-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BZw4ABnbc+r0lvHYMUTkb4cELTKz8p0Uuj/sZPKx7aOijuCfgEVkYYO/BDdJO/g8 NsNu2JAYdKG7SBEip7FskQ== 0000950115-96-001430.txt : 19961015 0000950115-96-001430.hdr.sgml : 19961015 ACCESSION NUMBER: 0000950115-96-001430 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19961011 SROS: AMEX SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: NUTRAMAX PRODUCTS INC /DE/ CENTRAL INDEX KEY: 0000818467 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 061200464 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-41183 FILM NUMBER: 96642666 BUSINESS ADDRESS: STREET 1: 9 BLACKBURN DR CITY: GLOUCESTER STATE: MA ZIP: 01930 BUSINESS PHONE: 5082831800 MAIL ADDRESS: STREET 1: ONE MEDIQ PLZ CITY: PENNSAUKEN STATE: NJ ZIP: 08110 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: MEDIQ INC CENTRAL INDEX KEY: 0000350920 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS EQUIPMENT RENTAL & LEASING [7350] IRS NUMBER: 510219413 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: ONE MEDIQ PLZ CITY: PENNSAUKEN STATE: NJ ZIP: 08110 BUSINESS PHONE: 6096656300 MAIL ADDRESS: STREET 1: ONE MEDIQ PLZ CITY: PENNSAUKEN STATE: NJ ZIP: 08110 SC 13D 1 STATEMENT OF OWNERSHIP ------------------------------- OMB APPROVAL ------------------------------- OMB Number: 3235-0145 Expires: October 31, 1997 Estimated average burden hours per response........14.90 ------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D Under the Securities Exchange Act of 1934 (Amendment No. 3)* NUTRAMAX PRODUCTS, INC. --------------------------------------------------------- (Name of Issuer) COMMON STOCK, PAR VALUE $.001 PER SHARE --------------------------------------------------------- (Title of Class of Securities) 67061A 30 0 --------------------------------------------------------- (CUSIP Number) F. Douglas Raymond, III Drinker Biddle & Reath Philadelphia National Bank Building 1345 Chestnut Street Philadelphia, PA 19107 (215) 988-2700 --------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) September 18, 1996 --------------------------------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box |_|. Check the following box if a fee is being paid with the statement |_|, (A fee is not required only if the reporting person (1) has a previous statement on file reporting beneficial ownership of more than five percent of the class of securities described in Item 1; and (2) has filed no amendment subsequent thereto reporting beneficial ownership of five percent or less of such class.) (See Rule 13d-7.) * The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). SCHEDULE 13D - ------------------------- -------------------------- CUSIP No. 67061A 30 0 Page 2 of 8 Pages - ------------------------- -------------------------- - ------------------------------------------------------------------------------- 1 | NAME OF REPORTING PERSON | S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON | MEDIQ Incorporated | IRS Identification No. 51-0219413* - ------------------------------------------------------------------------------- | 2 | CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) |_| | (b) |_| - -------------------------------------------------------------------------------- 3 | SEC USE ONLY | - -------------------------------------------------------------------------------- 4 | SOURCE OF FUNDS* | | 00 - -------------------------------------------------------------------------------- 5 | CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT | TO ITEMS 2(d) OR 2(e) | |_| - -------------------------------------------------------------------------------- 6 | CITIZENSHIP OR PLACE OF ORGANIZATION | | Delaware - -------------------------------------------------------------------------------- | 7 | SOLE VOTING POWER | | | | -0- NUMBER OF SHARES |-----|-------------------------------------- BENEFICIALLY | 8 | SHARED VOTING POWER OWNED BY EACH | | REPORTING PERSON | | 4,037,258 WITH |-----|-------------------------------------- | 9 | SOLE DISPOSITIVE POWER | | | | -0- |-----|-------------------------------------- | 10 | SHARED DISPOSITIVE POWER | | | | 4,037,258 - -------------------------------------------------------------------------------- 11 | AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON | 4,037,258 - -------------------------------------------------------------------------------- 12 | CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN | SHARES* | |_| - -------------------------------------------------------------------------------- 