option Plan”) of

32

Parent who were employed by Parent or us as of the effective date of the Amendment, or served on our board of directors through that date.  Performance vesting options granted under the 2007 Stock Option Plan vest over a six-year period with 16.66% vesting on December 31 of each year of the six-year period, subject to the option holder not ceasing employment with Parent or us, and to our attainment of either an adjusted EBITDA target for current fiscal year, or an aggregate adjusted EBITDA target calculated in each subsequent fiscal year, as provided in the respective form of option agreement.  The Amendment, among other things, does away with the requirement that the EBITDA-based performance objectives be achieved in order for performance vesting options to vest, in effect providing for time-based vesting of these options rather than performance vesting.  The Amendment does not change the number of options granted, the strike price, or any continued service requirements.  The Amendment also provides for the acceleration of vesting, for 2007 Stock Option Plan participants who were employed by Parent or us as of the effective date of the Amendment and who were granted options prior to December 31, 2009, of options (the “Accelerated Options”) to purchase approximately 2,996,000 shares of common stock of Parent that were eligible for vesting on December 31, 2009, but did not vest because we did not achieve the applicable adjusted EBITDA target for the fiscal year ended December 31, 2009.  At the time vesting was accelerated, the Accelerated Options remained eligible for vesting in future years based on our achievement of an aggregate adjusted EBITDA target.  Except as described above, all other terms and conditions applicable to the Accelerated Options remain in effect. The Amendment also modifies the provisions relating to time vesting options granted under the 2007 Stock Option Plan to achieve greater consistency between the treatment of these options and the treatment of performance vesting options in the event of a sale of substantially all of the assets of Parent or us.  The foregoing description of the Amendment is not complete and is qualified in its entirety by reference to the Amendment itself, which is filed as Exhibit 10.4 hereto and is incorporated herein by reference.

The Parent Board recognized the increased level of difficulty in achieving the original performance targets relating to performance vesting options (which were established in 2007), taking into consideration continued economic challenges, and authorized the Amendment in an effort to ensure that Parent continues to provide long-term incentives that drive core operating performance, while creating a meaningful retention benefit.

Aggregate performance vesting options affected by the Amendment, including the Accelerated Options, are detailed below by original grant date:

Summary of Performance Vesting Options

(in thousands)

		Vested
		Performance
		Options
	Performance	Outstanding at
	Options	August 10, 2010	Options
	Outstanding at	(Prior to	Affected by	Accelerated
Grant Date	August 10, 2010	Amendment)	Amendment (1)	Options (2)
June 18, 2007	17,109	5,707	11,402	2,851
December 3, 2007	283	48	235	47
April 1, 2008	28	5	23	5
April 1, 2009	564	—	564	94
April 13, 2010 (3)	707	—	707	N/A
Total	18,691	5,760	12,931	2,996

(1) Includes Accelerated Options

(2) Accelerated Options vesting on August 11, 2010

(3) Options issued subsequent to December 31, 2009 were not affected by the accelerated vesting

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Options issued to our named executive officers (as that term is used in the 2009 10-K) and the related impacts of the Amendment are detailed below:

Summary of Stock Options for our Named Exectuve Officers

(in thousands)

				Time-Based	Performance-
				Vesting	Based Vesting
		Vested Options	Options	Options	Options
Named Executive	Total Options	at December	Affected by	Affected by	Affected by	Accelerated
Officer	Granted (1)	31, 2009	Amendment (2)	Amendment	Amendment	Options (3)
Gary D. Blackford	14,500	6,041	8,459	3,625	4,834	1,209
Rex T. Clevenger	3,000	1,250	1,750	750	1,000	250
Jeffrey L. Singer	2,500	1,042	1,458	625	833	208
Timothy W. Kuck	2,500	1,042	1,458	625	833	208
Diana Vance-Bryan	1,250	521	729	312	417	104

(1) All stock option grants to our named executive officers were made on June 18, 2007

(2) Represents options outstanding and not vested as of August 10, 2010

(3) Accelerated Options vesting on August 11, 2010

An aggregate of approximately 2,996,000 options vested on August 11, 2010 as a result of the Parent Board’s acceleration of vesting performance vesting options.  The remaining unvested options affected by the Amendment will vest and become exercisable on each December 31, in accordance with the vesting schedule provided in the option agreements, through the remaining term of the applicable option. We are currently in the process of valuing the amended performance vesting options affected by the Amendment and the related impact to our financial statements.

