Document:

Exhibit 10.3

 

EXECUTION COPY

 

 

GUARANTEE AND COLLATERAL AGREEMENT

made by

KINETIC CONCEPTS, INC.

and certain of its Subsidiaries

in favor of

MORGAN STANLEY & CO. INCORPORATED

as Collateral Agent

Dated as of August 11, 2003

 

 

 

 

TABLE OF CONTENTS

 

	
  SECTION 1

  	
   

  	
  DEFINED TERMS

  
	
   

  	
   

  	
   

  
	
  1.1

  	
   

  	
  Definitions

  
	
  1.2

  	
   

  	
  Other Definitional Provisions

  
	
   

  	
   

  	
   

  
	
  SECTION 2

  	
   

  	
  GUARANTEE

  
	
   

  	
   

  	
   

  
	
  2.1

  	
   

  	
  Guarantee

  
	
  2.2

  	
   

  	
  Right of Contribution

  
	
  2.3

  	
   

  	
  No Subrogation

  
	
  2.4

  	
   

  	
  Amendments,
  etc. with Respect to the Borrower Obligations

  
	
  2.5

  	
   

  	
  Guarantee Absolute and Unconditional

  
	
  2.6

  	
   

  	
  Reinstatement

  
	
  2.7

  	
   

  	
  Payments

  
	
   

  	
   

  	
   

  
	
  SECTION 3

  	
   

  	
  GRANT OF SECURITY
  INTEREST

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 4

  	
   

  	
  REPRESENTATIONS
  AND WARRANTIES

  
	
   

  	
   

  	
   

  
	
  4.1

  	
   

  	
  Representations of Guarantors

  
	
  4.2

  	
   

  	
  Title; No Other Liens

  
	
  4.3

  	
   

  	
  Perfected First Priority Liens

  
	
  4.4

  	
   

  	
  Chief Executive Office

  
	
  4.5

  	
   

  	
  Inventory and Equipment

  
	
  4.6

  	
   

  	
  Farm Products

  
	
  4.7

  	
   

  	
  Pledged Securities

  
	
  4.8

  	
   

  	
  Receivables

  
	
  4.9

  	
   

  	
  Intellectual Property

  
	
  4.10

  	
   

  	
  Commercial Tort Claims

  
	
  4.11

  	
   

  	
  Deposit Accounts

  
	
  4.12

  	
   

  	
  Letter of Credit Rights

  
	
   

  	
   

  	
   

  
	
  SECTION 5

  	
   

  	
  COVENANTS

  
	
   

  	
   

  	
   

  
	
  5.1

  	
   

  	
  Delivery of Instruments and Chattel Paper

  
	
  5.2

  	
   

  	
  Maintenance of Insurance

  
	
  5.3

  	
   

  	
  Maintenance of Perfected Security Interest;
  Further Documentation

  
	
  5.4

  	
   

  	
  Changes in Locations, Name, etc

  
	
  5.5

  	
   

  	
  Notices

  
	
  5.6

  	
   

  	
  Investment Property

  
	
  5.7

  	
   

  	
  Receivables

  
	
  5.8

  	
   

  	
  Intellectual Property

  
	
  5.9

  	
   

  	
  Government Contracts

  
	
  5.10

  	
   

  	
  Deposit Accounts; Post-Closing Covenant

  

 

 

	
  5.11

  	
   

  	
  Bailees and Warehouses

  
	
  5.12

  	
   

  	
  Commercial Tort Claims

  
	
   

  	
   

  	
   

  
	
  SECTION 6

  	
   

  	
  REMEDIAL
  PROVISIONS

  
	
   

  	
   

  	
   

  
	
  6.1

  	
   

  	
  Certain Matters Relating to Receivables

  
	
  6.2

  	
   

  	
  Communications with Account Debtors and
  Obligors; Grantors Remain Liable

  
	
  6.3

  	
   

  	
  Pledged Stock

  
	
  6.4

  	
   

  	
  Proceeds to be Turned Over To Collateral
  Agent

  
	
  6.5

  	
   

  	
  Application of Proceeds

  
	
  6.6

  	
   

  	
  Code and Other Remedies

  
	
  6.7

  	
   

  	
  Intellectual Property

  
	
  6.8

  	
   

  	
  Deficiency

  
	
   

  	
   

  	
   

  
	
  SECTION 7

  	
   

  	
  THE COLLATERAL
  AGENT

  
	
   

  	
   

  	
   

  
	
  7.1

  	
   

  	
  Collateral Agent’s Appointment as Attorney-in-Fact, etc.

  
	
  7.2

  	
   

  	
  Duty of Collateral Agent

  
	
  7.3

  	
   

  	
  Authorization of Financing Statements

  
	
  7.4

  	
   

  	
  Authority of Collateral Agent

  
	
   

  	
   

  	
   

  
	
  SECTION 8

  	
   

  	
  MISCELLANEOUS

  
	
   

  	
   

  	
   

  
	
  8.1

  	
   

  	
  Amendments in Writing

  
	
  8.2

  	
   

  	
  Notices

  
	
  8.3

  	
   

  	
  No Waiver by Course of Conduct; Cumulative Remedies

  
	
  8.4

  	
   

  	
  Enforcement Expenses; Indemnification

  
	
  8.5

  	
   

  	
  Successors and Assigns; Continuing Security Interest

  
	
  8.6

  	
   

  	
  Set-Off

  
	
  8.7

  	
   

  	
  Security Interest Absolute

  
	
  8.8

  	
   

  	
  Counterparts

  
	
  8.9

  	
   

  	
  Mortgages

  
	
  8.10

  	
   

  	
  Severability

  
	
  8.11

  	
   

  	
  Section Headings

  
	
  8.12

  	
   

  	
  Integration

  
	
  8.13

  	
   

  	
  GOVERNING
  LAW

  
	
  8.14

  	
   

  	
  Submission to Jurisdiction; Waivers

  
	
  8.15

  	
   

  	
  Acknowledgements

  
	
  8.16

  	
   

  	
  WAIVER
  OF JURY TRIAL

  
	
  8.17

  	
   

  	
  Additional Grantors

  
	
  8.18

  	
   

  	
  Releases

  

 

ii

 

	
  SCHEDULES

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule 1

  	
  -

  	
  Notice Addresses of Guarantors

  
	
  Schedule 2

  	
  -

  	
  Pledged Stock

  
	
  Schedule 3

  	
  -

  	
  Pledged Debt

  
	
  Schedule 4

  	
  -

  	
  Location, Chief Executive Office, Place Where
  Agreements Are Maintained, Type of Organization, Jurisdiction of Organization
  and Organizational Identification Number

  
	
  Schedule 5

  	
  -

  	
  Locations of Inventory and Equipment

  
	
  Schedule 6

  	
  -

  	
  Patents, Trademarks and Trade Names, Copyrights and
  IP Agreements

  
	
  Schedule 7

  	
  -

  	
  Financing Statements

  
	
  Schedule 8

  	
  -

  	
  Commercial Tort Claims

  
	
  Schedule 9

  	
  -

  	
  Deposit Accounts

  
	
   

  	
   

  	
   

  
	
  ANNEX

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Annex 1

  	
  -

  	
  Assumption Agreement

  
	
   

  	
   

  	
   

  
	
  EXHIBITS

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit A

  	
  -

  	
  Form of Account Control Agreement

  
	
  Exhibit B-1

  	
  -

  	
  Form of Intellectual Property Security Agreement

  
	
  Exhibit B-2

  	
  -

  	
  Form of Intellectual Property Security Agreement for Patent
  Application

  
	
  Exhibit C-1

  	
  -

  	
  Form of Intellectual Property Security Agreement Supplement

  
	
  Exhibit C-2

  	
  -

  	
  Form of Intellectual Property Security Agreement Supplement for
  Patent Application

  

 

iii

 

GUARANTEE AND COLLATERAL AGREEMENT, dated as of August 11, 2003, made
by each of the signatories hereto (together with any other Domestic Subsidiary
that may become a party hereto as provided herein, the “Grantors”), in
favor of MORGAN STANLEY & CO. INCORPORATED, as Collateral Agent (in such
capacity, the “Collateral Agent”) for the banks and other financial
institutions (the “Lenders”) from time to time parties to the Credit
Agreement, dated as of the date hereof (as amended, amended and restated,
supplemented or otherwise modified from time to time, the “Credit Agreement”),
among Kinetic Concepts, Inc. (the “Company”), the Lenders parties
thereto, Morgan Stanley Senior Funding, Inc., as Administrative Agent, Credit
Suisse First Boston, as Syndication Agent, Wells Fargo Bank, National
Association, as Issuing Bank, and JPMorgan Chase Bank, Wells Fargo Bank,
National Association and The Bank of Nova Scotia, as Documentation Agents.

 

W I T N E S S E T H:

 

WHEREAS, pursuant to the Credit Agreement, the Lenders
have severally agreed to make extensions of credit to the Company upon the
terms and subject to the conditions set forth therein;

 

WHEREAS, the Company is a member of an affiliated
group of companies that includes each Grantor;

 

WHEREAS, the proceeds of the extensions of credit
under the Credit Agreement will be used in part to enable the Company to make
valuable transfers to one or more of the Grantors in connection with the
operation of their respective businesses;

 

WHEREAS, the Company and the other Grantors are
engaged in related businesses, and each Grantor will derive substantial direct
and indirect benefit from the making of the extensions of credit under the
Credit Agreement; and

 

WHEREAS, it is a condition precedent to the obligation
of the Lenders to make their respective extensions of credit to the Company
under the Credit Agreement that the Grantors shall have executed and delivered
this Agreement to the Collateral Agent for the ratable benefit of the Agents
and the Lenders;

 

NOW, THEREFORE, in consideration of the premises and
to induce the Agents and the Lenders to enter into the Credit Agreement and to
induce the Lenders to make their respective extensions of credit to the Company
thereunder, each Grantor hereby agrees with the Collateral Agent, for the
ratable benefit of the Agents and the Lenders, as follows:

 

SECTION 1  DEFINED TERMS

 

 

1.1                                 Definitions. 
(a)  Unless otherwise defined
herein, terms defined in the Credit Agreement and used herein shall have the
meanings given to them in the Credit Agreement (provided that for purposes of
this Agreement, the term “Lender” shall include any Issuing Bank and any Person
which is a party to an Eligible Hedge Agreement), and the following terms which
are defined in the UCC are used herein as so defined:  Accounts, Account Debtors, Chattel Paper, Commercial Tort Claims,
Deposit Account, Documents, Electronic 

 

 

Chattel Paper, Equipment, Farm Products, Goods,
Health-Care-Insurance Receivable, Instruments, Inventory, Letter-of-Credit
Right, Payment Intangible, Promissory Note, Security, Securities Intermediary,
Security Entitlement and Software.

 

(b)                                 The
following terms shall have the following meanings:

 

“Agreement”: 
this Guarantee and Collateral Agreement, as the same may be amended,
restated, supplemented or otherwise modified from time to time.

 

“Borrower Obligations”:  the collective reference to the unpaid
principal of and interest on the Loans and Reimbursement Obligations and all
other obligations and liabilities of the Company (including, without
limitation, interest accruing at the then applicable rate provided in the
Credit Agreement after the maturity of the Loans and Reimbursement Obligations
and interest accruing at the then applicable rate provided in the Credit
Agreement after the filing of any petition in bankruptcy, or the commencement
of any insolvency, reorganization or like proceeding, relating to the Company,
whether or not a claim for post-filing or post-petition interest is allowed in
such proceeding) to any Agent or any Lender, whether direct or indirect,
absolute or contingent, due or to become due, or now existing or hereafter
incurred, which may arise under, out of, or in connection with, the Credit
Agreement, this Agreement, the other Loan Documents, any Letter of Credit or
any Eligible Hedge Agreement or any other document made, delivered or given in
connection therewith, in each case whether on account of principal, interest,
guarantee obligations, reimbursement obligations, fees, commissions,
indemnities, costs, expenses or otherwise (including, without limitation, all
reasonable fees and disbursements of counsel to the Collateral Agent or any
other Agent or to the Lenders that are required to be paid by the Company
pursuant to the terms of any of the foregoing agreements).

 

“Collateral”: 
as defined in Section 3.

 

“Collateral Account”:  any collateral deposit account established by the Collateral
Agent in the name of the Collateral Agent and under the sole dominion and
control of the Collateral Agent.

 

“Control”: 
any appropriate method of gaining control of collateral under the UCC,
including, without limitation, under Sections 8-106, 9-104, 9-105, 9-106 and
9-107 of the UCC.

 

“Copyrights”: 
all copyrights arising under the laws of the United States or any other
country or political subdivision thereof, whether registered or unregistered
and whether for published or unpublished works, and, with respect to the
foregoing: (i) all registrations and applications therefor, and (ii) all
renewals thereof.

 

“Eligible Hedge Agreement”:  any Foreign Currency Protection Agreement
and Interest Rate Protection Agreement entered into with any Person that is a
Lender or an Affiliate of a Lender at the time of entering into such Foreign
Currency Protection Agreement or Interest Rate Protection Agreement, as the
case may be.

 

“General Intangibles”:  all “general intangibles” as such term is
defined in Section 9-102 of the UCC and, in any event, shall include, without
limitation, with respect to any 

 

2

 

Grantor, all contracts,
agreements, instruments and indentures in any form, and portions thereof, to
which such Grantor is a party or under which such Grantor has any right, title
or interest or to which such Grantor or any property of such Grantor is
subject, as the same may from time to time be amended, supplemented or
otherwise modified, including, without limitation, (i) all rights of such
Grantor to receive moneys due and to become due to it thereunder or in
connection therewith, (ii) all rights of such Grantor to damages arising
thereunder and (iii) all rights of such Grantor to perform and to exercise all
remedies thereunder, in each case to the extent the grant by such Grantor of a
security interest pursuant to this Agreement in its right, title and interest
in such contract, agreement, instrument or indenture is not prohibited by such
contract, agreement, instrument or indenture without the consent of any other
party thereto, would not give any other party to such contract, agreement,
instrument or indenture the right to terminate its obligations thereunder, or
is permitted with consent if all necessary consents to such grant of a security
interest have been obtained from the other parties thereto (it being understood
that the foregoing shall not be deemed to obligate such Grantor to obtain such
consents); provided  that the foregoing limitation shall not
affect, limit, restrict or impair the grant by such Grantor of a security
interest pursuant to this Agreement in any Receivable or any money or other
amounts due or to become due under any such contract, agreement, instrument or
indenture.

 

“Governmental Receivable”:  any Receivable of any Grantor with respect
to which the obligor is a federal, state, local or foreign court or
governmental agency, authority, instrumentality or regulatory body.

 

“Guarantor Obligations”:  with respect to any Guarantor, the
collective reference to (i) the Borrower Obligations and (ii) all obligations
and liabilities of such Guarantor which may arise under or in connection with
this Agreement or any other Loan Document to which such Guarantor is a party,
in each case whether on account of guarantee obligations, reimbursement
obligations, fees, commissions, indemnities, costs, expenses or otherwise
(including, without limitation, all reasonable fees and disbursements of
counsel to the Collateral Agent or any other Agent or to the Lenders that are
required to be paid by such Guarantor pursuant to the terms of this Agreement
or any other Loan Document).

 

“Guarantors”: 
the collective reference to each Grantor other than the Company.

 

“Intellectual Property”:  the collective reference to all rights,
priorities and privileges relating to intellectual property, whether arising
under United States, multinational or foreign laws or otherwise, including,
without limitation, Copyrights, Patents, Trademarks, Trade Secrets, and IP
Agreements and all rights (but not the obligation) to sue at law or in equity
for any infringement or other impairment thereof, including the right to
receive all proceeds and damages therefrom.

 

“Intercompany Note”:  any promissory note evidencing loans made by any Grantor to the
Company or any of its Subsidiaries.

 

“IP Agreement”:  any agreement, permit, consent, or order relating to the license,
development, use or disclosure of any Copyrights, Patents, Trademarks, Trade
Secrets or Software to which a Grantor is a party or a beneficiary, in each
case to the extent the grant by such Grantor of a security interest pursuant to
this Agreement in its right, title and interest in 

 

3

 

such IP Agreement is not
prohibited by such IP Agreement without the consent of any other party thereto,
would not give any other party to such IP Agreement the right to terminate its
obligations thereunder, or is permitted with consent if all necessary consents
to such grant of a security interest have been obtained from the other parties thereto
(it being understood that the foregoing shall not be deemed to obligate such
Grantor to obtain such consents); provided that the foregoing limitation shall
not affect, limit, restrict or impair the grant by such Grantor of a security
interest pursuant to this Agreement in any Receivable or any money or other
amounts due or to become due under any such IP Agreement.

 

“Issuers”: 
the collective reference to each issuer of a Pledged Security.

 

“Investment Property”:  all “investment property” as such term is
defined in Section 9-102(a)(49) of the UCC and, in any event, shall include,
without limitation, the Pledged Securities.

 

“KCI USA”: 
KCI USA, Inc., a Delaware corporation.

 

“Obligations”: 
(i) in the case of the Company, the Borrower Obligations, and (ii) in
the case of each Guarantor, its Guarantor Obligations.

 

“Patents”: 
all United States and foreign patents and patent applications,
including, without limitation: (i) all reissues, extensions, divisions,
continuations, continuations-in-part, renewals and re-examinations thereof,
(ii) utility models and statutory invention registrations, and (iii) all
inventions and improvements claimed or disclosed therein.

 

“Pledged Account Banks”: as defined in section
5.10.

 

“Pledged Debt”:  all indebtedness listed on Schedule 3 (as such schedule
may be supplemented in accordance with Section 5.1 hereof), together with all
additional indebtedness (and the instruments, if any, evidencing such
indebtedness) at any time issued to any Grantor and all interest, cash,
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all such
indebtedness; provided, however, that accounts receivable and any
promissory notes issued in connection with extensions of trade credit by any
Grantor in the ordinary course of business shall not be included in Pledged
Debt.

 

“Pledged Securities”:  the collective reference to the Pledged Debt and the Pledged
Stock.

 

“Pledged Stock”:  the shares of Capital Stock listed on Schedule 2 (as such
schedule may be supplemented in accordance with Section 5.6 hereof), together
with any other shares, stock certificates, options or rights of any nature
whatsoever in respect of the Capital Stock of any Person that may be issued or
granted to, or held by, any Grantor while this Agreement is in effect and all
dividends, distributions, return of capital, cash, instruments and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such shares or other equity
interests and all subscription warrants, rights or options issued thereon or
with respect thereto; provided  that, Pledged Stock shall not
include any Capital Stock of a Person whose organizational documents (including,
without 

 

4

 

limitation, any joint
venture agreement) prohibit the pledge or other encumbrance of such Capital
Stock.

 

“Proceeds”: 
all “proceeds” as such term is defined in Section 9-102 of the UCC and,
in any event, shall include, without limitation, all dividends or other income
from the Pledged Securities, collections thereon or distributions or payments
with respect thereto.

 

“Receivable”: 
any right to payment for goods sold or leased, for services rendered or
for any other monetary obligation, whether or not such right is evidenced by an
Instrument or Chattel Paper and whether or not it has been earned by
performance, and in any event, shall include any Account.

 

“Scheduled Assets”:  as defined in Section 3.