13 | PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) | 47.34% | - -------------------------------------------------------------------------------- 14 | TYPE OF REPORTING PERSON* | CO | - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. The statement on Schedule 13D (the "Original Schedule 13D") dated September 26, 1990 and amended as of August 5, 1991 and September 3, 1991, filed with the Securities and Exchange Commission by MEDIQ Incorporated ("MEDIQ") with respect to beneficial ownership of Common Stock (as herein defined) of Nutramax Products, Inc., which stock is beneficially owned by MEDIQ through its wholly-owned subsidiary, MEDIQ Investment Services, Inc., a Delaware corporation ("MIS"), is hereby amended and restated in its entirety as follows. Item 1. Security and Issuer. This statement relates to the common stock, par value $.001 per share (the "Common Stock"), of NutraMax Products, Inc. (the "Issuer"). The Issuer is a Delaware corporation and has its principal executive offices located at 9 Blackburn Drive, Gloucester, Massachusetts 01930. Item 2. Identity and Background. The Reporting Person for this statement is MEDIQ, a Delaware corporation, with its principal offices at One MEDIQ Plaza, Pennsauken, New Jersey 08110. MEDIQ, through its operating subsidiaries, operates the largest movable critical care and life support medical equipment rental business in the United States, renting a wide variety of equipment for use by acute care hospitals, alternative care facilities, nursing homes and home health care companies. The names, business or residence addresses and present principal occupations of the directors and executive officers of the Reporting Person, each of whom is a United States citizen, is attached on Schedule I. During the last five years neither the Reporting Person nor such persons have been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors); and have not been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction resulting in a judgment, decree of final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. Item 3. Source and Amount of Funds or Other Consideration. On July 25, 1990, MEDIQ acquired 4,931,319 shares of Common Stock as a result of the merger of the Issuer and Aid-Pack, Inc., which was a wholly-owned subsidiary of MEDIQ. On May 1, 1991, MEDIQ returned 144,061 shares of Common Stock to the Issuer pursuant to certain conditions of such merger, resulting in MEDIQ's beneficial ownership being reduced to 4,787,258 shares. On July 31, 1991, MEDIQ transferred record ownership of its shares of Common Stock to MIS. In August, 1991, in connection with a public offering by the Issuer of its Common Stock, MIS sold 750,000 Shares in the public offering. As of the date hereof, MEDIQ has beneficial ownership and MIS has record ownership of 4,037,238 shares of Common Stock. Item 4. Purpose of Transaction. -3- The shares of Common Stock beneficially owned by MEDIQ were acquired for investment purposes. On July 30, 1993, MEDIQ issued its 7 1/2% Exchangeable Subordinated Debentures due 2003 (the "Subordinated Debentures") which are, by their terms, exchangeable into shares of Common Stock of the Issuer owned by MEDIQ at an exchange ratio initially equal to 65.3595 shares of Common Stock of the Issuer for each $1,000 principal amount of Subordinated Debentures exchanged. Of the 4,037,258 shares of Common Stock owned by Seller, 2,254,902 shares are held in escrow (the "Escrowed Shares") for possible exchange with the Subordinated Debentures pursuant to that certain Indenture dated as of July 30, 1993 between MEDIQ and First Fidelity Bank, N.A. Pennsylvania (the "Indenture") and that certain Escrow Agreement dated July 30, 1993 among MEDIQ, MIS and First Fidelity Bank, N.A., Pennsylvania (the "Escrow Agreement"). As of September 30, 1996 there was outstanding $34.5 million in principal amount of Subordinated Debentures. In January, 1995, MEDIQ announced that its board of directors had formed a special committee for the purpose of exploring alternative ways to maximize shareholder value. In March, 1995, MEDIQ announced that the special committee had authorized Lazard Freres & Co. LLC, MEDIQ's investment banker, to solicit offers for MEDIQ and, among other assets, MEDIQ's investment in the Issuer. In June, 1995, the Issuer reported that its board of directors had formed a special committee to explore strategic alternatives for the company. The special committee retained Wasserstein Parella & Co. as financial advisors to