Election of Director

On August 11, 2010, our Board of Directors elected John B. Grotting to serve as a new member of the Board of Directors. Mr. Grotting has served as an Operating Partner for Frazier Healthcare Ventures since 2010.  Frazier Healthcare Ventures is one of the leading providers of venture and growth equity capital to emerging biopharma, medical device and healthcare service companies.   In addition, Mr. Grotting has held a variety of executive positions in the healthcare field, including serving as CEO of medical device reprocessor Ascent Healthcare Solutions from 2004 to 2009.  Prior to joining Ascent Healthcare Solutions in 2004, Mr. Grotting held senior executive positions at Legacy Health System, Allina Health System and Bridge Medical, Inc. Mr. Grotting serves as a director of Skylight Systems, VHA Inc., Vocera Communications, Inc. and Scottsdale Healthcare.  Mr. Grotting serves as a director of Skylight Systems, the VHA Inc., Vocera Communications, Inc. and Scottsdale Healthcare.  Mr. Grotting holds a Master’s degree in Hospital and Healthcare Management from the University of Minnesota and a B.A. in Economics from St. Olaf College in Northfield, MN.

Our Board has determined that Mr. Grotting is independent as defined under the current rules of The NASDAQ Stock Market LLC. There is no arrangement or understanding between Mr. Grotting and any other person pursuant to which Mr. Grotting was elected as a director, and there are no related party transactions involving Mr. Grotting that are reportable under Item 404(a) of Regulation S-K.

Mr. Grotting will receive compensation for his service as an independent, non-employee director in accordance with our existing director compensation policy.  Under this policy, each independent director receives cash compensation of $30,000 per year (pro-rated for partial year directorship).

Mr. Grotting will also be eligible to receive grants of stock options under the 2007 Stock Option Plan, subject to the approval of the Parent Board. Our director compensation policy also entitles independent directors to reimbursement of all out-of-pocket expenses incurred in connection with activities as a member of the board, provided they are expected to follow travel and expense guidelines established for all of our officers and directors.

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On August 11, 2010, the Parent Board authorized the grant of options to be made during the 2010 third quarter to purchase 300,000 shares of Parent common stock to Mr. Grotting, with a strike price to be determined pending valuation of the Parent’s common stock, under the 2007 Stock Option Plan in connection with his election to serve on our Board of Directors.  When issued, the options will vest over a six-year period of service with 16.66% vesting on December 31 of each year of the six-year period in accordance with the provisions of the 2007 Stock Option Plan and the related option agreement (which is in the new form approved by the Parent Board as described below under “Approval of New Form of Award Agreement”).

Approval of New Form of Award Agreement

On August 11, 2010, the Parent Board approved a new form of Option Agreement Evidencing a Grant of an Option Under the Employee Option Plan for grants of non-qualified stock options under the 2007 Stock Option Plan.  The new form is substantially similar to the previous form of option agreement under the 2007 Stock Option Plan, except that the new form reflects the amendments set forth in the Amendment described above (other than the acceleration of options that were initially eligible to vest on December 31, 2009).  A copy of the new form of Option Agreement Evidencing a Grant of an Option Under the Employee Option Plan is filed as Exhibit 10.4 hereto and is incorporated herein by reference. The foregoing description of the new form of Option Agreement Evidencing a Grant of an Option Under the Employee Option Plan is qualified in its entirety by reference to the attached form of such agreement.

Item 6.    Exhibits

Number	Description
10.1	Amended and Restated Credit Agreement, dated as of May 6, 2010, among Universal Hospital Services, Inc., UHS Holdco, Inc., the lenders party thereto, GE Business Financial Services, Inc., as administrative agent, Bank of America, N.A., as documentation agent, and GE Capital Markets, Inc., and Bank of America Securities, LLC, as co-lead arrangers and co-bookrunners (incorporated by reference to Exhibit 10.1 to Form 10-Q filed with the Securities and Exchange Commission on May 10, 2010).
10.2	Amended and Restated Guaranty, dated as of May 6, 2010, among UHS Holdco, Inc. and the secured parties named therein (incorporated by reference to Exhibit 10.2 to Form 10-Q filed with the Securities and Exchange Commission on May 10, 2010).
10.3	First Lien Security Agreement, dated May 6, 2010, among  UHS Holdco, Inc., Universal Hospital Services, Inc. and GE Business Financial Services, Inc., as collateral agent (incorporated by reference to Exhibit 10.3 to Form 10-Q filed with the Securities and Exchange Commission on May 10, 2010).
10.4*	Amendment to Option Agreements, dated as of August 11, 2010, executed by UHS Holdco, Inc. **
10.5*	Form of Option Agreement Evidencing a Grant of an Option Under the 2007 Stock Option Plan. **
31.1*	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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32.2* Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed Herewith

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

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SIGNATURES

Pursuant to the requirements of 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.