 

“Securities Act”:  the Securities Act of 1933, as amended.

 

“Supporting Obligation”: all “supporting
obligations” as such term is defined in Section 9-102 of the UCC and, in any
event, shall include, without limitation, all security agreements, guaranties,
leases and other contracts securing or otherwise relating to any such Accounts,
Chattel Paper, Documents, Instruments, Goods represented by the sale or lease
or delivery which gave rise to any of the foregoing, returned or repossessed merchandise
and rights of stoppage in transit, replevin, reclamation and other rights and
remedies of an unpaid vendor, lienor or secured party.

 

“Trademarks”: 
all trademarks, trade names, domain names, trade dress, designs,
slogans, corporate names, company names, business names, fictitious business
names, trade styles, service marks, logos and other source or business
identifiers now existing or hereafter adopted or acquired, whether in the
United States, any State thereof, or any other country or political subdivision
thereof, and, with respect to any and all of the foregoing: (i) all
applications, registrations, and renewals in connection therewith (provided
that no security interest shall be granted in United States intent-to-use
trademark applications to the extent that, and solely during the period in
which, the grant of a security interest therein would impair the validity or
enforceability of such intent-to-use trademark applications under applicable
federal law), (ii) all goodwill associated therewith, and (iii) all common-law
rights related thereto.

 

“Trade Secrets”:  all confidential and proprietary information, including, without
limitation, know-how, trade secrets, manufacturing and production processes and
techniques, inventions, research and development information, databases and
data, including, without limitation, technical data, financial, marketing and
business data, pricing and cost information, business and marketing plans and
customer and supplier lists and information.

 

“UCC” means the Uniform Commercial Code as the
same may from time to time be in effect in the State of New York; provided
that if, by reason of mandatory provisions of law, the perfection or the
effect of perfection or non-perfection or the priority of any security interest
granted herein is governed by the Uniform Commercial Code in effect in a
jurisdiction other than New York, then, as to the perfection or the effect of
perfection or non-perfection or the priority of such security interest, “UCC”
shall mean the Uniform Commercial Code in effect in such other jurisdiction.

 

5

 

1.2                                 Other Definitional Provisions.  (a) 
The words “hereof,” “herein”, “hereto” and “hereunder” and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section and
Schedule references are to this Agreement unless otherwise specified.

 

(b)                                 The
meanings given to terms defined herein shall be equally applicable to both the
singular and plural forms of such terms.

 

(c)                                  Where
the context requires, terms relating to the Collateral or any part thereof,
when used in relation to a Grantor, shall refer to such Grantor’s Collateral or
the relevant part thereof.

 

SECTION 2  GUARANTEE

 

 

2.1                                 Guarantee. 
(a)  Each of the Guarantors
hereby, jointly and severally, unconditionally and irrevocably, guarantees to
the Collateral Agent, for the ratable benefit of the Agents and the Lenders and
their respective successors, indorsees, transferees and assigns, the prompt and
complete payment and performance by the Company when due (whether at the stated
maturity, by acceleration or otherwise) of the Borrower Obligations.

 

(b)                                 Anything
herein or in any other Loan Document to the contrary notwithstanding, the
maximum liability of each Guarantor hereunder and under the other Loan
Documents shall in no event exceed the amount which can be guaranteed by such
Guarantor under applicable federal and state laws relating to the insolvency of
debtors (after giving effect to the right of contribution provided in Section
2.2).

 

(c)                                  Each
Guarantor agrees that the Borrower Obligations may at any time and from time to
time exceed the amount of the liability of such Guarantor hereunder without
impairing the guarantee contained in this Section 2 or affecting the rights and
remedies of the Collateral Agent or any Lender hereunder.

 

(d)                                 The
guarantee contained in this Section 2 shall remain in full force and effect
until all the Borrower Obligations and the obligations of each Guarantor under
the guarantee contained in this Section 2 shall have been satisfied by payment
in full, no Letter of Credit shall be outstanding (or any outstanding Letters
of Credit have been cash collateralized) and the Commitments shall be
terminated, notwithstanding that from time to time during the term of the
Credit Agreement the Company may be free from any Borrower Obligations.

 

(e)                                  No
payment made by the Company, any of the Guarantors, any other guarantor or any
other Person or received or collected by the Collateral Agent or any Lender
from the Company, any of the Guarantors, any other guarantor or any other
Person by virtue of any action or proceeding or any set-off or appropriation or
application at any time or from time to time in reduction of or in payment of
the Borrower Obligations shall be deemed to modify, reduce, release or
otherwise affect the liability of any Guarantor hereunder which shall,
notwithstanding any such payment (other than any payment made by such Guarantor
in respect of the Borrower Obligations or any payment 

 

6

 

received or
collected from such Guarantor in respect of the Borrower Obligations), remain
liable for the Borrower Obligations up to the maximum liability of such
Guarantor hereunder until the Borrower Obligations are paid in full, no Letter
of Credit is outstanding (or any outstanding Letters of Credit have been cash
collateralized) and the Commitments are terminated.

 

(f)                                    The
guarantee contained in this Agreement is a guarantee of payment and not of
collection.

 

2.2                                 Right of Contribution.  Each Guarantor hereby agrees that to the
extent that a Guarantor shall have paid more than its proportionate share of
any payment made hereunder, such Guarantor shall be entitled to seek and
receive contribution from and against any other Guarantor hereunder which has
not paid its proportionate share of such payment.  Each Guarantor’s right of contribution shall be subject to the
terms and conditions of Section 2.3. 
The provisions of this Section 2.2 shall in no respect limit the
obligations and liabilities of any Guarantor to the Agents and the Lenders, and
each Guarantor shall remain liable to the Agents and the Lenders for the full
amount guaranteed by such Guarantor hereunder.

 

2.3                                 No Subrogation. 
Notwithstanding any payment made by any Guarantor hereunder or any
set-off or application of funds of any Guarantor by any Agent or any Lender, no
Guarantor shall be entitled to be subrogated to any of the rights of any Agent
or any Lender against the Company or any other Guarantor or any collateral
security or guarantee or right of offset held by any Agent or any Lender for
the payment of the Borrower Obligations, nor shall any Guarantor seek or be
entitled to seek any contribution or reimbursement from the Company or any
other Guarantor in respect of payments made by such Guarantor hereunder, until
all amounts owing to the Agents and the Lenders by the Company on account of
the Borrower Obligations are paid in full, no Letter of Credit is outstanding
(or any outstanding Letters of Credit have been cash collateralized) and the
Commitments are terminated.  If any
amount shall be paid to any Guarantor on account of such subrogation rights at
any time when all of the Borrower Obligations shall not have been paid in full,
such amount shall be held by such Guarantor in trust for the Agents and the
Lenders segregated from other funds of such Guarantor, and shall, forthwith
upon receipt by such Guarantor, be turned over to the Collateral Agent in the
exact form received by such Guarantor (duly indorsed by such Guarantor to the
Collateral Agent, if required), to be applied against the Borrower Obligations,
whether matured or unmatured, in such order as the Collateral Agent may determine.

 

2.4                                 Amendments, etc. with Respect to the Borrower
Obligations.  Each Guarantor shall
remain obligated hereunder notwithstanding that, without any reservation of
rights against any Guarantor and without notice to or further assent by any
Guarantor, any demand for payment of any of the Borrower Obligations made by
any Agent or any Lender may be rescinded by such Agent or such Lender, as the
case may be, and any of the Borrower Obligations continued, and the Borrower
Obligations, or the liability of any other Person upon or for any part thereof,
or any collateral security or guarantee therefor or right of offset with
respect thereto, may, from time to time, in whole or in part, be renewed,
extended, amended, modified, accelerated, compromised, waived, surrendered or
released by any Agent or any Lender, and the Credit Agreement, the other Loan
Documents, any Eligible Hedge Agreement and any other documents executed and
delivered in connection therewith may be amended, modified,

 

7

 

supplemented or terminated, in whole or in part, as
the Collateral Agent (or the relevant Lenders) may deem advisable from time to
time, and any collateral security, guarantee or right of offset at any time
held by any Agent or any Lender for the payment of the Borrower Obligations may
be sold, exchanged, waived, surrendered or released.  No Agent or Lender shall have any obligation to protect, secure,
perfect or insure any Lien at any time held by it as security for the Borrower Obligations
or for the guarantee contained in this Section 2 or any property subject
thereto.

 

2.5                                 Guarantee Absolute and Unconditional.  Each Guarantor waives any and all notice of
the creation, renewal, extension or accrual of any of the Borrower Obligations
and notice of or proof of reliance by any Agent or any Lender upon the
guarantee contained in this Section 2 or acceptance of the guarantee contained
in this Section 2; the Borrower Obligations, and any of them, shall
conclusively be deemed to have been created, contracted or incurred, or
renewed, extended, amended or waived, in reliance upon the guarantee contained
in this Section 2; and all dealings between the Company and any of the
Guarantors, on the one hand, and the Agents and the Lenders, on the other hand,
likewise shall be conclusively presumed to have been had or consummated in
reliance upon the guarantee contained in this Section 2.  Each Guarantor waives diligence,
presentment, protest, demand for payment and notice of default or nonpayment to
or upon the Company or any of the Guarantors with respect to the Borrower
Obligations.  Each Guarantor understands
and agrees that the guarantee contained in this Section 2 shall be construed as
a continuing, absolute and unconditional guarantee of payment without regard to
(a) the validity or enforceability of the Credit Agreement, any other Loan
Document, any Eligible Hedge Agreement, any of the Borrower Obligations or any
other collateral security therefor or guarantee or right of offset with respect
thereto at any time or from time to time held by any Agent or any Lender, (b)
any defense, set-off or counterclaim (other than a defense of payment or
performance) which may at any time be available to or be asserted by the
Company or any other Person against any Agent or any Lender, or (c) any other
circumstance whatsoever (with or without notice to or knowledge of the Company
or such Guarantor) which constitutes, or might be construed to constitute, an
equitable or legal discharge of the Company for the Borrower Obligations, or of
such Guarantor under the guarantee contained in this Section 2, in bankruptcy
or in any other instance other than the express written release of such
Guarantor from this Agreement by the Collateral Agent.  When making any demand hereunder or
otherwise pursuing its rights and remedies hereunder against any Guarantor, the
Collateral Agent or any Lender may, but shall be under no obligation to, make a
similar demand on or otherwise pursue such rights and remedies as it may have
against the Company, any other Guarantor or any other Person or against any
collateral security or guarantee for the Borrower Obligations or any right of
offset with respect thereto, and any failure by the Collateral Agent or any
Lender to make any such demand, to pursue such other rights or remedies or to
collect any payments from the Company, any other Guarantor or any other Person
or to realize upon any such collateral security or guarantee or to exercise any
such right of offset, or any release of the Company, any other Guarantor or any
other Person or any such collateral security, guarantee or right of offset,
shall not relieve any Guarantor of any obligation or liability hereunder, and
shall not impair or affect the rights and remedies, whether express, implied or
available as a matter of law, of any Agent or any Lender against any
Guarantor.  For the purposes hereof
“demand” shall include the commencement and continuance of any legal
proceedings.

 

2.6                                 Reinstatement. 
The guarantee contained in this Section 2 shall continue to be
effective, or be reinstated, as the case may be, if at any time payment, or any
part thereof, of 

 

8

 

any of the Borrower Obligations is rescinded or must
otherwise be restored or returned by any Agent or any Lender upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of the
Company or any Guarantor, or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for, the
Company or any Guarantor or any substantial part of its property, or otherwise,
all as though such payments had not been made.

 

2.7                                 Payments.  Each
Guarantor hereby guarantees that payments hereunder will be paid to the
Collateral Agent without set-off or counterclaim in Dollars at the office of
the Collateral Agent located at Morgan Stanley & Co. Incorporated, 750
Seventh Avenue, 11th Floor, New York, New York 10020, Attn: Alice
Lee (or such other address as shall be specified from time to time by the
Collateral Agent).

 

SECTION 3  GRANT OF SECURITY INTEREST

 

 

Each Grantor hereby grants to the Collateral Agent,
for the ratable benefit of the Agents and the Lenders, a security interest in
such Grantor’s right, title and interest in and to all of the following
property, wherever located, whether now owned or at any time hereafter acquired
by such Grantor or in which such Grantor now has or at any time in the future
may acquire any right, title or interest (collectively, the “Collateral”),
as collateral security for the prompt and complete payment and performance when
due (whether at the stated maturity, by acceleration or otherwise) of such
Grantor’s Obligations:

 

(a)                                   all
Accounts, including, without limitation, Health-Care-Insurance Receivables and all
amounts owed to such Grantor for the licensing of Intellectual Property rights;

 

(b)                                  all
Chattel Paper, including, without limitation, equipment leases and conditional
sales agreements;

 

(c)                                   all
Documents;

 

(d)                                  all
Equipment (other than any vehicles the ownership of which is evidenced by a
certificate of title);

 

(e)                                   all
General Intangibles, including, without limitation, Payment Intangibles and
Software;

 

(f)                                    all
Instruments, including, without limitation, Promissory Notes;

 

(g)                                 all
Intellectual Property;

 

(h)                                 all
Inventory;

 

(i)                                     all
Investment Property;

 

(j)                                     all
Deposit Accounts;

 

9

 

(k)                                  all
Commercial Tort Claims listed on Schedule 8 hereto and any additional
Commercial Tort Claims;

 

(l)                                     all
Letter-of-Credit Rights;

 

(m)                               
all books and records pertaining to any and/or all of the Collateral; and

 

(n)                                  to
the extent not otherwise included, all Proceeds, Supporting Obligations and
products of any and all of the foregoing Collateral;

 

provided  that, notwithstanding
the foregoing, no Lien or security interest is or shall be granted hereunder
in, and the Collateral shall not include, (i) any asset or property described
on Schedule 8.6(f) to the Credit Agreement (the “Scheduled Assets”),
except that this limitation shall cease to apply to any such asset which is
owned by any Grantor on the earlier of (the “Triggering Date”) (A) the
date which is one year after the Closing Date and (B) the date on which the
Administrative Agent sends a notice to such effect to the Company after the
occurrence and during the continuation of an Event of Default (and any such
asset shall automatically be subject to the Liens and security interests
granted hereunder as of the Triggering Date), (ii) any Governmental Receivable
(or any General Intangibles or Chattel Paper related thereto) to the extent
that the grant of such Lien or security interest is not permitted by any
applicable law, (iii) any Capital Stock of an entity organized under the laws
of any jurisdiction outside of the United States of America to the extent such
Capital Stock constitutes more than 65% of all the issued and outstanding
shares of all classes of the Capital Stock of such entity, (iv) the Capital
Stock of EMD CV and IMD CV owned by KCII, KCI International and/or KCII
Holdings LLC (v) any Capital Stock of KCI International and KCII Holdings LLC
to the extent such Capital Stock constitutes more than 65% of all the issued
and outstanding shares of all classes of the Capital Stock of any such entity,
(vi) Welcome Lodge and any property located on and used in connection therewith
or (vii) any secured proceeds account in which the proceeds from the issuance
of the Senior Subordinated Notes are deposited.  It is understood and agreed that, notwithstanding the foregoing, no
Lien or security interest shall be granted on any Scheduled Asset to the extent
the consent of any third party is required for the granting of such Lien or
security interest in such Scheduled Asset unless such consent has been
obtained.  The relevant Grantor or
Grantors shall use their reasonable best efforts to obtain such consent such
that any such Scheduled Asset that has not been sold or otherwise disposed of
on or prior to the Triggering Date shall become subject to the Liens and
security interests granted hereunder as of the Triggering Date or as soon
thereafter as practicable.  All rights
of the Collateral Agent and the security interests granted to the Collateral
Agent hereunder, and all obligations of each Grantor hereunder, shall be
absolute and unconditional, irrespective of, among other things, any lack of
validity or enforceability of any other Loan Document.

 

SECTION 4  REPRESENTATIONS AND WARRANTIES

 

 

To induce the Agents and the Lenders to enter into the
Credit Agreement and to induce the Lenders to make their respective extensions
of credit thereunder, each Grantor hereby represents and warrants to each Agent
and each Lender that:

 

10

 

4.1                                 Representations of Guarantors.  In the case of each Guarantor, the
representations and warranties set forth in Section 5 of the Credit Agreement
as they relate to such Guarantor or to the Loan Documents to which such
Guarantor is a party, each of which is hereby incorporated herein by reference,
are true and correct in all material respects, and each Agent and each Lender
shall be entitled to rely on each of them as if they were fully set forth
herein, provided  that each reference in each such representation
and warranty to the Company’s knowledge shall, for the purposes of this Section
4.1, be deemed to be a reference to such Guarantor’s knowledge.

 

4.2                                 Title; No Other Liens.  (a) 
Except for the security interest granted to the Collateral Agent for the
ratable benefit of the Agents and the Lenders pursuant to this Agreement and
the other Liens permitted to exist on the Collateral by the Credit Agreement,
such Grantor owns or has rights in and the power to transfer each item of the
Collateral free and clear of any and all Liens, claims, options or rights of others.  Except as set forth on Schedule 7, no
financing statement or other public notice with respect to all or any part of
the Collateral is on file or of record in any public office, except such (i) as
have been filed in favor of the Collateral Agent, for the ratable benefit of
the Agents and the Lenders, pursuant to this Agreement, (ii) as are being
terminated within 5 days of the Closing Date or (iii) as may have been filed in
connection with Liens permitted by the Credit Agreement.

 

(b)  Such
Grantor has exclusive possession and control of the Inventory and Equipment
other than (i) any Inventory and Equipment in an aggregate amount not to exceed
$1,000,000 stored at any leased premises or warehouse for which a landlord’s or
warehouseman’s agreement, in form and substance satisfactory to the Collateral
Agent, is in effect and (ii) Inventory and Equipment being leased to customers
by KCI USA and KCI Licensing, Inc.

 

4.3                                 Perfected First Priority Liens.  Except as provided in Sections 5.8(i) and
5.9, the security interests granted pursuant to this Agreement (x) upon
completion of the filings and other actions contemplated hereby (which, in the
case of all filings and other documents, have been delivered to the Collateral
Agent in completed and duly executed and authorized form, as appropriate), will
constitute valid perfected security interests in all of the Collateral in favor
of the Collateral Agent, for the ratable benefit of the Agents and the Lenders,
as collateral security for such Grantor’s Obligations, enforceable in
accordance with the terms hereof against all creditors of such Grantor and upon
the Collateral Agent obtaining Control of the Collateral that consists of
Deposit Accounts, Investment Property, Letter-of-Credit Rights and Electronic
Chattel Paper, against all Persons purporting to purchase any Collateral from
such Grantor other than purchasers of inventory in the ordinary course of
business and (y) are prior to all other Liens on the Collateral in existence on
the date hereof except for Liens permitted by the Credit Agreement which have
priority over the Liens on the Collateral.

 

4.4                                 Chief Executive Office.  On the date hereof, such Grantor’s exact
legal name, as described in Section 9-503(a) of the UCC, is correctly set forth
in Schedule 4 hereto.  Such
Grantor has only the trade names, domain names and marks listed on Schedule
6 hereto.  On the date hereof, such
Grantor is located (within the meaning of Section 9-307 of the UCC) and has its
chief executive office and the office in which it maintains all originals
of all chattel paper that evidence Receivables of such Grantor, in the state or
jurisdiction set forth in Schedule 4

 

11

 

hereto.  The information set
forth in Schedule 4 hereto with respect to such Grantor is true and
accurate in all respects.  Such Grantor
has not previously changed its name, location, chief executive office, place
where it maintains its agreements, type of organization, jurisdiction of
organization or organizational identification number from those set forth in Schedule
4 hereto.