seek opportunities for the Issuer to maximize shareholder value. In September, 1996, MEDIQ and MIS (together the "Seller") entered into a Stock Purchase Agreement dated as of September 18, 1996 with the Issuer (the "Stock Purchase Agreement"). Pursuant to the Stock Purchase Agreement, and subject to the conditions set forth therein (including the approval by stockholders of the Issuer, other than Seller, and the receipt by the Issuer of adequate financing), the Issuer has agreed to purchase from Seller all of the shares of the Issuer owned by Seller for a purchase price of $9.00 per share, or $36,335,322 in the aggregate. The purchase price for the Common Stock (other than the Escrowed Shares) will be paid by wire transfer on the Closing Date under the Stock Purchase Agreement and the certificates representing such shares will be transferred to the Issuer at the same time. Pursuant to the Stock Purchase Agreement, the Closing is to occur on December 31, 1996 or such other date mutually agreed upon by MEDIQ, MIS and the Issuer. Seller has agreed to deliver to the Issuer the Escrowed Shares as they are released from escrow under the Indenture and Escrow Agreement. The Issuer will pay for the Escrowed Shares by delivery of its promissory note (the "Note") in the principal amount of $20,294,118, secured by a letter of credit satisfactory to MEDIQ, pursuant to which the Issuer will make prepayments in an amount equal to the -4- purchase price for any of the Escrowed Shares so delivered in lots of no less than 50,000 shares. Unless an event of default occurs under the Note, from and after the Closing Date, Seller will vote the Escrowed Shares in the manner directed by the Issuer and the Issuer will be entitled to receive any and all dividends paid or payable with respect to the Escrowed Shares, other than dividends apportioned to the Escrowed Shares to which MEDIQ is not entitled pursuant to the terms of the Indenture. The number of shares and the purchase price set forth in the Stock Purchase Agreement will be appropriately adjusted for any stock split, reverse stock split, stock dividend or any similar event occurring after the date of the Stock Purchase Agreement but prior to the consummation of the purchase and sale of the Common Stock. The foregoing summary of the Stock Purchase Agreement is qualified in its entirety by reference to the copy of the Stock Purchase Agreement included as Exhibit 99.1 to this Schedule 13D and incorporated herein in its entirety by reference. Item 5. Interest in Securities of the Issuer. (a) and (b) As of the date hereof, MEDIQ is the beneficial owner of 4,037,258 shares of Common Stock. Based upon the Issuer's Report on Form 10-Q for the fiscal quarter ended June 30, 1996, MEDIQ's Common Stock holdings represent approximately 47.34% of the 8,519,952 shares of Common Stock then outstanding. See Schedule 1 hereto for information regarding the directors and executive officers of MEDIQ. (c) and (d) The response to Item 4 is incorporated herein by reference. (e) Not applicable. Item 6. Contracts, arrangements, Understandings or Relationships With Respect to Securities of the Issuer. The Stock Purchase Agreement is included as Exhibit 99.1 to this Schedule 13D and is incorporated herein by reference. See Item 4. In connection with the Subordinated Debentures, MEDIQ has entered into an Indenture and Escrow Agreement, each dated as of July 30, 1993 between MEDIQ and First Fidelity Bank, N.A. Pennsylvania, which are included as Exhibits 99.2 and 99.3 to this Schedule 13D and are incorporated herein by reference, pursuant to which certain of the Subordinated Debentures are, by their terms, exchangeable into shares of stock of the Issuer owned by MEDIQ. See Item 4. In connection with a Credit Agreement between MEDIQ/PRN Life Support Services, Inc., MEDIQ, PRN Holdings, Inc., Banque Nationale de Paris, NationsBank, N.A. and certain other lenders, dated as of October 1, 1996, MEDIQ has pledged all of the shares of the Issuer owned by it, except the Escrowed Shares, to Banque Nationale de Paris for the benefit of the lenders pursuant to a Security Agreement dated -5- as of October 1, 1996, which is included as Exhibit 99.4 to this Schedule 13D and is incorporated herein by reference. Item 7. Material to be Filed as Exhibits. 1. Stock Purchase Agreement dated as of September 18, 1996 among MEDIQ Incorporated, MEDIQ Investment Services, Inc. and NutraMax Products, Inc. 2. Indenture dated as of July 30, 1993 between MEDIQ Incorporated and First Fidelity Bank, N.A. Pennsylvania, which is incorporated herein by reference to Exhibit 4.1 to Registration Statement on Form S-2 No. 33-61724 originally filed April 28, 1993, as amended. 