Date: August 11, 2010
	Universal Hospital Services, Inc.
	By	/s/ Gary D. Blackford
	Gary D. Blackford,
	Chairman of the Board and Chief Executive Officer
	(Principal Executive Officer and Duly Authorized Officer)
	By	/s/ Rex T. Clevenger
	Rex T. Clevenger,
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer)

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EX-10.4

Exhibit 10.4

AMENDMENT TO OPTION AGREEMENTS

This AMENDMENT TO OPTION AGREEMENTS (this “Amendment”) is made and entered into effective as of the 11th day of August, 2010 by UHS Holdco, Inc., a Delaware corporation (the “Company”) with respect to each Option Agreement (each, an “Option Agreement” and collectively, the “Option Agreements”) heretofore executed by the Company which provides for the grant of an Option pursuant to the UHS Holdco, Inc. Stock Option Plan (the “Plan”).  Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Option Agreements or the Plan, as appropriate.

WHEREAS, the Option Agreements were entered into between the Company and certain individuals eligible to receive grants pursuant to the Plan (each, an “Grantee” and collectively, the “Grantees”), and the Options granted pursuant to each Option Agreement are either  Performance Vesting Options or Time Vesting Options;

WHEREAS, the Company desires to amend the Option Agreements entered into between the Company and each Grantee who remains actively employed by the Company or any of its subsidiaries as of the date of this Amendment as set forth herein or who serves on the Board of Directors of the Company or any of its subsidiaries as of the date of this Amendment, and has determined that the amendments provided for herein do not impair the rights of such Grantees.

NOW, THEREFORE, in consideration of the foregoing promises and agreements and for other good and valuable consideration, the receipt and sufficiency of which is acknowledged, the Company agrees as follows:

1.Amendment of Annex I.  Annex I of each Option Agreement is hereby amended by (a) replacing, for 2010 and all subsequent fiscal years, the text in each row under the columns titled “Base Target EBITDA” and “Capital Expenditures Target” with “(1)”; and (b) adding a footnote (1) to the bottom of each such Annex I which reads as follows:

“(1)“No Base Target EBITDA or Capital Expenditures Target shall apply with respect to this fiscal year.”

2.Amendment of Section 5(d).  Section 5(d) of each Option Agreement is hereby amended to strike the words “to the extent BSMB realizes an IRR equal to or greater than 20%” appearing therein.

3.Amendment Relating to 2010 Aggregate Test.  With respect only to each Option Agreement dated prior to December 31, 2009, Section 5(b) of each such Option Agreement is hereby amended to provide that, with respect to the portion of any Performance Vesting Options granted under such Option Agreement which did not vest at the end of the fiscal 2009 Performance Vesting Period (the “2009 Portion”), the Aggregate Test to be performed at the end of the 2010 fiscal year shall be deemed to have been met as of the date of this Amendment, and the 2009 Portion shall be deemed fully vested as of the date of this Amendment, in each case provided that the Grantee remains continuously employed with the Company and/or any of its Subsidiaries through the date of this Amendment.

4.Amendment of Section 6(c).  The first sentence of Section 6(c) of each Option Agreement is hereby amended to read as follows:

Upon (a) a Change in Control (as defined below) or (b) a Sale of the Company pursuant to clause (ii) of the definition thereof set forth in the Plan, 100% of any portion of the Time Vesting Options that is not vested as of the date of such Change in Control or such Sale of the Company, as applicable, shall become vested and immediately exercisable and, subject to Sections 5.10 and 6.4 of the Plan, shall remain exercisable for a period of 90 days following such Change in Control or such Sale of the Company, as applicable.

5.Application of Amendments.  The amendments provided for under paragraphs 1-4 above shall apply only with respect to Option Agreements entered into between the Company and each Grantee who remains actively employed by the Company or any of its subsidiaries as of the date of this Amendment.

6.Governing Law.  This Amendment shall be governed by, and construed in accordance with, the law of the State of Delaware, without regard to conflict of law principles.

7.Successors and Assigns.  The terms and provisions of this Amendment shall inure to the benefit of, and be binding upon, the Company and its successors and assigns and upon Grantee and Grantee’s successors and assigns, whether or not any such person shall have become a party to this Amendment and have agreed in writing to join herein and be bound by the terms hereof.

8.Remainder of Agreement Unchanged.  Except as amended by this Amendment, each Option Agreement shall otherwise remain in full force and effect.

9.Severability.  If one or more provisions of this Amendment are held to be unenforceable under applicable law, such provision shall be excluded from this Amendment and the balance of the Amendment shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

IN WITNESS WHEREOF, this Amendment has been executed to be effective as of the date and year first above written.

UHS HOLDCO, INC.

By:

Name:

Title:

EX-10.5

Exhibit 10.5

UHS HOLDCO, INC.

FORM OF OPTION AGREEMENT
EVIDENCING A GRANT OF AN OPTION UNDER
THE 2007 STOCK OPTION PLAN

This Option Agreement (this “Agreement”) is made [                      ], 20    , between UHS Holdco, Inc., a Delaware corporation (the “Company”), and [                      ] (“Grantee”).  Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Plan (as defined below).