 

4.5                                 Inventory and Equipment.  On the date hereof, all of such Grantor’s
Inventory and the Equipment (other than mobile goods) are kept at the locations
listed on Schedule 5, except with respect to Inventory and Equipment
being leased to customers by KCI USA and KCI Licensing, Inc. in the ordinary
course of business.  Within the 5 years
preceding the execution of this Agreement, such Grantor’s Inventory and
Equipment has not been located anywhere other than in the states specified on Schedule
5.

 

4.6                                 Farm Products. 
None of the Collateral constitutes, or is the Proceeds of, Farm
Products.

 

4.7                                 Pledged Securities.  (a)  The shares of Pledged
Stock pledged by such Grantor hereunder constitute all the issued and
outstanding shares of all classes of the Capital Stock of each Issuer owned by
such Grantor, provided  that (i) in the case of Pledged Stock
where the Issuers are Foreign Subsidiaries or are KCI International or KCII
Holdings LLC, such Pledged Stock does not constitute more than 65% of all the
issued and outstanding shares of all classes of the Capital Stock of such
Foreign Subsidiary or KCI International or KCII Holdings LLC and (ii) the
Pledged Stock does not include any Capital Stock of EMD CV and IMD CV owned by
KCII, KCI International and/or or KCII Holdings LLC.

 

(b)                                 The
Pledged Debt constitutes all of the outstanding indebtedness evidenced by
promissory notes (other than indebtedness issued in connection with extensions
of trade credit by any Grantor in the ordinary course of business) owed to such
Grantor by the issuers thereof and, as of the date hereof, is outstanding in
the principal amount indicated on Schedule 3 hereto.

 

(c)                                  All
the shares of the Pledged Stock have been duly authorized and validly issued
and are fully paid and nonassessable.

 

(d)                                 The
Pledged Debt constitutes the legal, valid and binding obligation of the obligor
with respect thereto, enforceable in accordance with its terms, subject to the
effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors’ rights
generally, general equitable principles (whether considered in a proceeding in
equity or at law) and an implied covenant of good faith and fair dealing.

 

(e)                                  Such
Grantor is the record and beneficial owner of, and has good and marketable
title to, the Pledged Securities pledged by it hereunder, free of any and all
Liens or options in favor of, or claims of, any other Person, except the security
interest created by this Agreement and Liens permitted by Section 8.3 of the
Credit Agreement.  All Pledged
Securities consisting of certificated securities and instruments have been
delivered to the Collateral Agent.

 

12

 

4.8                                 Receivables. 
(a)  No amount payable to such
Grantor under or in connection with any Receivable that is part of the
Collateral is evidenced:  (i) by any
Instrument which has not been delivered to and possessed by the Collateral
Agent; (ii) by any Chattel Paper (other than Electronic Chattel Paper) that has
not been clearly labeled and identified as being subject to the security
interest created hereby in accordance with, and within the time periods
specified in, Section 5.1; or (iii) by any Electronic Chattel Paper of which
the Collateral Agent does not have Control pursuant to Section 9-105 of the
UCC.

 

(b)                                 The
amounts represented by such Grantor to the Lenders from time to time as owing
to such Grantor in respect of the Receivables that are part of the Collateral
will at such times be accurate in all material respects.

 

4.9                                 Intellectual Property.  (a)  Schedule
6 lists (i) all active U.S. Patents, Trademark registrations and Copyright
registrations, and applications for any of the foregoing, filed by or issued to
each Grantor in its own name as of the date hereof; (ii) all active material
foreign or multinational Patents, Trademark registrations and Copyright
registrations, and applications for any of the foregoing, filed by or issued to
each Grantor in its own name as of the date hereof; and (iii) all material IP
Agreements by and between any Grantor and a third party.

 

(b)                                 To
each Grantor’s knowledge, on the date hereof, all material Intellectual
Property owned by such Grantor is valid and enforceable. On the date hereof,
all material Intellectual Property owned by such Grantor is subsisting,
unexpired, and unencumbered (except for the interest granted the Collateral
Agent for the ratable benefit of the Agents and the Lenders pursuant to this
Agreement and the other Liens permitted to exist on the Intellectual Property
of such Grantor by the Credit Agreement), and is not abandoned.

 

(c)                                  No
holding, decision or judgment has been rendered by any Governmental Authority
(other than decisions by the U.S. Patent and Trademark Office and similar
agencies worldwide during routine patent and trademark prosecution) which would
limit, cancel or question the validity or enforceability of, or such Grantor’s
rights in, any Intellectual Property owned by any Grantor in any respect that
could reasonably be expected to have a Material Adverse Effect.

 

(d)                                 Except
as set forth in Schedule 6, no action or proceeding is pending (other than
routine patent and trademark prosecution in the ordinary course of business),
or, to the knowledge of any Grantor, threatened, on the date hereof (i) seeking
to limit, cancel or question the validity of any Intellectual Property owned by
any Grantor or such Grantor’s ownership interest therein and (ii) which, if
adversely determined, would have a material adverse effect on the value of any
Intellectual Property having material economic value that is owned by any
Grantor.

 

(e)                                  Each
Grantor has made all filings, recordations and other acts and has paid all
required fees and taxes necessary to maintain and protect its interest in its
Intellectual Property Collateral required to be listed in Section 4.9(a) and
all other material Intellectual Property owned by such Grantor.

 

13

 

(f)                                    To
each Grantor’s knowledge, the conduct of the Grantor’s business (including, for
example, the use of such Grantor’s Intellectual Property in connection with the
conduct of the Grantor’s business) does not infringe the Intellectual Property
rights of any other Person.

 

4.10                           Commercial Tort Claims.  As of the date hereof, the Grantor has no
Commercial Tort Claims other than those listed on Schedule 8 hereto.

 

4.11                           Deposit Accounts.  As of the date hereof, such Grantor has no Deposit Accounts,
other than (i) the Deposit Accounts listed on Schedule 9 hereto, (ii)
Deposit Accounts for security deposits and petty cash having a cash balance in
the aggregate of no more than $250,000 at any one time and (iii) Deposit
Accounts for payroll, taxes and employee benefits.  For Deposit Accounts listed on Schedule 9 hereto there are
legal, binding and enforceable control agreements in effect for each such
Deposit Account (other than such Deposit Accounts indicated by an asterisk on Schedule
9 and Deposit Accounts maintained with the Collateral Agent).

 

4.12                           Letter of Credit Rights.  As of the date hereof, such Grantor is not
the beneficiary or assignee under any letter of credit.

 

SECTION 5  COVENANTS

 

 

Each Grantor covenants and agrees with the Agents and
the Lenders that, from and after the date of this Agreement until the
Obligations shall have been paid in full, no Letter of Credit shall be
outstanding (or any outstanding Letters of Credit have been cash
collateralized) and the Commitments shall have terminated:

 

5.1                                 Delivery of Instruments and Chattel
Paper.  If any amount payable under
or in connection with any of the Collateral shall be or become evidenced by any
Instrument, such Instrument shall be immediately delivered to the Collateral
Agent, duly indorsed in a manner satisfactory to the Collateral Agent, to be
held as Collateral pursuant to this Agreement. 
To the extent any such Instrument constitutes Pledged Debt, the Grantor
delivering such Instrument to the Collateral Agent shall also deliver a
supplement to Schedule 3 hereto, reflecting such additional Pledged
Debt.  If any amount payable under or in
connection with any of the Collateral shall be or become evidenced by any
Chattel Paper, upon request of the Collateral Agent after the occurrence of an
Event of Default which is continuing, such Chattel Paper shall be immediately
delivered to the Collateral Agent, duly indorsed in a manner satisfactory to
the Collateral Agent, to be held as Collateral pursuant to this Agreement.  Unless an Event of Default shall have
occurred and be continuing, each Grantor shall be entitled to retain possession
of all Collateral consisting of Chattel Paper (other than Electronic Chattel
Paper), and shall hold all such Chattel Paper in trust for the Collateral
Agent, for the ratable benefit of the Agents and the Lenders.  Upon the request of the Collateral Agent
following the occurrence of an Event of Default, such Grantor shall cause all
of its Chattel Paper (other than Electronic Chattel Paper) to bear a legend,
conspicuously noted on such Chattel Paper, to the following effect:

 

14

 

“THIS CHATTEL PAPER IS SUBJECT TO A SECURITY INTEREST
IN FAVOR OF MORGAN STANLEY & CO. INCORPORATED, AS COLLATERAL AGENT.  COMMUNICATIONS REGARDING THIS SECURITY
INTEREST SHOULD BE DIRECTED TO MORGAN STANLEY & CO. INCORPORATED, AS
COLLATERAL AGENT, 750 SEVENTH AVENUE, 11TH FLOOR, NEW YORK,
NEW YORK 10020, ATTN: ALICE LEE.”

 

Each Grantor shall take all reasonable and necessary
steps to facilitate the Collateral Agent having Control, pursuant to Section
9-105 of the UCC, of all Collateral consisting of Electronic Chattel Paper.

 

5.2                                 Maintenance of Insurance.  (a) 
Such Grantor will maintain, with financially sound and reputable
companies, insurance policies (i) insuring the Inventory and Equipment against
loss by fire, explosion, theft and such other casualties as may be reasonably
satisfactory to the Collateral Agent and (ii) insuring such Grantor, the Agents
and the Lenders against liability for personal injury and property damage
relating to such Inventory and Equipment, such policies to be in such amounts
and covering such risks as is commercially reasonable and prudent with respect
to the business and properties of the Grantors and which is usually carried by
companies engaged in similar businesses and owning similar properties in the
same general areas in which the Grantors operate.

 

(b)                                 All
such insurance shall (i) provide that no cancellation, material reduction in
amount or material change in coverage thereof shall be effective until at least
30 days after notice to the Collateral Agent thereof, (ii) name the Collateral
Agent as an additional insured party or loss payee, as its interests may
appear, and, (iii) if reasonably requested by the Collateral Agent, include a
breach of warranty clause.

 

(c)                                  The
Company shall deliver to the Collateral Agent during the month of January in
each calendar year a report of a reputable insurance broker with respect to
insurance then maintained with third parties required by the Loan Documents and
a certificate of a Responsible Officer of the Company as to the self-insurance
arrangements of the Grantors then in effect, and such supplemental reports with
respect thereto as the Collateral Agent may from time to time reasonably
request.

 

5.3                                 Maintenance of Perfected Security
Interest; Further Documentation. 
(a)  Such Grantor shall maintain
the security interest created by this Agreement as a perfected security
interest having at least the priority described in Section 4.3 and shall defend
such security interest against the claims and demands of all Persons
whomsoever; provided, however, that with respect to Collateral with an
aggregate value not to exceed $500,000, such Grantor shall not be required to
maintain such security interest or take such actions.

 

(b)                                 Such
Grantor hereby agrees that it shall: (i) cause the Equipment to be maintained
and preserved in the same condition, repair and working order as when new,
ordinary wear and tear excepted, other than any Equipment that is obsolete or
that is no longer useful in the ordinary course of business of such Grantor,
and make or cause to be made all repairs, replacements and other improvements
in connection therewith which are 

 

15

 

necessary so
that such Grantor may properly conduct its business; and (ii) at the request of
the Collateral Agent following the occurrence of an Event of Default, mark
conspicuously each document included in Inventory and, each of its records pertaining
to the Collateral with a legend, in form and substance satisfactory to the
Collateral Agent indicating that such document or Collateral is subject to the
security interest granted hereby.

 

(c)                                  Such
Grantor will furnish to the Collateral Agent and the Lenders from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Collateral Agent
may reasonably request, all in reasonable detail.

 

(d)                                 At
any time and from time to time, upon the written request of the Collateral
Agent, and at the sole expense of such Grantor, such Grantor will promptly and
duly execute and deliver, and have recorded, such further instruments and
documents and take such further actions as the Collateral Agent may reasonably
request for the purpose of obtaining or preserving the full benefits of this
Agreement and of the rights and powers herein granted, including, without
limitation, the priority of the security interests described in Section
4.3.  Each Grantor will promptly take
such further actions as the Collateral Agent may reasonably request to enable
the Collateral Agent to exercise and enforce its rights and remedies hereunder
with respect to any Collateral of such Grantor.

 

5.4                                 Changes in Locations, Name, etc.  Such Grantor will not, except upon 15 days’
prior written notice to the Collateral Agent and delivery to the Collateral
Agent of all documents reasonably requested by the Collateral Agent to maintain
the validity, perfection and priority of the security interests provided for
herein:

 

(i)                                      change
its state of organization from that referred to in Section 4.4;

 

(ii)                                   change
the location of its chief executive office (and, if such Grantor only has one
place of business, its sole place of business) from that referred to in Section
4.4; or

 

(iii)                                change
its name, identity or corporate structure to such an extent that any financing
statement filed by the Collateral Agent in connection with this Agreement would
become misleading.

 

5.5                                 Notices.  Such
Grantor will advise the Collateral Agent and the Lenders promptly, in
reasonable detail, of:

 

(a)                                   any
Lien (other than security interests created hereby or Liens permitted under the
Credit Agreement) on any of the Collateral which would adversely affect the
ability of the Collateral Agent to exercise any of its remedies hereunder; and

 

(b)                                  the
occurrence of any other event which could reasonably be expected to have a
material adverse effect on the aggregate value of such Grantor’s Collateral or
on the security interests created hereby.

 

16

 

5.6                                 Investment Property.  (a) 
If such Grantor shall become entitled to receive or shall receive any
stock certificate (including, without limitation, any certificate representing
a stock dividend or a distribution in connection with any reclassification,
increase or reduction of capital or any certificate issued in connection with
any reorganization), option or rights in respect of the Capital Stock of any Issuer,
whether in addition to, in substitution of, as a conversion of, or in exchange
for, any shares of the Pledged Stock, or otherwise in respect thereof, such
Grantor shall accept the same as the agent of the Agents and the Lenders and
hold the same in trust for the Agents and the Lenders and deliver the same
forthwith to the Collateral Agent in the exact form received, duly indorsed by
such Grantor to the Collateral Agent, if required, together with an undated
stock power covering such certificate duly executed in blank by such Grantor,
to be held by the Collateral Agent, subject to the terms hereof, as additional
collateral security for the Obligations. 
At such time as such Grantor delivers such stock certificate, option or
rights in respect of Capital Stock of any Issuer to the Collateral Agent, such
Grantor shall also deliver a supplement to Schedule 2 hereto, reflecting
such additional Pledged Stock.  Any sums
paid upon or in respect of the Pledged Securities upon the liquidation or
dissolution of any Issuer shall be paid over to the Collateral Agent to be held
by it hereunder as additional collateral security for the Obligations, and in
case any distribution of capital shall be made on or in respect of the Pledged
Securities or any property shall be distributed upon or with respect to the
Pledged Securities pursuant to the recapitalization or reclassification of the
capital of any Issuer or pursuant to the reorganization thereof, the property
so distributed shall, unless otherwise subject to a perfected security interest
in favor of the Collateral Agent, be delivered to the Collateral Agent to be
held by it hereunder as additional collateral security for the
Obligations.  If any sums of money or
property so paid or distributed in respect of the Pledged Securities shall be
received by such Grantor, such Grantor shall, until such money or property is
paid or delivered to the Collateral Agent, hold such money or property in trust
for the Agents and the Lenders, segregated from other funds of such Grantor, as
additional collateral security for the Obligations.

 

(b)                                 Without
the prior written consent of the Collateral Agent, such Grantor will not (i)
vote to enable, or take any other action to permit, any Issuer to issue any
stock or other equity securities of any nature or to issue any other securities
convertible into or granting the right to purchase or exchange for any stock or
other equity securities of any nature of any Issuer, (ii) sell, assign,
transfer, exchange, or otherwise dispose of, or grant any option with respect
to, the Pledged Securities or Proceeds thereof (except pursuant to a
transaction not prohibited by the Credit Agreement), (iii) create, incur or
permit to exist any Lien or option in favor of, or any claim of any Person with
respect to, any of the Pledged Securities or Proceeds thereof, or any interest
therein, except for the security interests created by this Agreement and other
Liens permitted by Section 8.3 of the Credit Agreement or (iv) enter into any
agreement or undertaking restricting the right or ability of such Grantor or
the Collateral Agent to sell, assign or transfer any of the Pledged Securities
or Proceeds thereof.

 

(c)                                  In
the case of each Grantor which is an Issuer, such Issuer agrees that (i) it
will be bound by the terms of this Agreement relating to the Pledged Securities
issued by it and will comply with such terms insofar as such terms are
applicable to it, (ii) it will notify the Collateral Agent promptly in writing
of the occurrence of any of the events described in Section 5.6(a) with respect
to the Pledged Stock issued by it and (iii) the terms of Section 6.3(a) shall
apply to it, mutatis  mutandis, with respect to all actions that 

 

17

 

may be
required of it pursuant to Section 6.3(a) with respect to the Pledged
Securities issued by it.

 

(d)                                 Each
Grantor shall (i) at all times maintain its Investment Property (other than,
subject to Section 6.4, Cash Equivalents) under the “control” (within the
meaning of Section 9-106 of the UCC) of the Collateral Agent and (ii) and shall
not permit any other Person (other than the Collateral Agent) to exercise or
obtain “control” (within the meaning of Section 9-106 of the UCC) of any of its
Investment Property (including Cash Equivalents) in connection with the grant
of a Lien by such Grantor to or for the benefit of such Person or any other
Person (other than the Collateral Agent). 
Without limiting the foregoing, if requested by the Collateral Agent
with respect to any Security Entitlement of such Grantor, such Grantor shall,
and shall cause the relevant Securities Intermediary to, enter into a control
agreement in form and substance satisfactory to the Collateral Agent for the
purpose of perfecting the security interest in such Security Entitlement
granted pursuant to this Agreement. 
Each Grantor agrees not to permit the issuer of any interest in a
partnership or limited liability company owned by it to be designated as a
“Security” under the UCC in effect in any jurisdiction unless such Grantor
shall have taken all of the actions required, including any required filings,
to maintain the perfection of the security interests granted in such interests
hereunder.

 

5.7                                 Receivables. 
(a)  Other than in the ordinary
course of business consistent with its past practice and other than in
connection with any Receivable which is not material in amount, such Grantor
will not (i) grant any extension of the time of payment of any Receivable that
is part of the Collateral, (ii) compromise or settle any such Receivable for
less than the full amount thereof, (iii) release, wholly or partially, any
Person liable for the payment of any such Receivable, (iv) allow any credit or
discount whatsoever on any Receivable or (v) amend, supplement or modify any such
Receivable in any manner that could adversely affect the value thereof.

 

(b)                                 Such
Grantor will deliver to the Collateral Agent a copy of each material demand,
notice or document received by it that questions or calls into doubt the
validity or enforceability of more than 5% of the aggregate amount of the then
outstanding Receivables.