3. Escrow Agreement dated July 30, 1993 among MEDIQ Incorporated, MEDIQ Investment Services, Inc. and First Fidelity Bank, N.A., Pennsylvania. 4. Security Agreement dated as of October 1, 1996 among MEDIQ/PRN Life Support Services, Inc., the Lender Parties party thereto, Banque Nationale de Paris, as Administrative Agent and as Initial Issuing Bank, and NationsBank, N.A., as Documentation Agent. -6- SIGNATURES After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: October 11, 1996 MEDIQ INCORPORATED /s/ Michael F. Sandler ------------------------------ Michael F. Sandler Chief Financial Officer -7-
SCHEDULE I Name, Business or Residence Ownership of Shares of Addresses* Principal Occupation Common Stock of the Issuer - --------------------------- -------------------- -------------------------- Michael J. Rotko, Esquire** Partner, Drinker Biddle & Reath, a -0- Philadelphia National Bank Bldg. law firm and a Director and 1345 Chestnut Street Chairman of MEDIQ Philadelphia, PA 19107-3496 Jacob A. Shipon** Physician, Director of MEDIQ 1,000*** 5200 E. Roosevelt Boulevard Philadelphia, PA 19124 Thomas E. Carroll President and Chief Executive 1,326**** Officer and a Director of MEDIQ and MIS Michael F. Sandler Senior Vice President, Finance and 14,400 Chief Financial Officer and Treasurer and a Director of MEDIQ and a Director of the Issuer Sheldon M. Bonovitz, Esquire Partner, Duane, Morris & 50 Duane, Morris & Heckscher Heckscher, a law firm and a Director 4200 One Liberty Place of MEDIQ Philadelphia, PA 19103 Lionel Felzer Retired; a Director of MEDIQ -0- Breyer Woods 412 Linden Drive Elkins Park, PA 19027 Mark S. Levitan Vice President -- Consulting -0- 529 Spring Mill Road Division, MedQuist Inc. and a Villanova, PA 19085 Director of MEDIQ Jay M. Kaplan Senior Vice President and Chief -0- Financial Officer of MEDIQ/PRN Life Support Services, Inc., Assistant Treasurer of MEDIQ and Vice President and Treasurer of MIS H. Scott Miller President, Strategic Advisors -0- Strategic Advisors International, Inc. and a Director International, Inc. of MEDIQ One Tower Bridge West Conshohocken, PA 19428
* If not otherwise indicated, the business address of each person is One Mediq Plaza, Pennsauken, NJ 08110-1460. ** Mr. Rotko, together with his mother, Bessie G. Rotko, Judith M. Shipon (the spouse of Jacob A. Shipon), John Iskrant and PNC Bank, N.A., are trustees of a Trust which owns 3,570,969 shares of the Common Stock, and 3,570,969 shares of the Preferred Stock of MEDIQ. The Trustees share voting and investment power with respect to such shares. -8- *** Shares are owned jointly by Dr. and Mrs. Shipon. **** Includes 300 shares held by Mr. Carroll's spouse and 716 shares held by Mr. Carroll's children as to which Mr. Carroll disclaims beneficial ownership. -9- EX-99.1 2 STOCK PURCHASE AGREEMENT EXHIBIT 99.1 STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT, dated as of September 18, 1996 (the "Agreement"), among MEDIQ Incorporated, a Delaware corporation ("MEDIQ"), MEDIQ Investment Services, Inc., a Delaware corporation ("MIS" and together with MEDIQ, collectively the "Seller"), and NutraMax Products, Inc., a Delaware corporation (the "Company"). W I T N E S S E T H: WHEREAS, Seller owns 4,037,258 shares of Common Stock of the Company (the "NutraMax Shares"); and WHEREAS, 2,254,902 of the NutraMax Shares are held in escrow (the "Escrowed Shares") in support of MEDIQ's 7 1/2% Subordinated Debentures due 2003 (the "Bonds") pursuant to that certain Indenture dated as of July 30, 1993 between MEDIQ and First Fidelity Bank, N.A., Pennsylvania (the "Indenture") and that certain Escrow Agreement dated July 30, 1993 among MEDIQ, MIS and First Fidelity Bank, N.A., Pennsylvania (the "Escrow Agreement"); and WHEREAS, the Seller desires to sell and the Company desires to purchase all of the NutraMax Shares in accordance with the terms and conditions hereof; and WHEREAS, pursuant to Section 11.14 of the Indenture, MEDIQ has the right to deliver cash in lieu of the Escrowed Shares upon exchange of the MEDIQ Bonds. NOW, THEREFORE, in consideration of the mutual promises and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties, the parties hereto agree as follows: 1. SALE OF THE SHARES 1.1 On the dates and in the amounts as set forth herein, the Seller shall transfer, assign, sell and deliver to the Company, and the Company shall purchase from the Seller all of the NutraMax Shares for a purchase price of $9.00 per share (the "Purchase Price"), or $36,335,332 in the aggregate for all Shares. The closing of the sale and purchase and delivery of all of the Shares other than the Escrowed Shares (the "Closing") shall be held as provided in Section 1.2 and thereafter the sale and purchase and delivery against payment of the Note (as hereinafter defined) of Escrowed Shares shall occur as provided in Section 1.3. 