1.Grant of Option.  Pursuant to the UHS Holdco, Inc. Stock Option Plan (the “Plan”), the Company hereby grants to Grantee, as of the date hereof, a stock option (the “Option”) to purchase from the Company [        ] shares (the “Shares”) of the Company’s common stock, $0.01 par value per share (the “Common Stock”), at the exercise price per share of $[          ] (the “Exercise Price”), subject to the terms and conditions set forth herein and in the Plan.  Upon certain events, the number of Shares and/or the Exercise Price may be adjusted as provided in the Plan.

2.Grantee Bound by Plan.  The Plan is incorporated herein by reference and made a part hereof.  Grantee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof.  The Plan should be carefully examined before any decision is made to exercise the Option.

3.Exercise of Option.  Subject to the terms and conditions contained herein, including Section 7 hereof, and in the Plan, the Option may be exercised, in whole or in part, to the extent it has become vested, by written notice to the Company at any time and from time to time after the date of grant.  The Option may not be exercised for a fraction of a share of Common Stock.  Options are subject to cancellation as provided in the Plan.

4.Expiration of Option.

(a)The Option shall not be exercisable in any event ten years after the date hereof.  Any part of the Option that is not vested on the Termination Date shall expire and be forfeited on such date, and any part of the Option that is vested on the Termination Date shall also expire and be forfeited to the extent not exercised on or before 90 days following the Termination Date or such shorter period if such 90-day period would exceed the original term of the Option; provided, that in the event of the death or disability of the Grantee, any part of the Option that is vested on the date of the Termination Date shall expire and be forfeited to the extent not exercised on or before 180 days following the Termination Date or such shorter period if such 180-day period would exceed the original term of the Option.

(b)Subject to Section 5(d), all unvested Performance Vesting Options shall terminate in their entirety, without any action on the part of the Company, upon the occurrence of a Sale of the Company.

5.Vesting of Performance Vesting Options.

(a)A portion of the Option granted under this Agreement representing the right to purchase [                      ] Shares (the “Performance Vesting Options”) shall vest in whole or in part and become exercisable with respect to the Shares prior to the tenth anniversary of the date hereof upon the attainment of certain goals and upon certain events as described in this Section 5.

(b)The Performance Vesting Option shall vest and become exercisable with respect to 16.66% of the Shares (rounded to the nearest whole share) on each December 31 after the date hereof (a “Performance Vesting Date”) during the period beginning on the date hereof and ending on December 31, 20[    ](1) (such period of time is referred to as the “Performance Vesting Period”), if and only if, (i) the Grantee remains continuously employed with the Company and/or any of its Subsidiaries during the period beginning on the date hereof and ending on the applicable Performance Vesting Date and (ii) the Company’s Adjusted EBITDA (as defined below) for such fiscal year equals or exceeds the Adjusted Target EBITDA (as defined below) for such fiscal year; provided, however, at the end of each fiscal year of the Company during the Performance Vesting Period, if the sum of the Company’s Adjusted EBITDA for the fiscal year ending on such Performance Vesting Date and the Company’s Adjusted EBITDA for each of the previous fiscal years during the Performance Vesting Period equals at least 100% of the sum of the Adjusted Target EBITDA for the fiscal year ending on such Performance Vesting Date and the Adjusted Target EBITDA for each of the previous fiscal years during the Performance Vesting Period (such determination is referred to herein as the “Aggregate Test”), then the Performance Vesting Options shall vest and become exercisable for the number of Shares which will result in the aggregate number of Shares which are vested as of the end of such fiscal year being equal to the greater of (A) the number of Shares that would have otherwise vested and become exercisable as determined without regard to the Aggregate Test and (B) the number of Shares which would have vested if 16.66% of the Shares vested on each Performance Vesting Date ending on or prior to the Performance Vesting Date which is the last day of such fiscal year.

(c)Notwithstanding anything contained herein to the contrary, (i) if the Company or any of it Subsidiaries consummates an acquisition of another Person, a disposition of the Company or any of its Subsidiaries to another Person or any similar transaction during any fiscal year of the Company or (ii) if the accounting policies, procedures or rules to which the Company is subject change, in either case during the Performance Vesting Period, then the Adjusted Target EBITDA for the remainder of such fiscal year after such transaction or the effective date of such change and all subsequent fiscal years during the Performance Vesting Period will be adjusted in good faith by the Committee, and each such adjusted and approved Adjusted Target EBITDA shall be deemed the applicable Adjusted Target EBITDA for such fiscal year and each such subsequent fiscal years for all purposes hereunder during the Performance Vesting Period.  Any such adjustment to the Adjusted Target EBITDA will not

(1)This will refer to the fifth year after the year during which grants are made (e.g., for grants made in 2010, insert “15”).

2

affect the Adjusted Target EBITDA or the Aggregate Test with respect to any fiscal years (or a portion of any fiscal year) prior to the consummation of such transaction.