 

(c)                                  Upon
the request of the Collateral Agent following the occurrence of an Event of
Default, such Grantor will mark conspicuously each chattel paper included in
Receivables, and at the request of the Collateral Agent, each of its records
pertaining to such Collateral with a legend, in form and substance satisfactory
to Collateral Agent, indicating that such chattel paper of Collateral is
subject to the security interest granted hereby.

 

5.8                                 Intellectual Property.  (a) 
Each Grantor will (i) continue to use (either itself or through
licensees) each material Trademark owned by such Grantor on each and every
trademark class of goods or services applicable to its current line as reflected
in its current catalogs, brochures and price lists in order to maintain such
Trademark in full force free from any claim of abandonment for non-use, (ii)
maintain (and require each licensee to maintain) as in the past the quality of
products and services offered under each Trademark owned by such 

 

18

 

Grantor, (iii) use (and require
each licensee to use) each Trademark owned by such Grantor with the appropriate
notice of registration and all other notices and legends required by applicable
Requirements of Law, (iv) not adopt or use any mark which is confusingly
similar or a colorable imitation of each Trademark owned by such Grantor unless
the Collateral Agent, for the ratable benefit of the Agents and the Lenders,
shall obtain a perfected security interest in such mark pursuant to this
Agreement, and (v) not (and not permit any licensee or sublicensee thereof to)
do any act or knowingly omit to do any act whereby any material Trademark owned
by such Grantor may lapse or become invalidated or impaired in any way.

 

(b)                                 Each
Grantor will not knowingly do any act, or omit to do any act, whereby any
material Patent owned by such Grantor may become forfeited, abandoned or
dedicated to the public.

 

(c)                                  Each
Grantor (i) will employ each material Copyright owned by such Grantor and (ii)
will not do (or permit any licensee or sublicensee thereof to do) any act or
knowingly omit doing any act whereby any material Copyright owned by such
Grantor may lapse or become invalidated or otherwise impaired.  Such Grantor will not do any act or omit to
do any act whereby any material Copyright owned by such Grantor may fall into
the public domain.

 

(d)                                 Each
Grantor will not do any act that knowingly infringes the intellectual property
rights of any other Person.

 

(e)                                  Each
Grantor will notify the Collateral Agent and the Lenders immediately if it
knows, or has reason to know, that any application or registration relating to
any material Intellectual Property owned by such Grantor may become forfeited,
abandoned or dedicated to the public, or of any adverse determination or
development (including, without limitation, the institution of, or any such
determination or development in, any proceeding in the United States Patent and
Trademark Office, the United States Copyright Office or any court or tribunal
in any country) regarding such Grantor’s ownership of, or the validity of, such
Intellectual Property or such Grantor’s right to register the same or to own
and maintain the same.

 

(f)                                    Each
Grantor agrees to execute or otherwise authenticate an agreement, in
substantially the form set forth in Exhibit B-1 and Exhibit B-2 hereto or
otherwise in form and substance satisfactory to the Collateral Agent (an
“Intellectual Property Security Agreement”), for recording the security
interest granted hereunder to the Collateral Agent in Intellectual Property
owned by such Grantor with the U.S. Patent and Trademark Office, the U.S.
Copyright Office and any other Governmental Authorities necessary to perfect
the security interest hereunder in such Intellectual Property.

 

(g)                                 Each
Grantor agrees that should it obtain an ownership interest in any Intellectual
Property that is not on the date hereof a part of the Intellectual Property of
such Grantor (“After-Acquired Intellectual Property”) (i) the provisions
of this Agreement shall automatically apply thereto, and (ii) any such
After-Acquired Intellectual Property and, in the case of Trademarks, the
goodwill symbolized thereby, shall automatically become part of the
Intellectual Property of such Grantor subject to the 

 

19

 

terms and
conditions of this Agreement with respect thereto.  At the time of delivery of the next financial statement required
to be delivered pursuant to Sections 7.1(a) and (b) of the Credit Agreement,
each Grantor shall give written notice to the Collateral Agent identifying (i)
all active Patents, Trademark registrations and Copyright registrations, and
applications for any of the foregoing, filed by or issued to each Grantor in
its own name, and (ii) all material IP Agreements by and between any Grantor
and a third party included in the After-Acquired Intellectual Property acquired
during the applicable time period covered by such financial statement, and such
Grantor shall execute and deliver to the Collateral Agent with such written
notice, or otherwise authenticate, an agreement substantially in the form of
Exhibit C-1 or Exhibit C-2 hereto or otherwise in form and substance satisfactory
to the Collateral Agent (an “IP Security Agreement Supplement”) covering
such After-Acquired Intellectual Property which IP Security Agreement
Supplement shall be recorded by the Collateral Agent with the U.S. Patent and
Trademark Office, the U.S. Copyright Office and any other Governmental
Authorities necessary to perfect the security interest hereunder in such
After-Acquired Intellectual Property.

 

(h)                                 Each
Grantor will take all reasonable and necessary steps, including, without
limitation, in any proceeding before the United States Patent and Trademark
Office, the United States Copyright Office or any similar office or agency in
any other country or any political subdivision thereof, to maintain and pursue
each material application (and to obtain the relevant registration) and to
maintain each registration of material Intellectual Property owned by such
Grantor, including, without limitation, filing of applications for renewal,
affidavits of use and affidavits of incontestability.

 

(i)                                     In
the event that any material Intellectual Property owned by a Grantor is
infringed, misappropriated or diluted by a third party, such Grantor shall (i)
take such actions as such Grantor shall reasonably deem appropriate under the
circumstances to protect such Intellectual Property and (ii) if such
Intellectual Property is  of
material economic value, promptly notify the Collateral Agent after it learns
thereof and sue for infringement, misappropriation or dilution, to seek
injunctive relief where appropriate and to recover any and all damages for such
infringement, misappropriation or dilution.

 

(j)                                     Except
upon an Event of Default, it is understood and agreed that no filings shall be
made, and no other actions shall be required or taken, in any country other
than the United States of America in order to perfect the security interest
granted hereunder in any Intellectual Property.

 

(k)                                  No later than
September 30, 2003, each Grantor will take all action necessary to perfect the
Collateral Agent’s first priority lien in Intellectual Property Collateral,
including, without limitation, the filing of all releases and corrections to
chains of title with the relevant Governmental Authority.

 

5.9                                 Government Contracts.  Each Grantor shall, to the extent
practicable, provide reasonable advance notice to the Collateral Agent (i)
prior to or, if such advance notice is not practicable, shall provide notice to
the Collateral Agent promptly after, entering into a contract with a
Governmental Authority and (ii) prior to or, if such advance notice is not 

 

20

 

practicable, shall provide notice to the Collateral Agent promptly
after, the sale of goods or the provision of services to a Governmental
Authority resulting in the creation of a Governmental Receivable if the amounts
owing to any of the Grantors under such contract or Governmental Receivable, in
the aggregate together with the amounts owing to any Grantors under all such
contracts then in effect (including any such contract entered into prior to the
Closing Date) and/or Governmental Receivables then outstanding (including any
such Governmental Receivables arising prior to the Closing Date), but without
duplication, exceed $10,000,000 at any time, and shall, in such event at the request
of the Collateral Agent, provide any notices and make any filings required
under the Assignment of Claims Act and any other amendments or modifications to
this Agreement in order to grant, maintain and/or perfect, to the extent
permitted by applicable law, the security interest in all such contracts and
Governmental Receivables granted pursuant to this Agreement.  Notwithstanding the foregoing, this Section
5.9 shall not apply to Medicare or Medicaid Receivables prior to the occurrence
of an Event of Default.

 

5.10                           Deposit Accounts; Post-Closing
Covenant.  (a)  Each Grantor shall enter into an account
control agreement by September 30, 2003, in form and substance satisfactory to
the Collateral Agent, with each financial institution with which such Grantor
maintains a Deposit Account indicated with an asterisk on Schedule 9.  Each Grantor shall maintain all Deposit
Accounts only with the Collateral Agent or banks (“Pledged Account Banks”)
that have agreed, in a record authenticated by the Grantor, the Collateral
Agent and the applicable Pledged Account Banks to (i) comply with instructions
originated by the Collateral Agent directing the disposition of funds in the
Deposit Account without the further consent of the Grantor and (ii) waive or
subordinate in favor of the Collateral Agent all claims of the Pledged Account
Bank (including, without limitation, claims by way of a security interest, lien
or right of setoff or right of recoupment) to such Deposit Account, in form and
substance satisfactory to the Collateral Agent; provided  that,
(x) Deposit Accounts for security deposits and petty cash having a cash balance
in the aggregate of no more than $250,000 at any one time and (y) Deposit
Accounts for payroll, taxes and employee benefits may be maintained at any bank
without having to obtain an account control agreement with respect to such
Deposit Accounts.  Each Grantor hereby
grants to the Collateral Agent, for the benefit of the Collateral Agent and the
Lenders, a continuing lien upon, and security interest in, all such accounts
and all funds at any time paid, deposited, credited or held in such accounts
(whether for collection, provisionally or otherwise) or otherwise in the
possession of such financial institutions, and each such financial institution
shall act as the Collateral Agent’s agent in connection therewith.

 

5.11                           Bailees and Warehouses.  Except with respect to Inventory and
Equipment being leased to customers by KCI USA and KCI Licensing, Inc., no
Collateral in excess of $1,000,000 in the aggregate shall at any time be in the
possession or control of any warehouse, bailee or any of any Grantor’s agents
or processors without the Collateral Agent’s prior written consent and unless
the Collateral Agent, if the Collateral Agent has so requested, has received
warehouse receipts or bailee lien waivers satisfactory to the Collateral Agent
prior to the commencement of such possession or control.  Upon and during the continuance of an Event
of Default, each Grantor shall, upon the request of the Collateral Agent,
notify any such warehouse, bailee, agent, processor or lessor of the Liens,
shall instruct such Person to hold all such Collateral for the Collateral
Agent’s account subject to the Collateral Agent’s instructions and shall obtain
an acknowledgement from such Person that such Person holds the Collateral for
the Collateral Agent’s benefit.

 

21

 

5.12                           Commercial Tort Claims.  Each Grantor shall notify the Collateral
Agent of any Commercial Tort Claim which arises in which such Grantor is a
claimant wherein the amount sought in such Commercial Tort Claim is in excess
of $500,000.  If the Collateral Agent
requests, such Grantor shall execute a security agreement in form similar to
this Agreement and take all other necessary action to provide the Collateral
Agent a security interest in such Commercial Tort Claim as if it were part of
the Collateral hereunder.

 

SECTION 6  REMEDIAL PROVISIONS

 

 

6.1                                 Certain Matters Relating to
Receivables.  (a)  The Collateral Agent shall have the right to
make test verifications of the Receivables that are part of the Collateral in
any manner and through any medium that it reasonably considers advisable, and
each Grantor shall furnish all such assistance and information as the Collateral
Agent may require in connection with such test verifications.  At any time and from time to time after the
occurrence and during the continuation of and Event of Default, upon the
Collateral Agent’s reasonable request and at the expense of the relevant
Grantor, such Grantor shall cause independent public accountants or others
satisfactory to the Collateral Agent to furnish to the Collateral Agent reports
showing reconciliations, aging and test verifications of, and trial balances
for, the Receivables that are part of the Collateral.

 

(b)                                 If
required by the Collateral Agent at any time after the occurrence and during
the continuance of an Event of Default, any payments of Receivables that are
part of the Collateral, when collected by any Grantor, (i) shall be forthwith
(and, in any event, within two Business Days) deposited by such Grantor in the
exact form received, duly indorsed by such Grantor to the Collateral Agent if
required, in a Collateral Account maintained under the sole dominion and control
of the Collateral Agent, subject to withdrawal by the Collateral Agent for the
account of the Agents and the Lenders only as provided in Section 6.5, and (ii)
until so turned over, shall be held by such Grantor in trust for the Agents and
the Lenders, segregated from other funds of such Grantor.  Each such deposit of Proceeds of Receivables
shall be accompanied by a report identifying in reasonable detail the nature
and source of the payments included in the deposit.

 

(c)                                  At
the Collateral Agent’s reasonable request, each Grantor shall deliver to the
Collateral Agent all original and other documents evidencing, and relating to,
the agreements and transactions which gave rise to the Receivables that are
part of the Collateral, including, without limitation, all original orders,
invoices and shipping receipts.

 

6.2                                 Communications with Account Debtors and
Obligors; Grantors Remain Liable. 
(a)  The Collateral Agent in its
own name or in the name of others may at any time after the occurrence and
during the continuance of an Event of Default communicate with Account Debtors
and obligors under the Collateral to verify with them to the Collateral Agent’s
satisfaction the existence, amount and terms of any such Collateral.

 

(b)                                 Upon
the request of the Collateral Agent at any time after the occurrence and during
the continuance of an Event of Default, each Grantor shall notify Account 

 

22

 

Debtors and
obligors on the Collateral that such Collateral has been assigned to the
Collateral Agent for the ratable benefit of the Agents and the Lenders and that
payments in respect thereof shall be made directly to the Collateral Agent.

 

(c)                                  Anything
herein to the contrary notwithstanding, each Grantor shall remain liable under
the Collateral to observe and perform all the conditions and obligations to be
observed and performed by it thereunder, all in accordance with the terms of
any agreement giving rise thereto.  No
Agent or Lender shall have any obligation or liability under any Collateral (or
any agreement giving rise thereto) by reason of or arising out of this
Agreement or the receipt by any Agent or any Lender of any payment relating
thereto, nor shall any Agent or any Lender be obligated in any manner to
perform any of the obligations of any Grantor under or pursuant to any
Collateral (or any agreement giving rise thereto), to make any payment, to make
any inquiry as to the nature or the sufficiency of any payment received by it
or as to the sufficiency of any performance by any party thereunder, to present
or file any claim, to take any action to enforce any performance or to collect
the payment of any amounts which may have been assigned to it or to which it
may be entitled at any time or times.

 

6.3                                 Pledged Stock. 
(a)  Unless an Event of Default
shall have occurred and be continuing and the Collateral Agent shall have given
notice to the relevant Grantor of the Collateral Agent’s intent to exercise its
corresponding rights pursuant to Section 6.3(b), each Grantor shall be permitted
to receive all cash dividends paid in respect of the Pledged Stock and all
payments made in respect of the Pledged Debt, in each case paid in the normal
course of business of the relevant Issuer and consistent with past practice, to
the extent permitted in the Credit Agreement, and to exercise all voting and
corporate rights with respect to the Pledged Securities, provided, however,
that no vote shall be cast or corporate right exercised or other action taken
which, in the Collateral Agent’s reasonable judgment, would impair the
Collateral or which would be inconsistent with or result in any violation of
any provision of the Credit Agreement, this Agreement or any other Loan
Document.

 

(b)                                 If
an Event of Default shall occur and be continuing and the Collateral Agent
shall give notice of its intent to exercise such rights to the relevant Grantor
or Grantors, (i) the Collateral Agent shall have the right to receive any
and all cash dividends, payments or other Proceeds paid in respect of the Pledged
Securities and make application thereof to the Obligations in such order as the
Collateral Agent may determine, and (ii) any or all of the Pledged Securities
shall be registered in the name of the Collateral Agent or its nominee, and the
Collateral Agent or its nominee may thereafter exercise (x) all voting,
corporate and other rights pertaining to such Pledged Securities at any meeting
of shareholders of the relevant Issuer or Issuers or otherwise and (y) any
and all rights of conversion, exchange and subscription and any other rights,
privileges or options pertaining to such Pledged Securities as if it were the
absolute owner thereof (including, without limitation, the right to exchange at
its discretion any and all of the Pledged Securities upon the merger,
consolidation, reorganization, recapitalization or other fundamental change in
the corporate structure of any Issuer, or upon the exercise by any Grantor or
the Collateral Agent of any right, privilege or option pertaining to such
Pledged Securities, and in connection therewith, the right to deposit and
deliver any and all of the Pledged Securities with any committee, depositary,
transfer 

 

23

 

agent,
registrar or other designated agency upon such terms and conditions as the
Collateral Agent may determine), all without liability except to account for
property actually received by it, but the Collateral Agent shall have no duty
to any Grantor to exercise any such right, privilege or option and shall not be
responsible for any failure to do so or delay in so doing.

 

(c)                                  Each
Grantor hereby authorizes and instructs each Issuer of any Pledged Securities
pledged by such Grantor hereunder to (i) comply with any instruction received
by it from the Collateral Agent in writing that (x) states that an Event of
Default has occurred and is continuing and (y) is otherwise in accordance with
the terms of this Agreement, without any other or further instructions from
such Grantor, and each Grantor agrees that each Issuer shall be fully protected
in so complying, and (ii) upon the occurrence of an Event of Default, pay any
dividends or other payments with respect to the Pledged Securities directly to
the Collateral Agent.

 

6.4                                 Proceeds to be Turned Over To Collateral Agent.  In addition to the rights of the Collateral
Agent and the Lenders specified in Section 6.1 with respect to payments of
Receivables, if an Event of Default shall occur and be continuing, all Proceeds
received by any Grantor consisting of cash, checks, Cash Equivalents and other
near-cash items shall be held by such Grantor in trust for the Agents and the
Lenders, segregated from other funds of such Grantor, and shall, forthwith upon
receipt by such Grantor, be turned over to the Collateral Agent in the exact form
received by such Grantor (duly indorsed by such Grantor to the Collateral
Agent, if required).  All Proceeds
received by the Collateral Agent hereunder shall be held by the Collateral
Agent in a Collateral Account maintained under its sole dominion and
control.  All Proceeds while held by the
Collateral Agent in a Collateral Account (or by such Grantor in trust for the
Agents and the Lenders) shall continue to be held as collateral security for
all the Obligations and shall not constitute payment thereof until applied as
provided in Section 6.5.

 

6.5                                 Application of Proceeds.  (a) At such intervals as may be agreed upon
by the Company and the Collateral Agent, or, if an Event of Default shall have
occurred and be continuing, at any time at the Collateral Agent’s election, the
Collateral Agent may apply all or any part of Proceeds held in any Collateral
Account in payment of the Obligations (after payment of any amounts payable to
the Collateral Agent pursuant to Section 8.4 of this Agreement), in the following
manner:

 

(i)                                     first, paid to the Agents for any amounts
then owing to the Agents pursuant to Section 11.5 of the Credit Agreement or
otherwise under the Loan Documents, ratably in accordance with such respective
amounts then owing to the Agents; and

 

(ii)                                  second, ratably (A) paid to the Lenders for any
amounts then owing to them under the Loan Documents ratably in accordance with
such respective amounts then owing to such Lenders and (B) used to cash
collateralize outstanding Letters of Credit.

 

(b)                                 Any balance of such
Proceeds remaining after the Obligations shall have been paid in full, no
Letters of Credit shall be outstanding (or all outstanding Letters of 

 

24

 

Credit shall have been cash collateralized) and the Commitments shall
have terminated, shall be paid over to the Company or to whomsoever may be
lawfully entitled to receive the same.