1.2 Closing. The Closing of the purchase and sale of the NutraMax Shares (other than the Escrowed Shares) shall be held on December 31, 1996 or such other date as Seller and the Company may mutually agree (the "Closing Date"). At the Closing (i) the purchase price for the NutraMax Shares other than the Escrowed Shares shall be paid by the Company by wire transfer pursuant to instructions previously given by Seller to the Company for that purpose against delivery of certificates for the NutraMax Shares so purchased duly endorsed or accompanied by stock powers duly executed in blank; (ii) payment for the Escrowed Shares shall be made by delivery by the Company to Seller of a promissory note of the Company in favor of Seller substantially in the form attached hereto as Exhibit A, in the original principal amount of $20,294,118 (the "Note") secured by a letter of credit reasonably acceptable in form and substance to Seller (the "Letter of Credit"). 1.3 Delivery of Escrowed Shares. Seller shall, as Escrowed Shares are released from escrow under the Indenture and Escrow Agreement, upon 3 business days prior notice to the Company, sell, transfer, assign and deliver such Escrowed Shares to the Company free and clear of all liens, claims, encumbrances and restrictions (other than as imposed by applicable securities laws), upon receipt by Seller from the Company of a prepayment of the Note in an amount equal to the Purchase Price of the Escrowed Shares so delivered. Notwithstanding the foregoing, the Company shall not be required to prepay the Note and accept delivery of any of the Escrowed Shares except in lots of no less than 50,000 shares; provided, however, if there are less than 50,000 Escrowed Shares remaining, the Company shall be required to prepay the Note upon delivery of such remaining Escrowed Shares. 1.4 Delivery of Cash. To the extent that any holder of a MEDIQ Bond or Bonds presents such MEDIQ Bond or Bonds for exchange for Escrowed Shares in accordance with the terms of the Indenture and MEDIQ delivers Escrowed Shares to such holder, (i) the principal amount of the Note shall be reduced by an amount equal to the product of the number of Escrowed Shares so delivered by MEDIQ to such holder and $9.00, and (ii) the principal amount of the Note shall further be reduced by an amount (the "Excess Cash Amount") equal to the product of the number of Escrowed Shares so delivered by MEDIQ to such holders and the number which is equal to (X) $1,000 divided by the then Exchange Rate (as such term is defined in the Indenture) minus (Y) $9.00, provided, however, that in lieu of such further reduction in the principal amount of the Note under the foregoing clause (ii), the Company may elect to receive an amount in cash from Seller equal to the Excess Cash Amount. 1.5 Voting of Escrowed Shares, etc. Seller agrees that, from and after the Closing, (i) at any meeting of stockholders of the Company, however called, or in connection with a written consent of the Company's stockholders, Seller shall vote (or cause to be voted) the Escrowed Shares in the manner directed by the Company and (ii) the Company shall be entitled to receive any and all dividends paid or payable with respect to the Escrowed Shares (other than dividends apportioned to the Escrowed Shares pursuant to Section 11.05 of the Indenture to which Seller is not entitled); provided, however, that the obligations of Seller under the foregoing clause (i) and the right of the Company to receive dividends pursuant to the foregoing clause (ii) shall terminate upon an event of default under the Note. 2. CERTAIN REPRESENTATIONS AND WARRANTIES 2.1 Certain Representations and Warranties by the Seller. The Seller represents and warrants to the Company that: 2 (a) Organization and Good Standing. Each Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all necessary corporate power and authority to carry on its business and to own and lease the assets which it owns and leases. (b) Power and Authorization. Each Seller