(d)In the event of a Sale of the Company, so long as the Grantee remains continuously employed by the Company and/or any of its Subsidiaries during the period beginning on the date hereof and ending on the date that such Sale of the Company is consummated [(or if the Grantee is terminated without Cause or the Grantee resigns for Good Reason in the 30 days period prior to the consummation of such Sale of the Company, the Grantee shall be deemed to have been continuously employed by the Company and/or any of its Subsidiaries during the period beginning on the date hereof and ending on the date that such Sale of the Company is consummated for purposes of this Section 5(d) only)] the Performance Vesting Options shall vest and become immediately exercisable with respect to 100% of the Shares and, subject to Sections 5.10 and 6.4 of the Plan, shall remain exercisable for a period of 90 days following such Sale of the Company.

(e)For purposes of this Section 5, the following terms have the following meanings:

(i)“Adjusted EBITDA” means, with respect to the Company and its Subsidiaries, on a consolidated basis, for any fiscal year, the sum of: (A) the net income for such fiscal year (before the payment of any dividends and excluding the effect of any extraordinary gains or losses during such period and the effect of any purchase accounting adjustments as a result of the acquisition of UHS by the Company), plus (B)  interest expense, federal, state, foreign and local income, franchise, and other similar taxes, depreciation and amortization for such fiscal year, plus (C) any management fees paid to Irving Place Capital Merchant Manager III, L.P. (formerly known as Bear Stearns Merchant Manager III, L.P., formerly known as Bear Stearns Merchant Manager III (Cayman), L.P.) or its Affiliates (collectively, “BSMB”) pursuant to the Amended and Restated Professional Services Agreement, dated as of February 1, 2008, by and between UHS and Irving Place Capital Merchant Manager III, L.P. (formerly known as Bear Stearns Merchant Manager III, L.P., formerly known as Bear Stearns Merchant Manager III (Cayman), L.P.), as amended, modified or restated from time to time (the “Services Agreement”), any management fees paid to any other institutional investor that owns shares of Common Stock and any director fees paid to members of the Board, in each case, during such fiscal year, plus (D) any non-cash charges to the extent that such charges will not result in a cash charge in any future period (including any non-cash expenses relating to the options under FAS 123(R)) during such fiscal year, plus (E) any fees paid by the Company or UHS to David Dovenberg, but not to exceed $250,000 in any fiscal year, plus (or minus) (F) any unusual and non-recurring losses (or gains) for such fiscal year, minus (G) any non-cash gains during such fiscal year, in each case, as determined in accordance with United States generally accepted accounting principles and as set forth on the Company’s financial statements for such fiscal year which have been approved by the Board.

(ii)“Adjusted Target EBITDA” means, for any fiscal year of the Company during the Performance Vesting Period, the Base Target EBITDA (as set forth or

3

provided for in Annex I attached hereto) for such year; provided, that the Committee shall make appropriate adjustments to any Adjusted Target EBITDA (i) to the extent that there are material deviations in the amount of capital expenditures actually incurred by the Company during any fiscal year from the Capital Expenditures Target (as set forth or provided for in Annex I attached hereto) for such fiscal year and (ii) in accordance with Section 5(c) above.

6.Vesting of Time Vesting Options.

(a)A portion of the Option granted under this Agreement representing the right to purchase [              ] Shares shall be subject to vesting (the “Time Vesting Options”) in the manner described in this Section 6.

(b)The Time Vesting Options shall fully vest and become exercisable with respect to the applicable number of Shares set forth below if and only if the Termination Date does not occur during the period beginning on the date hereof and ending on the applicable vesting date determined below.  The Time Vesting Options shall cumulatively vest and become exercisable with respect to 16.66% of the Shares (rounded to the nearest one-thousandth (0.001) of a share of Common Stock) on each December 31 after the date hereof during the period beginning on the date hereof and ending on December 31, 20[    ](2).

(c)Upon (i) a Change in Control (as defined below) or (ii) a Sale of the Company pursuant to clause (ii) of the definition thereof set forth in the Plan, 100% of any portion of the Time Vesting Options that is not vested as of the date of such Change in Control or such Sale of the Company, as applicable, shall become vested and immediately exercisable and, subject to Sections 5.10 and 6.4 of the Plan, shall remain exercisable for a period of 90 days following such Change in Control or such Sale of the Company, as applicable.  For the purposes  hereof, “Change in Control” means any (i) sale or issuance (or series of sales or issuances) of Common Stock or the right to acquire Common Stock by the Company or any holders thereof which results in any Person or group of Affiliated Persons (other than the owners of Common Stock or the right to acquire Common Stock as of the date hereof and Affiliates of such Persons) owning and/or having the right to acquire more than 50% of the Common Stock on a fully diluted basis at the time of such sale or issuance (or series of sales or issuances), other than in connection with a Public Offering or (ii) merger, share exchange, reorganization, recapitalization or consolidation to which the Company is a party (other than a merger in which the Company is the surviving entity, or a share exchange in which capital stock of the Company is issued, that does not result in more than 49% of the Company’s outstanding capital stock possessing the voting power (under ordinary circumstances) to elect a majority of the Board being owned of record or beneficially by persons or entities other than the holders of such capital stock immediately prior to such merger or share exchange).