 

6.6                                 Code and Other Remedies.  If an Event of Default shall occur and be
continuing, the Collateral Agent, on behalf of the Agents and the Lenders, may
exercise, in addition to all other rights and remedies granted to them in this
Agreement and in any other instrument or agreement securing, evidencing or
relating to the Obligations, all rights and remedies of a secured party under
the UCC or any other applicable law. 
Without limiting the generality of the foregoing, the Collateral Agent,
without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required by law referred
to below) to or upon any Grantor or any other Person (all and each of which
demands, defenses, advertisements and notices are hereby waived), may in such
circumstances forthwith collect, receive, appropriate, realize upon the
Collateral or take possession of any Collateral not yet in its possession
without demand or legal process, or any part thereof, and/or may forthwith
sell, lease, assign, give option or options to purchase, or otherwise dispose
of and deliver the Collateral or any part thereof (or contract to do any of the
foregoing), in one or more parcels at public or private sale or sales, at any
exchange, broker’s board or office of the Collateral Agent or any Lender or
elsewhere upon such terms and conditions and at such prices as are commercially
reasonable, for cash or on credit or for future delivery without assumption of
any credit risk.  The Collateral Agent
and each Lender shall have the right upon any such public sale or sales, and, to
the extent permitted by law, upon any such private sale or sales, to purchase
the whole or any part of the Collateral so sold, free of any right or equity of
redemption in any Grantor, which right or equity is hereby waived and released,
and may pay for the Collateral by crediting the Obligations.  Each Grantor further agrees that upon and
during the continuance of an Event of Default, at the Collateral Agent’s
request, it shall assemble the Collateral and make it available to the
Collateral Agent at places which the Collateral Agent shall reasonably select,
whether at such Grantor’s premises or elsewhere.  The Collateral Agent and each Lender shall have the right to
occupy any premises owned or leased (subject to any required landlord consent)
by any of the Grantors where the Collateral or any part thereof is assembled or
located for a reasonable period in order to effectuate their rights and
remedies hereunder or under law, without obligation to such Grantor in respect
of such occupation.  The Collateral
Agent shall apply the net proceeds of any action taken by it pursuant to this
Section 6.6, after deducting all reasonable costs and expenses of every kind
incurred in connection therewith or incidental to the care or safekeeping of
any of the Collateral or in any way relating to the Collateral or the rights of
the Agents and the Lenders hereunder, including, without limitation, reasonable
attorneys’ fees and disbursements, to the payment in whole or in part of the
Obligations, in such order as the Collateral Agent may elect, and only after
such application and after the payment by the Collateral Agent of any other
amount required by any provision of law, including, without limitation, Section
9-615(a)(3) of the UCC, need the Collateral Agent account for the surplus, if
any, to any Grantor.  To the extent
permitted by applicable law, each Grantor waives all claims, damages and
demands it may acquire against any Agent or any Lender arising out of the
exercise by them of any rights hereunder. 
If any notice of a proposed sale or other disposition of Collateral
shall be required by law, such notice shall be deemed reasonable and proper if
given at least 10 days before such sale or other disposition.

 

25

 

6.7                                 Intellectual Property.  If any Event of Default shall occur and be
continuing, in the event of any sale or other disposition of any of the
Intellectual Property of any Grantor in accordance with this Section 6, the
goodwill symbolized by any Trademarks subject to such sale or other disposition
shall be included therein, and such Grantor shall supply to the Collateral
Agent or its designee such Grantor’s know-how and expertise, and documents and
things relating to any Intellectual Property subject to such sale or other
disposition, and such Grantor’s customer lists and other records and documents
relating to such Intellectual Property and to the manufacture, distribution,
advertising and sale of products and services of such Grantor.

 

6.8                                 Deficiency. 
Each Grantor shall remain liable for any deficiency if the proceeds of
any sale or other disposition of the Collateral are insufficient to pay its
Obligations and the reasonable fees and disbursements of any attorneys employed
by any Agent or any Lender to collect such deficiency.

 

SECTION 7  THE COLLATERAL AGENT

 

 

7.1                                 Collateral Agent’s Appointment
as Attorney-in-Fact, etc.  (a)  Each Grantor hereby irrevocably constitutes
and appoints the Collateral Agent and any officer or agent thereof, with full
power of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of such Grantor and in
the name of such Grantor or in its own name, for the purpose of carrying out
the terms of this Agreement, to take any and all appropriate action and to
execute any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Agreement, and, without limiting
the generality of the foregoing, each Grantor hereby gives the Collateral Agent
the power and right, on behalf of such Grantor, without notice to or assent by
such Grantor, to do any or all of the following:

 

(i)                                     in
the name of such Grantor or its own name, or otherwise, take possession of and
indorse and collect any checks, drafts, notes, acceptances or other instruments
for the payment of moneys due under any Receivable that is part of the
Collateral or with respect to any other Collateral and file any claim or take
any other action or proceeding in any court of law or equity or otherwise
deemed appropriate by the Collateral Agent for the purpose of collecting any
and all such moneys due under any such Receivable or with respect to any other
Collateral whenever payable;

 

(ii)                                  in
the case of any Intellectual Property, execute and deliver, and have recorded,
any and all agreements, instruments, documents and papers as the Collateral
Agent may request to evidence the Agents’ and the Lenders’ security interest in
such Intellectual Property and the goodwill and general intangibles of such
Grantor relating thereto or represented thereby;

 

26

 

(iii)                               pay
or discharge taxes and Liens levied or placed on or threatened against the
Collateral, effect any repairs or any insurance called for by the terms of this
Agreement and pay all or any part of the premiums therefor and the costs
thereof;

 

(iv)                              execute,
in connection with any sale provided for in Section 6.6, any indorsements,
assignments or other instruments of conveyance or transfer with respect to the
Collateral; and

 

(v)                                 (1)
direct any party liable for any payment under any of the Collateral to make
payment of any and all moneys due or to become due thereunder directly to the
Collateral Agent or as the Collateral Agent shall direct; (2) ask or demand
for, collect, and receive payment of and receipt for, any and all moneys,
claims and other amounts due or to become due at any time in respect of or
arising out of any Collateral; (3) sign and indorse any invoices, freight or
express bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications, notices and other documents in connection
with any of the Collateral; (4) commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction to
collect the Collateral or any portion thereof and to enforce any other right in
respect of any Collateral; (5) defend any suit, action or proceeding brought
against such Grantor with respect to any Collateral; (6) settle, compromise or
adjust any such suit, action or proceeding and, in connection therewith, give
such discharges or releases as the Collateral Agent may deem appropriate; (7)
assign any Intellectual Property included in the Collateral (along with the
goodwill of the business to which any such Intellectual Property pertains),
throughout the world for such term or terms, on such conditions, and in such
manner, as the Collateral Agent shall in its sole discretion determine; and (8)
generally, sell, transfer, pledge and make any agreement with respect to or otherwise
deal with any of the Collateral as fully and completely as though the
Collateral Agent were the absolute owner thereof for all purposes, and do, at
the Collateral Agent’s option and such Grantor’s expense, at any time, or from
time to time, all acts and things which the Collateral Agent deems necessary to
protect, preserve or realize upon the Collateral and the Collateral Agent’s and
the Lenders’ security interests therein and to effect the intent of this
Agreement, all as fully and effectively as such Grantor might do.

 

Anything in this Section 7.1(a) to the contrary
notwithstanding, the Collateral Agent agrees that it will not exercise any
rights under the power of attorney provided for in this Section 7.1(a) unless
an Event of Default shall have occurred and be continuing.

 

(b)                                 If
any Grantor fails to perform or comply with any of its agreements contained
herein, the Collateral Agent, at its option, but without any obligation so to
do, may perform or comply, or otherwise cause performance or compliance, with
such agreement.

 

27

 

(c)                                  The
reasonable expenses of the Collateral Agent incurred in connection with actions
undertaken as provided in this Section 7.1, together with interest thereon at a
rate per annum equal to the rate per annum at which interest would then be
payable on past due Base Rate Loans under the Credit Agreement, from the date
of payment by the Collateral Agent to the date reimbursed by the relevant
Grantor, shall be payable by such Grantor to the Collateral Agent on demand.

 

(d)                                 All
powers, authorizations and agencies contained in this Agreement are coupled
with an interest and are irrevocable until this Agreement is terminated and the
security interests created hereby are released.

 

7.2                                 Duty of Collateral Agent.  The Collateral Agent’s sole duty with
respect to the custody, safekeeping and physical preservation of the Collateral
in its possession, under Section 9-207 of the UCC or otherwise, shall be to
deal with it in the same manner as the Collateral Agent deals with similar
property for its own account.  No Agent
or Lender nor any of their respective officers, directors, employees or agents
shall be liable for failure to demand, collect or realize upon any of the
Collateral or for any delay in doing so or shall be under any obligation to
sell or otherwise dispose of any Collateral upon the request of any Grantor or
any other Person or to take any other action whatsoever with regard to the
Collateral or any part thereof.  The
powers conferred on the Agents and the Lenders hereunder are solely to protect
the Agents’ and the Lenders’ interests in the Collateral and shall not impose
any duty upon any Agent or any Lender to exercise any such powers.  The Agents and the Lenders shall be accountable
only for amounts that they actually receive as a result of the exercise of such
powers, and neither they nor any of their officers, directors, employees or
agents shall be responsible to any Grantor for any act or failure to act
hereunder, except for their own gross negligence or willful misconduct.

 

7.3                                 Authorization of Financing
Statements.  Pursuant to Sections
9-502 and 9-509 of the UCC and any other applicable law, each Grantor hereby
authorizes the Collateral Agent to file or record financing statements or
continuation statements, and amendments thereto, and other filing or recording
documents or instruments with respect to the Collateral or other statutory
liens held by the Collateral Agent in such form and in such offices as the
Collateral Agent reasonably determines appropriate to perfect the security
interests of the Collateral Agent under this Agreement.  Such financing statements may describe the
Collateral in the same manner as described in this Agreement or may contain an
indication or description of the Collateral that describes such property in any
other manner as the Collateral Agent may determine is necessary or advisable to
ensure the perfection of the security interest in Collateral granted to the
Collateral Agent in connection herewith, including, without limitation,
describing such property as “all assets” or “all personal property.”  A photographic or other reproduction or
summation of this Agreement or any financing statement covering the Collateral
or any part thereof shall be sufficient as a financing statement or other
filing or recording document or instrument for filing or recording in any
jurisdiction.  Each Grantor ratifies its
authorization for the Collateral Agent to have filed such financing statements,
continuation statements or amendments filed prior to the date hereof.

 

7.4                                 Authority of Collateral Agent.  Each Grantor acknowledges that the rights
and responsibilities of the Collateral Agent under this Agreement with respect
to any action 

 

28

 

taken by the Collateral Agent or the exercise or non-exercise by the
Collateral Agent of any option, voting right, request, judgment or other right
or remedy provided for herein or resulting or arising out of this Agreement
shall, as between the Agents and the Lenders, be governed by the Credit
Agreement and by such other agreements with respect thereto as may exist from
time to time among them, but, as between the Collateral Agent and the Grantors,
the Collateral Agent shall be conclusively presumed to be acting as agent for
the Agents and the Lenders with full and valid authority so to act or refrain
from acting, and no Grantor shall be under any obligation, or entitlement, to
make any inquiry respecting such authority.

 

SECTION 8  MISCELLANEOUS

 

 

8.1                                 Amendments in Writing.  None of the terms or provisions of this
Agreement may be waived, amended, supplemented or otherwise modified except in
accordance with subsection 11.1 of the Credit Agreement.

 

8.2                                 Notices.  All
notices, requests and demands to or upon the Collateral Agent or any Grantor
hereunder shall be effected in the manner provided for in subsection 11.2 of
the Credit Agreement, provided that any such notice, request or demand to or
upon any Grantor shall be addressed to such Grantor at its notice address set
forth on Schedule 1.

 

8.3                                 No Waiver by Course of Conduct; Cumulative
Remedies.  The Agents and the
Lenders shall not by any act (except by a written instrument pursuant to
Section 8.1), delay, indulgence, omission or otherwise be deemed to have waived
any right or remedy hereunder or to have acquiesced in any Default or Event of
Default.  No failure to exercise, nor
any delay in exercising, on the part of any Agent or any Lender, any right,
power or privilege hereunder shall operate as a waiver thereof.  No single or partial exercise of any right,
power or privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.  A waiver by any Agent or any Lender of any
right or remedy hereunder on any one occasion shall not be construed as a bar
to any right or remedy which such Agent or such Lender, as the case may be,
would otherwise have on any future occasion. 
The rights and remedies herein provided are cumulative, may be exercised
singly or concurrently and are not exclusive of any other rights or remedies
provided by law.

 

8.4                                 Enforcement Expenses; Indemnification.  (a) 
Each Guarantor agrees to pay or reimburse each Agent and Lender for all
its costs and expenses incurred in collecting against such Guarantor under the
guarantee contained in Section 2 or otherwise enforcing or preserving any
rights under this Agreement and the other Loan Documents to which such
Guarantor is a party, including, without limitation, the fees and disbursements
of counsel to each Lender and of counsel to the Collateral Agent.

 

(b)                                 Each
Guarantor agrees to pay, and to save the Agents and the Lenders harmless from,
any and all liabilities with respect to, or resulting from any delay in paying,
any and all stamp, excise, sales or other taxes which may be payable or
determined to be payable with respect to any of the Collateral.

 

29

 

(c)                                  Each
Guarantor agrees to pay, and to save the Agents and the Lenders harmless from,
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever with respect to the execution, delivery, enforcement, performance and
administration of this Agreement to the extent the Company would be required to
do so pursuant to subsection 11.5 of the Credit Agreement.

 

(d)                                 The
agreements in this Section 8.4 shall survive repayment of the Obligations and
all other amounts payable under the Credit Agreement and the other Loan
Documents.

 

8.5                                 Successors and Assigns; Continuing Security
Interest.  This Agreement shall be
binding upon each Grantor and its respective successors and assigns and shall
inure, together with the rights and remedies of the Collateral Agent hereunder,
to the benefit of the Agents and the Lenders and their successors and assigns,
provided that no Grantor may assign, transfer or delegate any of its rights or
obligations under this Agreement without the prior written consent of the
Collateral Agent.  This Agreement shall
create a continuing security interest in the Collateral and shall remain in
full force and effect until the latest of (i) the payment in full in cash of
the Obligations, (ii) the termination of the Commitments and (iii) the
expiration, termination or cash collateralization of all Letters of Credit and
all Eligible Hedge Agreements.  Without
limiting the generality of the foregoing clause, any Lender may assign or
otherwise transfer all or any portion of its rights and obligations under the
Credit Agreement (including, without limitation, all or any portion of its
Commitments, the Loan owing to it and the Note or Notes, if any, held by it) to
any other Person, and such other Person shall thereupon become vested with all
the benefits in respect thereof granted to such Lender herein or otherwise, in
each case as provided in Section 11.6 of the Credit Agreement.

 

8.6                                 Set-Off.  Each
Grantor hereby irrevocably authorizes each Agent and each Lender at any time
and from time to time while an Event of Default pursuant to Section 9(a) of the
Credit Agreement shall have occurred and be continuing, without notice to such
Grantor or any other Grantor, any such notice being expressly waived by each
Grantor, to set-off and appropriate and apply any and all deposits (general or
special, time or demand, provisional or final), in any currency, and any other
credits, indebtedness or claims, in any currency, in each case whether direct
or indirect, absolute or contingent, matured or unmatured, at any time held or
owing by such Agent or such Lender to or for the credit or the account of such
Grantor, or any part thereof in such amounts as such Agent or such Lender may
elect, against and on account of the obligations and liabilities of such
Grantor to such Agent or such Lender hereunder and claims of every nature and
description of the Agents or the Lenders against such Grantor, in any currency,
whether arising hereunder, under the Credit Agreement, any other Loan Document
or otherwise, as such Agent or such Lender may elect, whether or not such Agent
or such Lender has made any demand for payment and although such obligations,
liabilities and claims may be contingent or unmatured.  Each Agent and each Lender shall notify such
Grantor promptly of any such set-off and the application made by such Agent or
such Lender of the proceeds thereof, provided that the failure to give such
notice shall not affect the validity of such set-off and application.  The rights of the Agents and each Lender
under this Section 8.6 are in addition to other rights and remedies (including,
without limitation, other rights of set-off) which the Agents or such Lender
may have.

 

30

 

8.7                                 Security Interest Absolute.  The obligations of each Grantor under this
Agreement are independent of the Obligations of any other Loan Party under or
in respect of the Loan Documents, and a separate action or actions may be
brought and prosecuted against each Grantor to enforce this Agreement,
irrespective of whether any action is brought against such Grantor or any other
Loan Party or whether such Grantor or any other Loan Party is joined in any
such action or actions.  All rights of
the Collateral Agent and the other Agents and Lenders and the pledge,
assignment and security interest hereunder, and all obligations of each Grantor
hereunder, shall be irrevocable, absolute and unconditional irrespective of,
and each Grantor hereby irrevocably waives (to the maximum extent permitted by
applicable law) any defenses it may now have or may hereafter acquire in any
way relating to, any or all of the following:

 

(a)                                  any
lack of validity or enforceability of any Loan Document or any other agreement
or instrument relating thereto;

 

(b)                                 any
change in the time, manner or place of payment of, or in any other term of, all
or any of the Obligations of any other Loan Party under or in respect of the
Loan Documents or any other amendment or waiver of or any consent to any
departure from any Loan Document, including, without limitation, any increase
in the Obligations resulting from the extension of additional credit to any
Loan Party or any of its Subsidiaries or otherwise;

 

(c)                                  any
taking, exchange, release or non-perfection of any Collateral or any other
collateral, or any taking, release or amendment or waiver of or consent to
departure from any guaranty, for all or any of the Obligations;

 

(d)                                 any
manner of application of any Collateral or any other collateral, or proceeds
thereof, to all or any of the Obligations, or any manner of sale or other
disposition of any Collateral or any other collateral for all or any of the
Obligations or any other Obligations of any other Loan Party under or in
respect of the Loan Documents or any other assets of any Loan Party or any of
its Subsidiaries;

 

(e)                                  any
change, restructuring or termination of the corporate structure or existence of
any Loan Party or any of its Subsidiaries;

 

(f)                                    any
failure of any Agent or Lender to disclose to any Loan Party any information
relating to the business, condition (financial or otherwise), operations,
performance, assets, nature of assets, liabilities or prospects of any other
Loan Party now or hereafter known to such Agent or Lender (each Grantor waiving
any duty on the part of the Agents and Lenders to disclose such information);

 

(g)                                 the
failure of any other Person to execute this Agreement or any other Security
Document, guaranty or agreement or the release or reduction of liability of any
other Grantor or other grantor or surety with respect to the Obligations; or

 

(h)                                 any
other circumstance (including, without limitation, any statute of limitations)
or any existence of or reliance on any representation by any Agent or Lender
that might otherwise constitute a defense available to, or a discharge of, such
Grantor or any other Grantor or a third party grantor of a security interest
(other than the defense of 

 

31

 

payment or
performance in full or the release of such Grantor from its obligations
hereunder in accordance with Section 8.18).

 

This Agreement shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any of the
Obligations is rescinded or must otherwise be returned by any Agent or Lender
or by any other Person upon the insolvency, bankruptcy or reorganization of any
Loan Party or otherwise, all as though such payment had not been made.

 

8.8                                 Counterparts. 
This Agreement may be executed by one or more of the parties to this
Agreement on any number of separate counterparts (including by facsimile
transmission), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.