has full legal right, power and authority to enter into and perform its obligations under this Agreement and the other agreements and documents required to be delivered by it hereunder. The execution, delivery and performance by each Seller of this Agreement and such other agreements and documents have been duly authorized by all necessary corporate action on the part of Seller. This Agreement has been duly and validly executed and delivered by each Seller and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms. When executed and delivered by such Seller as contemplated herein, each of such other agreements and documents shall constitute the legal, valid and binding obligation of each Seller, enforceable against it in accordance with its terms. (c) No Conflicts. (i) Neither the execution of this Agreement nor the consummation by each Seller of the transactions contemplated hereby will constitute a violation of or default under, or conflict with, any statute or regulation, contract, commitment, agreement, understanding, arrangement or restriction of any kind to which such Seller is a party or by which it or any of its properties are bound (which, in relation to a contract, commitment, agreement, understanding, arrangement or restriction would have a material adverse effect on the Seller or prohibit the transactions contemplated herein) and (ii) no consent, approval, order or authorization of any court, administrative agency, other governmental entity or any other person is required (as opposed to voluntary) by or with respect to such Seller in connection with the execution and delivery of this Agreement by such Seller. (d) Ownership of Shares. (i) Upon transfer and delivery of the NutraMax Shares by the Seller hereunder to the Company, as provided herein, Company shall acquire good and marketable title to such shares, free and clear of all claims, liens, charges, proxies, encumbrances and security interests and (ii) the Seller does not own beneficially (as hereinafter defined) or of record any shares of common stock of the Company other than the NutraMax Shares. (e) No Broker. Neither Seller nor any director, officer, employee of Seller has incurred or will incur on behalf of the Company any brokerage, finder's or similar fee in connection with the transactions contemplated by this Agreement. 2.2 Certain Representations and Warranties by the Company. The Company represents and warrants to the Seller that: (a) Organization and Good Standing. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and 3 has all necessary corporate power and authority to carry on its business and to own and lease the assets which it owns and leases. (b) Power and Authorization. The Company has legal right, power and authority to enter into and perform its obligations under this Agreement and the other agreements and documents required to be delivered by it hereunder. The execution, delivery and performance by the Company of this Agreement and such other agreements and documents have been duly authorized by all necessary corporate action pursuant to the Delaware General Corporation Law and otherwise. The transactions contemplated by this Agreement have been approved by a special committee of the board of directors composed entirely of directors who are not officers or employees of the Company and/or present or former employees or consultants of MEDIQ. This Agreement has been duly and validly executed and delivered by the Company and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms. When executed and delivered as contemplated herein, each of such other agreements and documents shall constitute the legal, valid and binding obligation of the Company, enforceable against it in accordance with its terms. (c) No Conflicts. (i) Neither the execution of this Agreement nor the consummation by the Company of the transactions contemplated hereby will constitute a violation of or default under, or conflict with, any statute or regulation, contract, commitment, agreement, understanding, arrangement, obligation, duty or restriction of any kind to which the Company is a party or by which it or any of its properties is bound and (ii) no consent, approval, order or authorization of or by the stockholders of the Company or of any court, administrative agency, other governmental entity or any other person (other than that which has already been obtained) is required (as opposed to voluntary) by or with respect to the Company in connection with the execution and delivery of this Agreement by