(2)This will refer to the fifth year after the year during which grants are made (e.g., for grants made in 2010, insert “15”).

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7.Conditions to Exercise.  The Option may not be exercised by Grantee unless the following conditions are met:

(a)The Option has become vested with respect to the Shares to be acquired pursuant to such exercise;

(b)Legal counsel for the Company must be satisfied at the time of exercise that the issuance of shares of Common Stock upon exercise will be in compliance with the Securities Act and applicable United States federal, state, local and foreign laws; and

(c)Grantee must pay at the time of exercise the full Exercise Price for the Shares being acquired hereunder in the form elected by Grantee, plus any withholding tax (which shall be paid only in cash) required in connection with such exercise, in each case, in accordance with the terms of the Plan[; provided, that the Withholding Amount relating to the Options, at the Grantee’s election, shall reduce the number of Shares (based on the Fair Market Value of such Shares) that are issuable upon exercise of such portion of the Option; provided, however, that the number of Shares used to satisfy the Withholding Amount shall not exceed the minimum withholding tax obligation under applicable federal and state law in effect at such time].

8.Transferability.  The Option (including the right to receive the Shares) may not be Transferred or assigned by Grantee, other than by will or the laws of descent and distribution and, during the lifetime of Grantee, the Option may be exercised only by Grantee (or, if Grantee is incapacitated, by Grantee’s legal guardian or legal representative).  In the event of the death of Grantee, the Option, to the extent it has not vested on the date of death, shall terminate; and the exercise of the Option, to the extent it has vested as of the date of death, may be made only by the executor or administrator of Grantee’s estate or the Person or Persons to whom Grantee’s rights under the Option pass by will or the laws of descent and distribution.  If Grantee or anyone claiming under or through Grantee attempts to violate this Section 8, such attempted violation shall be null and void and without effect, and the Company’s obligation hereunder shall terminate.  Any Issued Stock received upon exercise of the Option is subject to the [repurchase right], restrictions on Transfer and other rights and obligations set forth in the Plan[; provided, that, notwithstanding anything contained in the Plan, any Shares received by Grantee upon exercise of the Option shall not be subject to the repurchase rights set forth in Section 5.7 of the Plan].

9.Administration.  Any action taken or decision made by the Company, the Board, or the Committee or its delegates arising out of or in connection with the construction, administration, interpretation or effect of the Plan or this Agreement shall lie within its sole and absolute discretion, as the case may be, and shall be final, conclusive and binding on Grantee and all persons claiming under or through Grantee, except as expressly provided in Grantee’s employment agreement, if any, with the Company or any of its Subsidiaries.  By accepting this grant or other benefit under the Plan, Grantee and each person claiming under or through Grantee shall be conclusively deemed to have indicated acceptance and ratification of, and consent to, any action taken under the Plan by the Company, the Board or the Committee or its delegates.

5

10.No Rights as Stockholder.  Unless and until a certificate or certificates representing such shares of Common Stock shall have been issued to Grantee (or any person acting under Section 7 above), Grantee shall not be or have any of the rights or privileges of a stockholder of the Company with respect to shares of Common Stock acquirable upon exercise of the Option.

11.Investment Representation.  Grantee hereby acknowledges that the shares of Common Stock which Grantee may acquire by exercising the Option shall not be Transferred in the absence of an effective registration statement for the shares of Common Stock under the Securities Act and applicable state securities laws or an applicable exemption from the registration requirements of the Securities Act and any applicable state securities laws.  Grantee also agrees that the shares of Common Stock which Grantee may acquire by exercising the Option will not be sold or otherwise disposed of in any manner which would constitute a violation of any applicable federal or state securities laws.

12.Rights of Grantee.  Neither this Agreement nor the Plan creates any employment rights in Grantee and neither the Company nor any of its Subsidiaries shall have any liability arising out of the Plan or this Agreement for terminating Grantee’s employment or reducing Grantee’s responsibilities.

13.Notices.  Any notice hereunder to the Company shall be addressed to the Company’s principal executive office, Attention: General Counsel, and any notice hereunder to Grantee shall be addressed to Grantee at Grantee’s last address on the records of the Company, subject to the right of either party to designate at any time hereafter in writing some other address.  Any notice shall be deemed to have been duly given when delivered personally, one day following dispatch if sent by reputable overnight courier, fees prepaid, or three days following mailing if sent by registered mail, return receipt requested, postage prepaid and addressed as set forth above.