 

8.9                                 Mortgages.  In
the event that any of the Collateral hereunder is also subject to a valid and
enforceable Lien under the terms of any Mortgage and the terms of such Mortgage
are inconsistent with the terms of this Agreement, then with respect to such
Collateral, the terms of such Mortgage shall be controlling in the case of
fixtures and real estate leases, letting and licenses of, and contracts and
agreements relating to the lease of, real property, and the terms of this
Agreement shall be controlling in the case of all other Collateral.

 

8.10                           Severability. 
Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

 

8.11                           Section Headings.  The Section headings used in this Agreement are for convenience
of reference only and are not to affect the construction hereof or be taken
into consideration in the interpretation hereof.

 

8.12                           Integration. 
This Agreement and the other Loan Documents represent the agreement of
the Grantors, the Agents and the Lenders with respect to the subject matter
hereof and thereof, and there are no promises, undertakings, representations or
warranties by the Agents or any Lender relative to subject matter hereof and
thereof not expressly set forth or referred to herein or in the other Loan
Documents.

 

8.13                        GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, EXCEPT TO THE EXTENT
THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES
HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF
A JURISDICTION OTHER THAN THE STATE OF NEW YORK; PROVIDED, HOWEVER,
THAT THE ADMINISTRATIVE AGENT AND EACH LENDER SHALL RETAIN ALL RIGHTS ARISING
UNDER FEDERAL LAW.

 

32

 

8.14                           Submission to Jurisdiction; Waivers.  Each Grantor hereby irrevocably and
unconditionally:

 

(a)                                   submits
for itself and its property in any legal action or proceeding relating to this
Agreement and the other Loan Documents to which it is a party, or for
recognition and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of the Courts of the State of New York, the
courts of the United States of America for the Southern District of
New York, and appellate courts from any thereof;

 

(b)                                  appoints
CT Corporation System as its authorized agent to accept and acknowledge service
of any and all process which may be served in any suit, action or proceeding of
the nature referred to in this Section 8.14;

 

(c)                                   consents
that any such action or proceeding may be brought in such courts and waives any
objection that it may now or hereafter have to the venue of any such action or
proceeding in any such court or that such action or proceeding was brought in
an inconvenient court and agrees not to plead or claim the same;

 

(d)                                  agrees
that service of process in any such action or proceeding may be effected by
mailing a copy thereof by registered or certified mail (or any substantially
similar form of mail), postage prepaid, to CT Corporation System at 111 Eighth
Avenue, New York, New York 10011 or at such other New York State address of
which the Collateral Agent shall have been notified pursuant thereto;

 

(e)                                   agrees
that nothing herein shall affect the right to effect service of process in any
other manner permitted by law or shall limit the right to sue in any other
jurisdiction; and

 

(f)                                     waives,
to the maximum extent not prohibited by law, any right it may have to claim or
recover in any legal action or proceeding referred to in this Section any
special, exemplary, punitive or consequential damages.

 

8.15                           Acknowledgements.  Each Grantor hereby acknowledges that:

 

(a)                               it
has been advised by counsel in the negotiation, execution and delivery of this
Agreement and the other Loan Documents to which it is a party;

 

(b)                              the
Agents and the Lenders have no fiduciary relationship with or duty to any
Grantor arising out of or in connection with this Agreement or any of the other
Loan Documents, and the relationship between the Grantors, on the one hand, and
the Agents and the Lenders, on the other hand, in connection herewith or
therewith is solely that of debtor and creditor; and

 

(c)                               no
joint venture is created hereby or by the other Loan Documents or otherwise
exists by virtue of the transactions contemplated hereby among any of the
Lenders or among the Grantors and the Lenders.

 

33

 

8.16                        WAIVER OF JURY TRIAL.  EACH GRANTOR AND, BY ACCEPTANCE OF THE
BENEFITS HEREOF, EACH AGENT AND LENDER HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.

 

8.17                           Additional Grantors.  Each Subsidiary of the Company that is
required to become a party to this Agreement pursuant to subsection 7.10 of the
Credit Agreement shall become a Grantor for all purposes of this Agreement upon
execution and delivery by such Subsidiary to the Collateral Agent of an
Assumption Agreement in the form of Annex 1 hereto.

 

8.18                           Releases. 
(a)  At such time as the Loans,
the Reimbursement Obligations and the other Obligations shall have been paid in
full, the Commitments have been terminated and no Letter of Credit or Eligible
Hedge Agreement shall be outstanding (or all outstanding Letters of Credit
shall have been cash collateralized), the Collateral shall be released from the
Liens created hereby, and this Agreement and all obligations (other than those
expressly stated to survive such termination) of the Collateral Agent and each
Grantor hereunder shall terminate, all without delivery of any instrument or
performance of any act by any party, and all rights to the Collateral shall
revert to the Grantors.  At the request
and sole expense of any Grantor following any such termination, the Collateral
Agent shall deliver to such Grantor any Collateral held by the Collateral Agent
hereunder, and execute and deliver to such Grantor such documents as such
Grantor shall reasonably request to evidence such termination.

 

(b)                                 If
any of the Collateral shall be sold, transferred or otherwise disposed of by
any Grantor in a transaction permitted by the Credit Agreement, then the
Collateral Agent, at the request and sole expense of such Grantor, shall
execute and deliver to such Grantor all releases or other documents reasonably
necessary or desirable for the release of the Liens created hereby on such
Collateral.  At the request and sole
expense of the Company, a Guarantor shall be released from its obligations
hereunder in the event that all the Capital Stock of such Guarantor shall be
sold, transferred or otherwise disposed of, or such Guarantor shall be
dissolved, in a transaction not prohibited by the Credit Agreement; provided
that the Company shall have delivered to the Collateral Agent, at least seven
Business Days prior to the date of the proposed release, a written request for
release identifying the relevant Guarantor and the terms of the sale or other
disposition in reasonable detail, including the price thereof and any expenses
in connection therewith, together with a certification by the Company stating
that such transaction is in compliance with the Credit Agreement and the other
Loan Documents.

 

[Signature page to follow.]

 

34

 

IN WITNESS WHEREOF, each of the undersigned has caused
this Guarantee and Collateral Agreement to be duly executed and delivered as of
the date first above written.

 

	
   

  	
  KINETIC
  CONCEPTS, INC.

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  KCI HOLDING
  COMPANY, INC.

  
	
   

  	
  KCI
  INTERNATIONAL, INC.

  
	
   

  	
  KCI LICENSING,
  INC.

  
	
   

  	
  KCI REAL
  HOLDINGS, L.L.C.

  
	
   

  	
  KCI USA REAL
  HOLDINGS, L.L.C.

  
	
   

  	
  KCI USA, INC.

  
	
   

  	
  MEDCLAIM, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  KCI PROPERTIES
  LIMITED

  
	
   

  	
  By:

  	
  KCI USA Real
  Holdings, L.L.C.,

  	
   

  
	
   

  	
   

  	
  its General
  Partner

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  KCI REAL
  PROPERTY LIMITED

  
	
   

  	
  By:

  	
  KCI USA Real
  Holdings, L.L.C.,

  	
   

  
	
   

  	
   

  	
  its General
  Partner

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  

 

35

 

ACKNOWLEDGEMENT AND CONSENT*

 

The undersigned hereby acknowledges receipt of a copy
of the Guarantee and Collateral Agreement dated as of August 11, 2003 (the “Agreement”),
made by the Grantors parties thereto for the benefit of Morgan Stanley &
Co. Incorporated, as Collateral Agent. 
The undersigned agrees for the benefit of the Agents and the Lenders as
follows:

 

First:                                                     The
undersigned will be bound by the terms of the Agreement and will comply with
such terms insofar as such terms are applicable to the undersigned.

 

Second:                                     The undersigned
will notify the Administrative Agent promptly in writing of the occurrence of
any of the events described in Section 5.6(a) of the Agreement.

 

Third:                                                The
terms of Section 6.3(a) of the Agreement shall apply to it, mutatis  mutandis,
with respect to all actions that may be required of it pursuant to Section
6.3(a) of the Agreement.

 

	
   

  	
  [NAME OF ISSUER]

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address for
  Notices:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Fax:

  	
   

  	
   

  
						

 

 

*              Only
required to be delivered by Issuers which are Subsidiaries but not Grantors.Exhibit 10.4

 

SECURITY AND
CONTROL AGREEMENT

 

Kinetic
Concepts, Inc., a Texas corporation (the “Pledgor”), U.S. BANK NATIONAL
ASSOCIATION as trustee for the registered holders from time to time (the “Holders”)
of the Notes (as defined herein) issued by the Pledgor under the Indenture
referred to below (in such capacity, the “Trustee”), and as securities
intermediary hereunder for the benefit of the Holders of the Notes (in such
capacity, the “Securities Intermediary”), hereby enter into this
SECURITY AND CONTROL AGREEMENT (this “Security Agreement”), as of and on
August 11, 2003.

 

All
references herein to the “UCC” are to the Uniform Commercial Code in effect
from time to time in the State of New York. 
Capitalized terms not otherwise defined herein have the meaning given
them in the Indenture referred to below.

 

RECITALS

 

A.            Pledgor
is issuing on the date hereof $205,000,000 aggregate principal amount of 7 3/8%
Senior Subordinated Notes due 2013 (together with any notes that may from time
to time be issued in substitution therefor, the “Notes”).  The Notes will be issued pursuant to an
indenture, dated as of the date hereof, by and among the Pledgor, the
guarantors signatory thereto and the Trustee (as amended, restated,
supplemented or otherwise modified from time to time, the “Indenture”).

 

B.            The
Pledgor has agreed that, on the date hereof, $199,875,000 constituting all of
the net proceeds from the sale of the Notes (the “Secured Proceeds”)
will be paid directly to the Securities Intermediary, to be applied in
accordance with the express terms of this Security Agreement.

 

C.            The
Securities Intermediary shall use the Secured Proceeds to purchase U.S.
Government Obligations (as defined in the Indenture), as more fully described
in 3(f) below (the “Pledged Securities”), and shall deposit the Pledged
Securities and all remaining cash of the Secured Proceeds, if any, in, or
credit the Pledged Securities and all remaining cash of the Secured Proceeds,
if any, to, an account (the “Securities Account”) maintained by the
Trustee with the Securities Intermediary for the benefit of the Holders of the
Notes, as such account is further described in the next recital.

 

D.            The
Trustee has opened an account with the Securities Intermediary, at the
Securities Intermediary’s office at 60 Livingston Avenue, St. Paul, Minnesota
55107.  This account bears Account No.
33586701, is in the name of “U.S. Bank National Association,” and will serve as
the Securities Account.  The Securities
Account is the “Secured Proceeds Account” referred to in the Indenture.

 

E.             It
is a condition precedent to the issuance of the Notes that the Pledgor (i)
grant to the Trustee, for the Trustee’s benefit and the ratable benefit of the
Holders of the Notes a first-priority lien on and security interest in the
Pledged Securities (including all remaining Secured Proceeds, if any, after the
purchase of the U.S. Government Obligations and all proceeds from such
securities) and related collateral to secure the Pledgor’s payment of its
Obligations (as

 

 

defined below), and (ii)
execute and deliver this Security Agreement to create and perfect that
first-priority lien and security interest.

 

NOW,
THEREFORE, in view of the foregoing and in consideration of the mutual promises
herein and the benefits to be received therefrom, the Pledgor, the Trustee, and
the Securities Intermediary hereby adopt each of the foregoing recitals and
further agree as follows:

 

SECTION
1.         Grant of Security Interest.  The Pledgor hereby grants to the Trustee,
for its benefit and for the ratable benefit of the Holders of the Notes, a
continuing first-priority lien on and security interest in all of the Pledgor’s
right, title and interest in, to and under the following in each case whether
now owned or hereafter acquired by the Pledgor, wherever located and whether
now or hereafter existing or arising, whether investment property, general
intangibles, other rights, interests, claims, or otherwise (collectively, the
“Pledged Collateral”): (a) the Securities Account, all “Financial Assets” (as
defined in UCC § 8-102(a)(9)) held therein (including the Pledged Securities)
and all dividends, interest, cash, instruments and other property from time to
time received, receivable or otherwise distributed in respect of or in exchange
for any or all of such Financial Assets, and all “Security Entitlements” (as
defined in UCC Section 8102(a)(17)) with respect thereto, (b) any successor or
other account into which Financial Assets held in the Securities Account may be
transferred or held at any time and all Security Entitlements with respect
thereto, (c) all proceeds of any and all of the foregoing (including proceeds,
collateral and supporting obligations that constitute property of the types
described in the foregoing clauses (a) and (b) and this clause (c)) and to the
extent not otherwise included, cash.

 

SECTION
2.         Security for Obligations.  This Security Agreement and the security
interest granted hereby secure (i) the Pledgor’s prompt and complete payment of
all amounts due, whether at maturity, upon acceleration or mandatory
prepayment, or otherwise, under the Notes and (ii) the Pledgor’s timely and
full payment of all its other obligations under the Notes (including, without
limitation, its obligation to make an offer to redeem the Notes pursuant to Section
4.23 of the Indenture), the Indenture, the Registration Rights Agreement
and this Security Agreement (collectively, the “Obligations”).

 

SECTION
3.         Delivery of Pledged
Securities: Maintenance of Securities Account; Governing Law

 

(a)           Upon the Securities
Intermediary’s acquisition of Pledged Securities or any other Pledged
Collateral, the Securities Intermediary shall promptly make appropriate book
entries indicating that the Trustee is the sole “Entitlement Holder” (as
defined in UCC § 8-102(a)(7)) with respect thereto.  Subject to the other terms and conditions of this Security
Agreement, all funds or other property held by the Trustee under this Security
Agreement shall be held in the Securities Account and be subject to the
Trustee’s exclusive dominion and control (including “control” as defined
in UCC § 8-106), for the benefit of the Trustee and for the ratable benefit of
the Holders of the Notes, and segregated from all other funds or other property
otherwise held by the Trustee.

 

(b)           The Securities
Intermediary shall cause all securities or other property underlying any
Financial Assets credited to the Securities Account, including all Pledged

 

2

 

Securities, to
be registered in the name of the Securities Intermediary, endorsed to the
Securities Intermediary or in blank, or credited to another securities account
maintained in the name of the Securities Intermediary.  In no case will any Financial Asset credited
to the Securities Account be registered in the name of, payable to the order
of, or specially endorsed to the Pledgor, unless it has been specially endorsed
to the Securities Intermediary or in blank.

 

(c)           The Securities
Intermediary shall not disburse or dispose of any Pledged Collateral except in
accordance with the terms hereof.

 

(d)           Concurrently with
the execution and delivery of this Security Agreement, the Trustee and the
Securities Intermediary are delivering to the Pledgor and to Morgan Stanley
& Co. Incorporated, as representative of the several placement agents for
the Notes, a certificate, in the form of Exhibit A hereto, duly executed
by an officer of each of the Trustee and the Securities Intermediary,
confirming that (i) the Trustee has established and will maintain the Securities
Account with the Securities Intermediary, and (ii) the Securities Intermediary
has received the Secured Proceeds, has used the Secured Proceeds to acquire
Pledged Securities or a Securities Entitlement thereto, and has credited the
same to the Securities Account, in accordance with this Security Agreement.

 

(e)           Concurrently with
the execution and delivery of this Security Agreement, the Pledgor shall duly
file the proper financing statements in the office of the Secretary of State of
Texas, covering the Pledged Collateral described in this Security Agreement.

 

(f)            Pledged Securities
purchased from the Secured Proceeds shall consist solely of short-term U.S.
Government Obligations with a maturity date not later than November 26, 2003 or
Money Market Funds investing in such obligations.  As used herein “Money Market Funds” means money market funds
having a rating in the highest investment category granted thereby by a
recognized credit rating agency at the time of acquisition, including any fund
for which the Trustee or an Affiliate of the Trustee serves as an investment
advisor, administrator, shareholder servicing agent, custodian or subcustodian,
notwithstanding that (A) the Trustee or an Affiliate of the Trustee charges and
collects fees and expenses from such funds for services rendered (provided that
such charges, fees and expenses are on terms consistent with terms negotiated
at arm’s length) and (B) the Trustee charges and collects fees and expenses for
services rendered, pursuant to this Agreement;

 

(g)           This Security
Agreement and the Securities Account shall be governed by the laws of the State
of New York.

 

SECTION
4.         Entitlement Orders;
Subordination of Lien, Waiver of Set-Off, etc.

 

(a)           The Trustee shall be
the sole Entitlement Holder of, and have the sole power to originate “Entitlement
Orders” (as defined in UCC § 8102(a)(8)) with respect to, the Pledged
Collateral.  The Securities Intermediary
shall comply with Entitlement

 

3

 

Orders issued
by the Trustee with respect to the Pledged Collateral, without further consent
of the Pledgor or any other Person.

 

(b)           Notwithstanding
anything to the contrary herein, if at any time the Securities Intermediary
shall receive conflicting orders from the Trustee and the Pledgor, the
Securities Intermediary shall follow the orders of the Trustee and not the
Pledgor.

 

(c)           The Securities
Intermediary hereby agrees that any security interest in any of the Pledged
Collateral that it has or may in the future acquire shall be subordinate to the
Trustee’s security interest created hereby. 
The Financial Assets held in the Securities Account will not be subject
to deduction, set-off, banker’s lien, or any other right in favor of any Person
other than the Trustee (except that the Securities Intermediary may set off or
deduct all amounts due to it as customary fees for the routine operation and
maintenance of the Securities Account and for the customary fees owed to the
Trustee).

 

(d)           In the event of any
conflict between this Security Agreement and any other agreement to which the
parties hereunder are parties thereto, the terms of this Security Agreement
shall prevail.

 

(e)           The Securities
Intermediary hereby confirms and agrees that:

 

(i)            It has not entered
into any agreement (other than this Security Agreement and the Indenture) with
the Pledgor with respect to the Securities Account;

 

(ii)           It has not granted,
and until the termination of this Security Agreement will not grant, control
(including without limitation, “control” as defined in UCC § 8-106 over
or with respect to any Pledged Collateral to any Person other than the Trustee
(for the benefit of Holders of the Notes). 
It has not entered into, and until the termination of this Security
Agreement will not enter into, any agreement with any Person in which it agrees
to comply with Entitlement Orders, relating to the Pledged Collateral, from any
Person other than the Trustee or which purports to limit or condition its
obligation under this Section 4 to comply with the Trustee’s Entitlement
Orders.

 

(iii)          It has not entered
into, and until the termination of this Security Agreement will not enter into,
any agreement purporting to limit or condition its obligation to comply with
the Trustee’s Entitlement Orders as provided in this Section 4.

 

SECTION
5.         Adverse Claims.  The Securities Intermediary does not know of
any claim to, or interest in, any Pledged Collateral other than those of the
Trustee (for the benefit of Holders of the Notes) and the Pledgor.  If any Person asserts or attempts to enforce
any Lien or adverse claim (including by means of writ, garnishment, judgment,
warrant of attachment, execution or similar process) against any Pledged
Collateral, the Securities Intermediary will promptly notify the Trustee and
the Pledgor thereof.

 

4

 

SECTION
6.         Disbursement; Redemption

 

SECTION
6.1       Disbursement.