it. (d) Company SEC Documents. The Company has timely filed with the Securities and Exchange Commission (the "SEC"), and has heretofore delivered to Seller true, correct and complete copies of, all forms, reports, schedules, statements and other documents required to be filed with the SEC by it since December 31, 1993 pursuant to the Securities Exchange Act of 1934 (the "Exchange Act") or the Securities Act of 1933 (the "Securities Act") (such documents, as supplemented and amended since the time of filing, collectively, the "NutraMax SEC Documents"). The NutraMax SEC Documents, including, without limitation, any financial statements or schedules included therein, at the time filed (and in the case of registration statements and proxy statements, on the dates of effectiveness and the date of mailing, respectively) (a) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated herein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and (b) complied in all material respects with the applicable requirements of the Exchange Act and the Securities Act, as the case may be. The financial statements of the Company included in the NutraMax SEC Documents at the time filed (and, in the case of registration statements and proxy statements, on the date of effectiveness and the date of mailing, respectively) complied as to form in all material respects with applicable accounting requirements and with the 4 published rules and regulations of the Commission with respect thereto, were prepared in accordance with generally accepted accounting principles applied on a consistent basis during the period involved (except as may be indicated in the notes thereto or, in the case of unaudited statements, as permitted by Form 10-Q of the Commission), and fairly present (subject in the case of unaudited statements to normal, recurring audit adjustments) the consolidated financial position of the Company as at the dates thereof and the consolidated results of its operations and cash flows for the periods then ended. (e) Capitalization. The Company's authorized issued and outstanding capital stock and its other securities are fully and accurately described in the Company's most recent SEC reports. Except for shares subject to the Company's employee stock option and similar employee benefits plans, no person has any preemptive or other similar rights and with respect to any such equity interests or other securities and there are no offers, options, warrants, rights, agreements or commitments of any kind (contingent or otherwise) relating to the issuance, conversion, registration, voting, sale or transfer of any equity interests or other securities of the Company (including, without limitation, the NutraMax Shares) or obligating the Company or any other person to purchase or redeem any such equity interests or other securities. (f) No Brokers. Neither the Company nor any director, officer or employee of the Company has incurred or will incur on behalf of the Company, any brokerage, finder's or similar fee in connection with the transactions contemplated by this Agreement. 3. CONDITIONS PRECEDENT 3.1 Mutual Condition. The obligation of the Company and the Seller to enter and consummate the transactions contemplated hereby is subject to the satisfaction of the following condition: the transactions contemplated hereby shall not violate any order or decree of any court or governmental body of competent jurisdiction and no suit, action, proceeding or investigation shall have been brought or threatened by any person (other than Seller or the Company) which questions the validity or legality of this Agreement or any of the transactions contemplated hereby. 3.2 Certain Conditions Precedent to the Company's Obligations. The obligation of the Company to enter into and complete the transactions contemplated hereby is subject to the fulfillment (or waiver in writing by the Company in its sole discretion) on or prior to the Closing Date of the conditions that: (a) the representations and warranties of the Seller contained in this Agreement shall be true and correct in all material respects on and as of the date hereof and on the Closing Date with the same force and effect as though made on and as of the Closing Date; 5 (b) the Seller shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by the Seller on or prior to the Closing Date; (c) the Seller shall have delivered to the Company a certificate, dated the Closing Date and signed by a duly authorized officer of the Seller, to the foregoing effect; and (d) the