14.Binding Effect.  This Agreement shall be binding upon and inure to the benefit of any successors and assigns to the Company and all persons lawfully claiming under Grantee.

15.[Non-Competition and Non-Solicitation.

(a)In consideration of the Company’s grant of the Option hereunder, the Grantee acknowledges that, during the course of the Grantee’s employment with the Company and its Subsidiaries (the “Term”), the Grantee shall become familiar with the trade secrets of the Company and its Subsidiaries and other Confidential Information (as defined below) concerning the Company and its Subsidiaries (and their respective predecessor companies) and that the Grantee’s services have been and shall be of special, unique and extraordinary value to the Company and its Subsidiaries.  Accordingly, the Grantee agrees that during the Term and thereafter until the end of the first anniversary of the Grantee’s Termination Date, the Grantee shall not directly or indirectly own any interest in, manage, control, participate in, consult with, render services for, or in any manner engage in any Competing Business (as defined below) in the United States; provided, that the foregoing shall not prohibit Grantee from owning stock as a

6

passive investor in any publicly traded corporation so long as Grantee’s ownership in such corporation, directly or indirectly, is less than 2% of the voting stock of such corporation.  For purposes of this paragraph, “Competing Business” means any business activity involving the outsourcing or rental of movable medical equipment and related services to the health care industry.

(b)During the Term and thereafter until the end of the second anniversary of the Date of Termination, the Grantee shall not directly or indirectly through another Person (i) induce or attempt to induce any employee of the Company or any Subsidiary to leave the employ of the Company or such Subsidiary, or in any way interfere with the relationship between the Company or any Subsidiary and any employee thereof, (ii) hire any person who was an employee of the Company or any Subsidiary at any time within the one (1) year period before the Grantee’s Termination Date, or (iii) induce or attempt to induce any customer, supplier, licensee, licensor, franchisee or other business relation of the Company or any Subsidiary to cease doing business with the Company or such Subsidiary, or in any way interfere with the relationship between any such customer, supplier, licensee or business relation and the Company or any Subsidiary, except with the prior written consent of the Board, which consent will be given at the sole discretion of the Board.]

16.[Non-Disclosure. The Grantee agrees that during and at all times after the Term, the Grantee will keep secret all confidential matters and materials of the Company (including its Subsidiaries and Affiliates), including, without limitation, know-how, trade secrets, real estate plans and practices, individual office results, customer lists, pricing policies, operational methods, any information relating to the Company (including any of its Subsidiaries and Affiliates) products, processes, customers and services and other business and financial affairs of the Company (collectively, “Confidential Information”), to which the Grantee had or may have access and will not disclose such Confidential Information to any Person other than (i) the Company, its respective authorized employees and such other Persons to whom the Grantee has been instructed to make disclosure by the Board, (ii) as appropriate (as determined by the Grantee in good faith) to perform the Grantee’s duties to the Company or its Subsidiaries, or (iii) in compliance with legal process or regulatory requirements.  “Confidential Information” will not include any information which is in the public domain during or after the Term to the extent that such information is not in the public domain as a consequence of disclosure by the Grantee in violation of this Option Agreement.]

17.[Intellectual Property, Inventions and Patents.  The Grantee acknowledges that all discoveries, concepts, ideas, inventions, innovations, improvements, developments, methods, designs, analyses, drawings, reports, patent applications, copyrightable work and mask work (whether or not including any Confidential Information) and all registrations or applications related thereto, all other proprietary information and all similar or related information (whether or not patentable) which relate to the actual or anticipated business, research and development or existing or future products or services of the Company or its Subsidiaries and which are conceived, developed or made by the Grantee (whether individually or jointly with others) while employed by the Company or its Subsidiaries (or their respective predecessors) (“Work Product”), belong to the Company or its Subsidiaries.  The Grantee shall promptly disclose such Work Product to the Board and, at the Company’s expense, perform all

7

actions reasonably requested by the Board (whether during or after the Term) to establish and confirm such ownership (including, without limitation, assignments, consents, powers of attorney and other instruments).]

18.[Modification.  The Grantee agrees and acknowledges that the duration and scope of the covenants described in Section 15, 16 or 17 are fair, reasonable and necessary in order to protect the goodwill and other legitimate interests of the Company and its Subsidiaries, that adequate consideration has been received by the Grantee for such obligations, and that these obligations do not prevent the Grantee from earning a livelihood.  If, however, for any reason any court of competent jurisdiction determines that any restriction contained in Section 15, 16 or 17 are not reasonable, that consideration is inadequate, such restriction will be interpreted, modified or rewritten to include as much of the duration, scope and geographic area identified in Section 15, 16 or 17 as will render such restrictions valid and enforceable.]