 

If the Pledgor delivers
to the Trustee a written request substantially in the form of Exhibit B
hereto (a “Redemption Disbursement Request”) containing the
certifications described therein, together with the other material described
therein, then as soon as practicable after receipt thereof the Trustee shall
instruct the Securities Intermediary to liquidate the assets in the Securities
Account and deliver the net liquidation proceeds (after deducting any
applicable Securities Intermediary and Trustee fees and charges) as directed in
the Redemption Disbursement Request, on the disbursement date set forth
therein, which disbursement date must be (x) no more than twenty and no less
than two Business Days after the Trustee’s receipt of the Redemption
Disbursement Request, and (y) no later than 5:00 p.m. New York time on November
7, 2003.

 

SECTION
6.2       Entitlement Orders;
Redemption.

 

(a)           If at any time the
Securities Intermediary shall receive any order from the Trustee directing
transfer or redemption of any financial asset relating to the Securities
Account, the Securities Intermediary shall comply with such entitlement order
without further consent by the Pledgor or any other person.  If the Pledgor is otherwise entitled to
issue Entitlement Orders (as defined in UCC § 8-102(a)(8)) and such orders
conflict with any Entitlement Order issued by the Trustee, the Securities
Intermediary shall follow the orders issued by the Trustee.

 

(b)           If the Trustee does
not receive a Redemption Disbursement Request by 5:00 p.m. New York time on
November 7, 2003 (such event constituting an “Event of Failure”), the
Trustee shall:

 

(i)            as soon as practicable
instruct the Securities Intermediary to liquidate the assets in the Securities
Account and deliver the net liquidation proceeds (after deducting any
applicable Securities Intermediary and Trustee fees and charges) to the account
of the Trustee; and

 

(ii)           apply the net
liquidation proceeds, received in accordance with the foregoing clause (i), to
make an offer to redeem the outstanding Notes (the “Special Redemption Offer”),
for a price equal to 100% of their principal amount, plus accrued and unpaid interest
thereon through the redemption date, if any, all in accordance with Section
4.23 of the Indenture.  The Special
Redemption Offer must occur no later than five Business Days after the Event of
Failure.

 

SECTION
6.3       General Provisions.

 

(a)           Nothing in this
Security Agreement shall afford the Pledgor any right to issue Entitlement
Orders with respect to any Pledged Collateral.

 

(b)           Nothing in this Section
6 shall limit the Trustee’s rights and powers under this Security
Agreement.

 

SECTION
7.         Representations and
Warranties.  The
Pledgor hereby represents and warrants that, as of the date hereof:

 

5

 

(a)           The Pledgor’s
execution and delivery of, and its performance of its obligations under, this
Security Agreement will not (i) contravene any provision of applicable law or
statute, the Pledgor’s organizational documents, any material agreement or
other material instrument binding upon the Pledgor or any of its affiliates, or
any judgment, order or decree of any governmental body, agency or court having
jurisdiction over the Pledgor or any of its affiliates, or (ii) result in the
creation or imposition of any Lien on any of the Pledgor’s assets, except for
the security interest granted to the Trustee herein.  No consent, approval, authorization or order of, qualification
with, or other action by any governmental or regulatory body or agency or any
third party is required for (i) the Pledgor’s execution, delivery or
performance of this Security Agreement, or (ii) the Pledgor’s grant of, or the
perfection and maintenance of, the security interest created hereby (including
its first-priority nature), assuming the Securities Intermediary’s compliance
with its obligations hereunder. 
Notwithstanding the foregoing, a breach of any of the representations
and warranties in this Section 7(a) will not constitute a default under this
Security Agreement unless that breach causes a material adverse effect on (i)
the validity or enforceability of this Security Agreement or any other material
agreement executed in connection with the transactions contemplated herein or
in the Indenture, or (ii) the Pledgor’s ability to perform its material
obligations under the Notes and the Indenture.

 

(b)           The Pledgor has duly
and validly authorized, executed, and delivered this Security Agreement.  Assuming the Trustee’s and Security
Intermediary’s due authorization, execution and delivery of this Security
Agreement and its enforceability against the Trustee and the Securities
Intermediary in accordance with its terms, this Security Agreement constitutes
the Pledgor’s valid and binding agreement, enforceable against the Pledgor in
accordance with its terms, except as (i) may be limited by bankruptcy,
insolvency, fraudulent transfer, preference, reorganization, moratorium, or
similar laws now or hereafter in effect relating to or affecting
creditors’rights or remedies generally, (ii) the availability of equitable
remedies may be limited by equitable principles of general applicability and
the discretion of the court considering the matter, (iii) the exculpation
provisions and rights to indemnification hereunder may be limited by federal
and state securities laws and public policy considerations, and (iv) applicable
law may limit the enforceability of the waiver of rights and defenses in and
other provisions of Sections 13(b), 16.10, and 16.15
hereof.

 

(c)           The Pledgor is the
legal and beneficial owner of the Pledged Securities and other Pledged
Collateral.  The Pledgor owns the
Pledged Securities and other Pledged Collateral free and clear of any Lien or
claim of any person or entity (except for the security interest granted to the
Trustee herein).  No financing statement
or other instrument similar in effect covering the Pledgor’s interest in the
Pledged Securities is on file in any public office, other than any financing
statement filed under this Security Agreement.

 

(d)           Upon the Trustee’s
acquisition of a Security Entitlement in the Pledged Collateral in accordance
herewith, and the Securities Intermediary’s performance of its obligations
hereunder, the security interest granted to the Trustee herein will constitute
a first-priority security interest in the Pledged Collateral (subject to the
limitations in UCC

 

6

 

§ 9-315 with
respect to proceeds), enforceable as such against all creditors of the Pledgor
and against any Person purporting to purchase any of the Pledged Collateral
from the Pledgor, except insofar as enforcement may be affected by general equitable
principles (whether in a proceeding in equity or at law).

 

(e)           There are no legal
or governmental proceedings pending or, to the best of the Pledgor’s knowledge,
threatened to which the Pledgor or any of its affiliates is a party or relating
to any property of the Pledgor or any affiliate that would materially adversely
affect the Pledgor’s power or ability to perform its obligations under this
Security Agreement, the Notes, or the Indenture.

 

(f)            No law or
governmental regulation (including, without limitation, Regulations T, U and X
of the Board of Governors of the Federal Reserve System) applicable to the
Pledgor prohibits the grant of the security interest to the Trustee hereunder.

 

(g)           The Pledgor is a
corporation whose jurisdiction of organization is Texas.  The Pledgor will not change its form or
jurisdiction of organization without giving at least 30 days’ prior written
notice to the Trustee.

 

(h)           No Event of Default
(as defined below) exists.

 

SECTION
8.         Pledgor’s Covenants.  In addition to its other agreements herein,
the Pledgor covenants and agrees with the Trustee and the Holders of the Notes
that from and after the date hereof until the Termination Date:

 

(a)           It will, promptly
upon request by the Trustee, execute and deliver or cause to be executed and
delivered, or use its commercially reasonable efforts to procure, all
assignments, instruments and other documents, in form and substance reasonably
satisfactory to the Trustee, and take any other action that is necessary or
desirable to perfect, further evidence the perfection of, continue the
perfection of, or protect the first priority of, the Trustee’s security
interest in the Pledged Collateral, to protect the Pledged Collateral against
rights, claims, or interests asserted therein by third persons (other than any
right, claim, or interest created by the Trustee on behalf of the Holders of
the Notes), to enable the Trustee to enforce its rights and remedies hereunder,
and to effect the purposes of this Security Agreement.  The Pledgor will promptly pay all reasonable
costs incurred in connection with any of the foregoing;

 

(b)           It will not (and
will not purport to) (i) sell or otherwise dispose of, or grant any option or
warrant with respect to, its beneficial interest in, any of the Pledged
Collateral or its interest therein, or (ii) create or permit to exist any Lien
or other adverse interest in or with respect to any of the Pledged Collateral
(other than the security interest granted herein);

 

(c)           It will not (i)
enter into any agreement or understanding that, directly or indirectly,
restricts or inhibits or purports to restrict or inhibit the Trustee’s rights
or remedies hereunder, including, without limitation, the Trustee’s right to
dispose of the Pledged Collateral as provided herein, or (ii) fail to pay or
discharge any tax, assessment or

 

7

 

levy of any
nature with respect to its beneficial interest in the Pledged Collateral later
than five days before the date of any proposed sale under any judgment, writ or
warrant of attachment with respect to its beneficial interest; and

 

(d)           It will at all times
remain the sole beneficial owner of the Pledged Collateral (subject to the
security interest granted to the Trustee herein).

 

SECTION
9.         Securities Intermediary’s
Representations, Warranties and Covenants.  The Securities Intermediary represents and
warrants that it is, as of the date hereof, and it agrees that for so long as
it maintains the Securities Account and acts as securities intermediary under
this Security Agreement it shall be, a “Securities Intermediary” (as defined in
the UCC and in 31 C.F.R. § 357.2).  In
furtherance of the foregoing, and in addition to its other representations,
warranties, and agreements herein, the Securities Intermediary hereby:

 

(a)           represents and
warrants that it is a financial institution that, in the ordinary course of its
business, maintains securities accounts for others and is acting in that
capacity with respect to the Securities Account;

 

(b)           covenants that, as
Securities Intermediary hereunder and with respect to the Securities Account,
it shall not take any action inconsistent with, and represents and warrants
that it is not and so long as this Security Agreement remains in effect will
not become party to any agreement whose terms are materially inconsistent with,
and would prevent the Trustee and the Pledgor from substantial enjoyment of the
benefits contemplated by, this Security Agreement;

 

(c)           agrees to treat any
item of property credited to the Securities Account as a Financial Asset;

 

(d)           agrees, so long as
it serves as Securities Intermediary under this Security Agreement, to maintain
the Securities Account as a securities account and maintain appropriate books
and records in respect thereof in accordance with its usual procedures and
subject to the terms of this Security Agreement;

 

(e)           agrees, with the
other parties to this Security Agreement, that its jurisdiction, for purposes
of UCC §§ 9-301, 9-305 and 8-110(e) and 31 C.F.R. 357.11(b) as it pertains to
this Security Agreement, the Securities Account and all Security Entitlements
relating thereto, shall be the State of New York; and

 

(f)            agrees that it will
maintain the Securities Account, at its office at the address set forth in the
Recitals hereof, segregated from all other accounts, and will not change the
name on the account or its account number without the Trustee’s prior written
consent.

 

SECTION
10.       Power of Attorney.  Upon the occurrence and continuation of an
Event of Default, in addition to all of the powers granted to the Trustee under
the Indenture, the Pledgor hereby appoints and constitutes the Trustee as the
Pledgor’s attorney-in-fact, with full authority in its place and its name to
take, from time to time in the Trustee’s discretion, any action and to execute
any instrument that the Trustee may deem necessary or advisable to

 

8

 

accomplish the purposes of this Security Agreement.  The Trustee’s authority under this Section
10 shall include, without limitation, the authority to endorse and
negotiate any checks or instruments representing proceeds of Pledged Collateral
in the name of the Pledgor, execute and give receipt for any certificate of
ownership or any document constituting Pledged Collateral, transfer title to
any item of Pledged Collateral, sign the Pledgor’s name on all financing
statements (to the extent permitted by applicable law) or any other document
deemed necessary or appropriate by the Trustee to preserve, protect or perfect
the security interest in the Pledged Collateral and to file the same, prepare,
file and sign the Pledgor’s name on any notice of Lien, and to take any other
actions arising from or incident to the powers granted to the Trustee in this
Security Agreement.  This power of
attorney is coupled with an interest and is irrevocable.  Notwithstanding anything to the contrary
herein, the Trustee has no duty or obligation to exercise any of the powers in
this Section 10.  The Pledgor
hereby authorizes the Trustee to file one or more financing or continuation
statements, and amendments thereto, including, without limitation, one or more
financing statements indicating that such statements cover all assets or all
personal property (or words of similar effect) of such Pledgor, in each case
without the signature of the Pledgor, and regardless of whether any particular
asset described in such financing statement falls within the scope of the UCC
or the granting clause of this Agreement.

 

SECTION
11.       No Assumption of Duties;
Reasonable Care. 
The Trustee and the Securities Intermediary undertake to perform only
those duties that are expressly and specifically set forth herein.  This Security Agreement does not, and may
not be interpreted to, impose any implied duties or obligations on either of
them, including, without limitation, any obligation to monitor the Pledgor’s
performance of its obligations hereunder. 
The Pledgor acknowledges that the Trustee and Securities Intermediary
have not participated in the selection of financial assets to be deposited in
or credited to the Securities Account. 
Except as provided by applicable law or by the Indenture, the Trustee
shall be deemed to have exercised reasonable care in the custody and
preservation of the Pledged Collateral if the Trustee accords the Pledged
Collateral treatment substantially similar to that which the Trustee accords
similar property held by the Trustee for similar accounts, it being understood
that the Trustee shall not have any responsibility for (i) ascertaining or
taking action with respect to calls, conversions, exchanges, maturities or
other matters relative to any Pledged Collateral, whether or not the Trustee
has or is deemed to have knowledge of such matters, (ii) monitoring the
Pledgor’s compliance with its covenants herein, or (iii) any loss on any
investment (including without limitation any loss resulting from the sale of a
Financial Asset held in or credited to the Securities Account before its
maturity).

 

SECTION
12.       Indemnity.

 

(a)           The Pledgor hereby
indemnifies, holds harmless, and agrees to defend the Trustee, the Securities
Intermediary, and each of their respective directors, officers, employees,
attorneys, and agents (each, an “Indemnified  Person”) from and
against any and all claims, actions, obligations, liabilities and expenses,
including reasonable defense costs, reasonable investigative fees and costs and
reasonable legal fees and expenses and damages, arising from the performance by
the Trustee and the Securities Intermediary of their respective obligations
under this Security Agreement.  The
Pledgor shall, upon demand by any Indemnified Person, promptly pay or reimburse
that Indemnified Person for all such expenses, costs, fees and damages.  Notwithstanding the foregoing, the Pledgor
(i) shall not be obligated to indemnify any Indemnified Person from any claim,

 

9

 

action,
obligation, liability or expense against or incurred by that Indemnified Person
that is judicially determined (the determination having become final) to be
directly attributable to the gross negligence or willful misconduct of that
Indemnified Person, and (ii) shall, upon that final judicial determination, be
entitled to recover from that Indemnified Person all amounts therefore paid
hereunder, provided that before any such judicial determination becomes final,
the Pledgor must promptly pay all amounts demanded by any Indemnified Person.

 

(b)           In addition, and
without limiting the provisions of the foregoing Section 12(a), if the
Trustee is required to take any action hereunder to enforce its rights with
respect to the Pledged Collateral, the Trustee’s rights and duties shall be as
set forth in Article VII of the Indenture, and the Trustee shall be entitled to
the benefit of the indemnity and compensation provisions and all other
protections and exculpatory provisions therein.

 

SECTION
13.       Remedies Upon Event of
Default.  As used
herein, “Event of Default” means (i) any Event of Default as that term is
defined in the Indenture, and (ii) any breach by the Pledgor of its
representations, warranties, covenants, or agreements herein.  If any Event of Default occurs before the
Termination Date and is continuing:

 

(a)           The Trustee (for the
benefit of the Holders of the Notes) shall have, in addition to all other
rights given by law, by this Security Agreement, or by the Indenture, all of
the rights and remedies with respect to the Pledged Collateral of a secured
party under the UCC.  In addition, with
respect to any Pledged Collateral that shall then be in or shall thereafter
come into the possession or custody or under the control of the Trustee, the
Trustee may, upon the written direction of a majority in aggregate principal
amount of the Holders of the Notes, sell or cause the same to be sold at any
broker’s board or at public or private sale, in one or more sales or lots, for
cash or on credit or for future delivery, without assumption of any credit
risk.  The purchaser of any Pledged Collateral
so sold shall thereafter hold the same absolutely, free from any claim,
encumbrance or right of any kind whatsoever of, or created by or through, the
Pledgor.  The Trustee shall give the
Pledgor such notice of the time and place of any public sale of the Pledged
Collateral as is feasible and reasonable under the circumstances, except no
notice of sale shall be required if the Trustee determines, in its reasonable
judgment, that (i) an immediate sale is necessary because the Pledged
Collateral threatens to decline speedily in value or (ii) the Pledged
Collateral is or becomes of a type regularly sold on a recognized market.  To the extent permitted by applicable law,
the Pledgor agrees that any sale of the Pledged Collateral conducted in
conformity with reasonable commercial practices of banks, insurance companies,
commercial finance companies, or other financial institutions disposing of
property similar to the Pledged Collateral shall be deemed to be commercially
reasonable.  Subject to the other provisions
of this Section 13(a), notice mailed to the Pledgor as provided in Section
16.1 hereof at least 10 days before the time of the sale or disposition
shall constitute reasonable notice.  The
Trustee or any Holder of Notes may, in its own name or in the name of a
designee or nominee, buy any of the Pledged Collateral at any public sale and,
if permitted by applicable law, at any private sale.  All expenses (including court costs and reasonable attorneys’
fees, expenses and disbursements) of, or incident to, the enforcement of any of
the provisions

 

10

 

hereof shall
be recoverable from the proceeds of the sale or other disposition of the
Pledged Collateral.

 

(b)           The Pledgor shall
use its reasonable best efforts to do or cause to be done all other acts as may
be necessary to make a sale of all or a portion of the Pledged Collateral under
this Section 13 valid and binding and in compliance with any applicable
requirements of law.  The Pledgor agrees
that a breach of any of its covenants in this Section 13 will cause
irreparable injury to the Trustee and the Holders of the Notes, that the
Trustee and the Holders of the Notes would have no adequate remedy at law in
respect of that breach and, as a consequence, that each of its covenants in
this Section 13 shall be specifically enforceable against the
Pledgor.  The Pledgor hereby waives and
agrees not to assert any defenses against an action for specific performance of
these covenants except for a defense that no Event of Default has occurred.

 

(c)           The Trustee may,
without notice to the Pledgor except as required by law and at any time or from
time to time, charge, setoff and otherwise apply all or any part of the
Obligations against the Securities Account or any part thereof.

 

SECTION
14.       Expenses.  Except as provided in any fee agreement to
the contrary, the Pledgor shall, promptly upon demand, pay to each of the
Trustee and the Securities Intermediary any and all reasonable expenses,
including, without limitation, the reasonable fees, expenses and disbursements
of counsel, experts and agents, that either the Trustee or the Securities
Intermediary may incur in connection with (a) the review, negotiation and
administration of this Security Agreement, (b) the maintenance and
administration of the Securities Account and the custody, preservation, or sale
of, collection from, or other realization upon, any of the Pledged Collateral,
(c) the exercise or enforcement of any of the rights of the Trustee and the
Holders of the Notes hereunder, (d) the Pledgor’s failure to perform or observe
any of the provisions hereof, or (e) any claim covered by Section 12
hereof.

 

SECTION
15.       Security Interest Absolute.  All rights of the Trustee and the Holders of
the Notes and the security interest granted to the Trustee hereunder, and all
obligations of the Pledgor hereunder, shall be absolute and unconditional under
all circumstances, including but not limited to:

 

(a)           any lack of validity
or enforceability of the Indenture or any other agreement or instrument
relating thereto;

 

(b)           any change in the
time, manner or place of payment or performance of, or in any other term of,
any of the Obligations, or any other amendment or waiver of or any consent to
any departure from the Indenture;

 

(c)           any taking,
exchange, surrender, release or non-perfection of any other collateral or any
taking, release, amendment, or waiver of any provision of any guaranty for all
or any of the Obligations;

 

(d)           any change,
restructuring or termination of the corporate structure or existence of the
Pledgor or any of its affiliates; or

 

11

 

(e)           to the extent
permitted by applicable law, any other circumstance that might otherwise
constitute a defense available to, or a discharge of, the Pledgor in respect of
the Obligations or of this Security Agreement.

 

SECTION
16.       Miscellaneous Provisions.

 

SECTION
16.1     Notices.  Any notice or communication given hereunder
shall be sufficiently given if in writing and delivered in person or mailed by
first class mail, commercial courier service or telecopier communication,
addressed as follows:

 

if
to the Pledgor:

 

Kinetic Concepts,
Inc.

8023 Vantage Drive,

San Antonio, Texas 78230

Attn:  General Counsel

Fax: (210) 255-6204

 

with
a copy to:

 

Thomas Ivey

Skadden, Arps, Slate, Meagher & Flom LLP

525 University Ave, 11th Floor

Palo Alto, CA 94301

Fax: (650)-470-4646

 

if
to the Trustee:

 

U.S. Bank National
Association

60 Livingston Ave.

St. Paul, Minnesota 55107-2292

Attn: Corporate Trust Services

 

if
to the Securities Intermediary:

 

U.S. Bank National
Association

60 Livingston Ave.

St. Paul, Minnesota 55107-2292

Attn: Corporate Trust Services

 

SECTION
16.2     Severability.  The provisions of this Security Agreement
are severable.  If a court in any
jurisdiction holds that a clause or provision is invalid, illegal or
unenforceable, in whole or in part, then that holding shall affect the validity
or enforceability of that clause or provision in that jurisdiction only,
without effect in any other jurisdiction or with respect to any other clause or
provision hereof.

 

12

 

SECTION
16.3     Headings.  The headings in this Security Agreement are
included for convenience of reference only, are not to be considered a part
hereof, and do not modify or restrict any of the terms or provisions hereof.

 

SECTION
16.4     Counterpart Originals.  This Security Agreement may be signed in two
or more counterparts, each of which shall be deemed an original, but all of
which shall together constitute one and the same agreement.  A photocopy or other reproduction of this
Security Agreement or any financing statement covering the Pledged Collateral
or any part thereof shall be sufficient as a financing statement where
permitted by law.

 

SECTION
16.5     Benefits of Security Agreement.  Nothing in this Security Agreement, express
or implied, shall give to any person, other than the parties hereto, their
successors hereunder, all Indemnified Persons, and (subject to the provisions
of the Indenture) the Holders of the Notes, any legal or equitable right,
remedy or claim.  Other than the Persons
identified in the preceding sentence, there are and shall be no third-party
beneficiaries of this Security Agreement. 
No Holder of Notes shall have any independent rights hereunder, other
than those rights granted to individual Holders of the Notes under the
Indenture.

 

SECTION
16.6     Amendments, Waivers and
Consents.  Any
amendment or waiver of any provision of this Security Agreement and any consent
to any departure by the Pledgor from any provision of this Security Agreement
shall be effective only if made or duly given in compliance with all of the
terms and provisions of the Indenture. 
Neither the Trustee nor any Holder of Notes shall be deemed, by any act,
delay, indulgence, omission or otherwise, to have waived any right or remedy
hereunder or to have acquiesced in any Default or Event of Default or in any
breach of any of the terms and conditions hereof.  A failure to exercise, a delay in exercising, or a waiver of any
right, power or privilege hereunder by the Trustee or any Holder of Notes shall
not preclude any subsequent exercise thereof or the exercise of any other
right, power or privilege.  The rights
and remedies provided herein are cumulative, may be exercised singly or concurrently,
and are not exclusive of any rights or remedies provided by law.

 

SECTION
16.7     Interpretation of Agreement.  Acceptance of or acquiescence in a course of
performance rendered under this Security Agreement shall not be relevant to
determine the meaning of this Security Agreement, even if the accepting or
acquiescing party had knowledge of the nature of the performance and an
opportunity to object thereto.

 

SECTION
16.8     Continuing Security Interest:
Termination.

 

(a)           This Security
Agreement shall create a continuing security interest in and to the Pledged
Collateral, shall be binding upon the Pledgor, its transferees, successors and
assigns, shall inure, together with the rights and remedies of the Trustee
hereunder, to the benefit of the Trustee, the Securities Intermediary, the
Holders of the Notes and their respective successors, transferees and assigns,
and shall remain in full force and effect until the Termination Date.  On or as soon as practicable after the
Termination Date, the Trustee shall, at the Pledgor’s expense, take any
reasonable action necessary to release the security interest created hereby,
including the execution and delivery of any termination statements prepared and
delivered to it by the Pledgor.  Any
redelivery of the Pledged Collateral hereunder to the Pledgor shall be without
warranty by or recourse to the Trustee in its

 

13

 

capacity as
such, except as to the absence of any Liens on the Pledged Collateral created
by or arising through the Trustee, and shall be at the reasonable expense of
the Pledgor.

 

(b)           This Security
Agreement will terminate on the date on which all assets in the Securities
Account have been liquidated and applied in accordance with any applicable
provision of Section 6 hereof (the “Termination Date”).

 

(c)           Notwithstanding the
foregoing, the Pledgor’s obligations under Sections 12 and 14 shall survive
this Security Agreement’s termination.

 

SECTION
16.9     Survival of Representations
and Covenants. 
All representations, warranties and covenants of the Pledgor herein
shall survive execution and delivery of this Security Agreement, and shall
terminate only on the Termination Date.

 

SECTION
16.10  Waivers.  The Pledgor waives presentment and demand
for payment of any of the Obligations, protest and notice of dishonor or
default with respect to any of the Obligations, and all other notices to which
the Pledgor might otherwise be entitled, except as otherwise expressly provided
herein or in the Indenture.

 

SECTION
16.11  Authority of the Trustee and
Securities Intermediary.

 

(a)           Each of the Trustee
and Securities Intermediary may exercise all rights and powers granted
hereunder, together with any powers reasonably incident hereto.  The Trustee and the Securities Intermediary
may perform any of their respective duties hereunder or in connection with the
Pledged Collateral by or through agents or employees and shall be entitled to
retain counsel and to rely conclusively upon the advice of counsel concerning
their rights, powers and duties hereunder. 
The Trustee and the Securities Intermediary shall not be responsible for
the validity, effectiveness or sufficiency hereof or of any document or
security furnished in accordance herewith and shall be entitled to
indemnification hereunder from any claims related thereto.  The Trustee, the Securities Intermediary,
and their respective directors, officers, employees, attorneys and agents may
conclusively rely on any communication, instrument or document reasonably
believed by them to be genuine and correct and to have been signed or sent by
the proper person or persons.

 

(b)           The Pledgor
acknowledges that, as between the Pledgor and the Trustee, with respect to any
action or inaction by the Trustee in connection with the performance of its
duties hereunder, the Trustee shall be conclusively presumed to be acting as
agent for the Holders of the Notes with full and valid authority so to act or
refrain from acting, and the Pledgor may not make any inquiry respecting that
authority.

 

(c)           No provision of this
Security Agreement shall require either the Trustee or the Securities
Intermediary to expend or risk its own funds or otherwise incur any financial
liability in the performance of its duties or the exercise of any of its rights
and powers hereunder.  If,
notwithstanding the foregoing, the Trustee determines to advance funds, the
Trustee shall be entitled to reimbursement thereof from the Pledgor within ten
days of demand therefor, together with interest at the maximum rate permitted
by law.

 

14

 

SECTION
16.12  Removal or Resignation of the
Securities Intermediary. 
The Securities Intermediary may resign by notice to, or be removed by
notice from, the Trustee at any time, except that in either case the Securities
Intermediary’s duties hereunder shall not terminate until the Trustee has
appointed a successor Securities Intermediary, who has accepted the appointment
(by delivery of an agreement substantially in the form hereof), and until all assets
held by the retiring Securities Intermediary have been transferred to the
successor Securities Intermediary in accordance with the Trustee’s instruction.

 

SECTION
16.13  [Intentionally deleted]

 

SECTION
16.14  Final Expression.  This Security Agreement, together with the
Indenture and any other agreement executed in connection herewith, is intended
by the parties as a final expression of this Security Agreement and is intended
as a complete and exclusive statement of the terms and conditions thereof, subject
to any amendment duly made in accordance herewith.

 

SECTION
16.15  CHOICE OF LAW; SUBMISSION TO
JURISDICTION: WAIVER OF JURY TRIAL; WAIVER OF DAMAGES.

 

(a)           THIS SECURITY
AGREEMENT, THE SECURITIES ACCOUNT, AND THE SECURITIES ENTITLEMENTS RELATED
THERETO SHALL BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK INCLUDING,
WITHOUT LMTATION, SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL
OBLIGATIONS LAW AND NEW YORK CIVIL PRACTICE LAW AND RULES 327.  ANY DISPUTE ARISING FROM, RELATED TO, OR IN
CONNECTION WITH ANY OF THE FOREGOING, OR THE RELATIONSHIP AMONG OR THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HERETO, SHALL LIKEWISE BE GOVERNED BY THE LAW OF
THE STATE OF NEW YORK.  REGARDLESS OF
ANY PROVISION OF ANY OTHER AGREEMENT, FOR PURPOSES OF THE UCC, NEW YORK SHALL
BE DEEMED TO BE THE SECURITIES INTERMEDIARY’S JURISDICTION.

 

(b)           THE PLEDGOR AGREES
THAT THE TRUSTEE MAY, IN ITS CAPACITY AS TRUSTEE OR IN THE NAME AND ON BEHALF
OF ANY HOLDER OF NOTES, PROCEED AGAINST THE PLEDGOR OR THE PLEDGED COLLATERAL
IN ANY COURT HAVING PERSONAL OR IN REM JURISDICTION OVER THE PLEDGOR OR THE
PLEDGED COLLATERAL, AS THE CASE MAY BE, TO ENABLE THE TRUSTEE TO ASSERT A CLAIM
OR EXERCISE ITS RIGHTS AND REMEDIES UNDER THIS SECURITY AGREEMENT.  THE PLEDGOR AGREES THAT IT WILL NOT ASSERT ANY
COUNTERCLAIM, SETOFF, OR CROSSCLAIM AGAINST THE TRUSTEE IN ANY PROCEEDING
BROUGHT BY THE TRUSTEE UNDER THIS SECURITY AGREEMENT OR THE INDENTURE OTHER
THAN A COUNTERCLAIM, SETOFF, OR CROSSCLAIM THAT, IF NOT ASSERTED IN THAT
PROCEEDING, COULD NOT OTHERWISE BE BROUGHT OR ASSERTED.  THE PLEDGOR WAIVES ANY OBJECTION BASED ON
THE GROUNDS OF IMPROPER VENUE OR FORUM NON CONVENIENS TO THE TRUSTEE’S
COMMENCEMENT

 

15

 

AND
PROSECUTION OF SUCH A PROCEEDING IN ANY COURT IN THE CITY OF NEW YORK.

 

(c)           THE PLEDGOR AGREES
THAT NEITHER ANY HOLDER OF NOTES, THE TRUSTEE, THE SECURITIES INTERMEDIARY, NOR
ANY OTHER INDEMNIFIED PERSON SHALL BE LIABLE TO THE PLEDGOR FOR LOSSES ARISING
FROM, RELATING TO, OR IN CONNECTION WITH THIS SECURITY AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREBY OR IN THE INDENTURE OR THE DUTIES IMPOSED
HEREUNDER, UNLESS A COURT DETERMINES (THE DETERMINATION HAVING BECOME FINAL)
THAT THE LOSSES RESULTED FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE
PERSON ON WHOM THE PLEDGOR SEEKS TO IMPOSE LIABILITY.

 

(d)           TO THE EXTENT
PERMITTED BY LAW, THE PLEDGOR WAIVES THE POSTING OF ANY BOND OTHERWISE REQUIRED
OF THE TRUSTEE OR ANY HOLDER OF NOTES IN CONNECTION WITH ANY JUDICIAL
PROCEEDING TO ENFORCE ANY JUDGMENT OR OTHER COURT ORDER ENTERED AGAINST THE
PLEDGOR RELATING TO THIS SECURITY AGREEMENT OR ANY RELATED AGREEMENT OR
DOCUMENT OR TO ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER OR
PRELIMINARY OR PERMANENT INJUNCTION, THIS SECURITY AGREEMENT OR ANY RELATED
AGREEMENT OR DOCUMENT AGAINST THE PLEDGOR.

 

SECTION
16.16  No Conflict.

 

The
Pledgor acknowledges that U.S. Bank, National Association (“U.S. Bank”), is
acting in two capacities in the transactions contemplated herein: as Trustee
under the Indenture and as Securities Intermediary under this Security
Agreement.  The Pledgor has requested
that U.S. Bank serve in those two capacities and anticipates that it will enjoy
significant benefits from U.S. Bank’s agreement to do so.  Accordingly, the Pledgor consents to U.S.
Bank’s service in those two capacities and agrees that, if any dispute arises
hereunder between the Pledgor and U.S. Bank, the Pledgor will not assert that
U.S. Bank’s service in those two capacities presented either an actual or a potential
conflict of interest.

 

16

 

IN
WITNESS WHEREOF, the Pledgor, the Trustee and the Securities Intermediary have
each caused this Security Agreement to be duly executed and delivered as of the
date first above written.

 

	
   

  	
  Pledgor:

  
	
   

  	
   

  
	
   

  	
  KINETIC
  CONCEPTS, INC.:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Trustee:

  
	
   

  	
   

  
	
   

  	
  U.S.
  BANK NATIONAL ASSOCIATION as

  Trustee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  U.S.
  BANK NATIONAL ASSOCIATION as

  Securities Intermediary

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

17

 

EXHIBIT A

 

CERTIFICATE

 

On and as of August 11,
2003, and in accordance with Section 3(d) of the Security and Control
Agreement, dated of even date herewith (the “Security Agreement”), by
and among Kinetic Concepts, Inc. (the “Pledgor”), U.S. Bank National
Association, as indenture trustee (the “Trustee”) for the holders of the
Pledgor’s $205,000,000 aggregate principal amount of 7 3/8% Senior Subordinated
Notes due 2013 (the “Notes,”), and U.S. Bank, National Association, as
securities intermediary (the “Securities Intermediary”), the undersigned
officers of the Trustee and the Securities Intermediary, on behalf of the
Trustee and the Securities Intermediary respectively, hereby make the following
certifications to the Pledgor and the initial purchasers of the Notes.  Capitalized terms used and not defined in
this certificate have the meanings given them in the Security Agreement or in the
documents referenced therein.

 

1.             Substantially contemporaneously with the execution and
delivery of this Certificate, the Trustee has established and will maintain the
Securities Account with the Securities Intermediary.  The Securities Intermediary has received $199,875,000 from the
net proceeds from the sale of the Notes and has used those funds to purchase
the Pledged Securities (or will do so as soon as practicable).  The Securities Intermediary has made or will
(upon purchase of the Pledged Securities) make appropriate book entries in its
records establishing that the Pledged Securities and the Trustee’s Security
Entitlement thereto have been credited to and are held in the Securities
Account.

 

2.             The Trustee has established and maintained and will
maintain the Securities Account, all Security Entitlements thereto, and all
rights with respect to the Pledged Collateral solely in its capacity as Trustee
and has not asserted and will not assert any claim to or interest in the
Pledged Collateral except in that capacity.

 

3.             The Trustee and the Securities Intermediary have
acquired their Security Entitlements to the Pledged Securities for value and
without notice of any adverse claim thereto but, with the Pledgor’s permission,
have not performed any UCC searches with respect thereto.  Without limiting the generality of the
foregoing, neither the Pledged Securities nor the Security Entitlements thereto
of the Securities Intermediary and the Trustee are, to their knowledge, subject
to any Lien granted by either of them in favor of any other securities
intermediary or any other person.

 

4.               Each signatory represents and warrants that he or she
is duly authorized to execute this certificate.

 

A - 1

 

IN
WITNESS WHEREOF, the undersigned officers have executed this Certificate on
behalf of the Trustee and the Securities Intermediary, respectively, on the
date first shown above.

 

	
   

  	
  U.S.
  BANK NATIONAL ASSOCIATION, as

  Trustee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  U.S.
  BANK NATIONAL ASSOCIATION, as

  Securities Intermediary

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

A - 2

 

EXHIBIT B

 

REDEMPTION
DISBURSEMENT REQUEST

 

[Issuer Letterhead.]

 

[date]

 

 

U.S. BANK, NATIONAL ASSOCIATION

60 Livingston Ave.

St. Paul, Minnesota 55107-2292

 

Attention: Corporate Trust Services

 

Ladies and Gentlemen:

 

I am
the [title] of Kinetic Concepts, Inc. (the “Company”).  I refer you to the Security and Control
Agreement, dated as of August 11, 2003 (the “Security Agreement”), among
the Company and you in your separate capacities as Trustee under the Indenture
identified in the Security Agreement’s Recitals and as Securities Intermediary
under the Security Agreement.  Unless
otherwise indicated, capitalized terms used but not otherwise defined herein
have the meanings given them, as applicable, in the Security Agreement or in
the documents referenced therein.

 

The
Company hereby requests, in accordance with Section 6 of the Security
Agreement, that you cause the liquidation of the assets in the Securities
Account and deliver net liquidation proceeds (after deducting any applicable
Securities Intermediary and Trustee fees and charges) to the Paying Agent under
the Indenture on behalf of the Company on
                         ,
2003 (the “Disbursement Date,” which day is (x) a Business Day not more than
twenty nor less than two Business Days after the date hereof and (y) on or
before 5:00 p.m. New York time on November 7, 2003), in accordance with the
wire instructions given below.

 

The
Company hereby certifies that its representations and warranties in the
Security Agreement are true in all material respects on the date hereof and
will be true on the Disbursement Date, and that no Event of Default has
occurred and is continuing on the date hereof.

 

The
Company further certifies that:

 

B - 1

 

1.             The Redemption will occur on the
Disbursement Date for consideration not in excess of the amount required to
redeem the Existing Notes (as defined in the Indenture) in accordance with the
indenture governing the Existing Notes.

 

2.             The Company will use all amounts
delivered in accordance with this Request solely to pay a portion of the
redemption consideration and related costs and expenses in connection with the
redemption of the outstanding Existing Notes.

 

3.             The Company makes the foregoing
certifications in accordance with the Indenture and Security Agreement but
acknowledges that you have no obligation to monitor our use of any funds
released in connection herewith.

 

B - 2

 

The
undersigned signatory represents and warrants that [he/she] is authorized to
execute this Request on the Company’s behalf and that to the best of [his/her]
knowledge, all of the Company’s certifications herein are true and correct.

 

	
   

  	
  Very
  truly yours,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  KINETIC
  CONCEPTS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
  Wire Instructions:

  	
   

  
	
   

  	
   

  
	
  [to come]

  	
   

  

 

B - 3

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