19.[Remedies. The Grantee acknowledges that the Company will suffer irreparable harm as a result of a breach of this Option Agreement by the Grantee for which an adequate monetary remedy does not exist and a remedy at law may prove to be inadequate.  Accordingly, in the event of any actual or threatened breach by the Grantee of any provision of this Option Agreement, the Company will, in addition to any other remedies permitted by law, be entitled to obtain remedies in equity, including without limitation specific performance, injunctive relief, a temporary restraining order and/or a permanent injunction in any court of competent jurisdiction, to prevent or otherwise restrain any such breach without the necessity of proving damages, posting a bond or other security.  Such relief will be in addition to and not in substitution of any other remedies available to the Company.  The existence of any claim or cause of action by the Grantee against the Company or any of its Subsidiaries, whether predicated on this Option Agreement or otherwise, will not constitute a defense to the enforcement by the Company of this Option Agreement.  The Grantee agrees not to defend on the basis that there is an adequate remedy at law.]

20.Governing Law. The validity, construction, interpretation, administration and effect of the Plan, and of its rules and regulations, and rights relating to the Plan and to this Agreement, shall be governed by the substantive laws, but not the choice of law rules, of the State of Delaware.  The parties hereto hereby irrevocably and unconditionally submit to the exclusive jurisdiction of any Federal court sitting in the State of Minnesota over any suit, action or proceeding arising out of or relating to this Agreement.  The parties hereby agree that service of any process, summons, notice or document by U.S. registered mail addressed to any such party shall be effective service of process for any action, suit or proceeding brought against a party in any such court.  The parties hereto hereby irrevocably and unconditionally waive any objection to the laying of venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.  The parties hereto agree that a final judgment in any such suit, action or proceeding brought in any such court shall be conclusive and binding upon any party and may be enforced in any other courts to whose jurisdiction any party is or may be subject, by suit upon such judgment.

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21.WAIVER OF RIGHT TO JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT OR THE PLAN, OR THE ENFORCEMENT HEREOF OR THEREOF.  THE GRANTEE AGREES THAT THIS SECTION 21 IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND ACKNOWLEDGES THAT THE COMPANY WOULD NOT HAVE ENTERED INTO THIS AGREEMENT IF THIS SECTION 21 WERE NOT PART OF THIS AGREEMENT.

*     *     *     *     *

9

IN WITNESS WHEREOF, the Company and Grantee have executed this Option Agreement as of the date first above written.

UHS HOLDCO, INC.
By:
	Name:
	Title:
GRANTEE:
[                                                  ]

ANNEX I

Fiscal Year	Base Target EBITDA	Capital Expenditures Target
20[    ]	[N/A] [$              (3)]	[[N/A] [$              ](3)
20[    ]	[N/A] [$              (4)]	[N/A] [$              (4)]
20[    ]	[N/A] [$              (4)]	[N/A] [$              (4)]
20[    ]	[N/A] [$              (4)]	[N/A] [$              (4)]
20[    ]	[N/A] [$              (4)]	[N/A] [$              (4)]
20[    ]	[N/A] [$              (4)]	[N/A] [$              (4)]

(3)Note: Target to be determined by the Board or Committee on or prior to the date of grant.

(4)Note: Target may be determined by the Board or Committee after the date of grant.  In such case, the applicable target will be so determined by September 30 of the fiscal year preceding the fiscal year for which the target applies.  Each such determination will be made by the Board or Committee in its sole discretion, which determination will, subject to the provisions of Sections 5(c) and 5(e)(ii) of this Agreement, be final, conclusive and binding on the Grantee and the Company.  The Company will notify the Grantee in writing of the Board or Committee’s determination promptly following such determination.

EX-31.1

Exhibit 31.1

Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Gary D. Blackford, certify that:

1.             I have reviewed this quarterly report on Form 10-Q of Universal Hospital Services, Inc. (the “registrant”);

2.             Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.             Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.             The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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5.             The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)           all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)           any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 11, 2010	/s/ Gary D. Blackford
	Gary D. Blackford
	Chairman of the Board and
	Chief Executive Officer
	(Principal Executive Officer)

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EX-31.2

Exhibit 31.2

Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Rex T. Clevenger, certify that:

1.             I have reviewed this quarterly report on Form 10-Q of Universal Hospital Services, Inc. (the “registrant”);

2.             Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.             Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.             The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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5.             The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)           all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)           any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 11, 2010	/s/ Rex T. Clevenger
	Rex T. Clevenger
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer)

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EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Universal Hospital Services, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2010, as filed with the Securities and Exchange Commission (the “Report”), I, Gary D. Blackford, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)           The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 11, 2010

/s/	Gary D. Blackford
	Gary D. Blackford
	Chairman of the Board and
	Chief Executive Officer

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EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Universal Hospital Services, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2010, as filed with the Securities and Exchange Commission (the “Report”), I, Rex T. Clevenger, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)           The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 11, 2010

/s/	Rex T. Clevenger
	Rex T. Clevenger
	Executive Vice President and
	Chief Financial Officer

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