Company shall have received financing upon terms and for such amount necessary to fulfill its obligations hereunder. (e) Seller shall have delivered to the Company an opinion of counsel to the Seller as to the matters set forth in Section 2.1(a), (b), (c) and (d) hereof (provided that with respect to Sections 2.1(c) and (d) the opinion need only relate to such factual matters as to which such counsel has knowledge. (f) the Company shall have received a favorable vote of its shareholders other than Seller with respect to the consummation of the transactions contemplated by this Agreement. (g) the Board of Directors of the Company shall have received a fairness opinion from an internationally recognized investment banking firm to the effect that the transactions contemplated by this Agreement are fair from a financial point of view to the Shareholders of the Company (other than the Seller). (h) the Board of Directors of the Seller shall have received a fairness opinion from an internationally recognized investment banking firm to the effect that the transactions contemplated by this Agreement are fair from a financial point of view to the shareholders of the Seller. 3.3 Certain Conditions Precedent to Seller's Obligations. The obligation of the Seller to enter into and complete the transactions contemplated hereby is subject to the fulfillment (or waiver in writing by the Seller in its sole discretion) on or prior to the Closing Date of the conditions that: (a) the representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects on and as of the date hereof and on the Closing Date with the same force and effect as though made on and as of the Closing Date; (b) the Company shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complete with the by the Company on or prior to the Closing Date; (c) the Company shall have delivered to Seller a certificate, dated the Closing Date and signed by a duly authorized officer of the Company, to the foregoing effect; 6 (d) the Company shall have obtained at its own expense and provided to Seller the Letter of Credit securing its obligations under the Note; and (e) the Company shall have delivered to Seller an opinion of counsel to the Company as to the matters set forth in Section 2.2(a), (b), (c) hereof (provided that with respect to Section 2.2(c) the opinion need only relate to agreements as to which such counsel has knowledge). (f) the Company shall have received a favorable vote of its shareholders other than Seller with respect to the consummation of the transactions contemplated by this Agreement. (g) the Board of Directors of the Company shall have received a fairness opinion from an internationally recognized investment banking firm to the effect that the transactions contemplated by this Agreement are fair from a financial point of view to the Shareholders of the Company (other than the Seller). (h) the Board of Directors of the Seller shall have received a fairness opinion from an internationally recognized investment banking firm to the effect that the transactions contemplated by this Agreement are fair from a financial point of view to the shareholders of the Seller. 4. CLOSING DELIVERIES 4.1 Seller's Deliveries. At the Closing, Seller shall deliver, or shall cause to be delivered to the Company the following: (a) certificates for all of the NutraMax Shares other than the Escrowed Shares, duly endorsed or accompanied by stock powers duly executed in blank; (b) an irrevocable proxy authorizing the Board of Directors of the Company to vote all of the Escrowed Shares, in form and substance reasonably satisfactory to the parties; provided that such proxy shall terminate upon an event of default under the Note; (c) copies of the resolutions of the Board of Directors of each Seller authorizing the execution, delivery and performance of this Agreement, certified as of the Closing by the Secretary or an Assistant Secretary of Seller; and (d) such other documents and instruments as the Company may reasonably request to effectuate or evidence the transactions contemplated by this Agreement; 4.2 The Company's Deliveries. At the Closing, the Company shall deliver, or shall cause to be delivered to Seller the items described below: 7 (a) the Closing Payment; (b) the Note; (c) the Letter of Credit; and (d) a copy of the resolutions of the Board of Directors of the Company and each committee thereof authorizing the execution, delivery and performance by the Company of this Agreement and the other agreements and instruments referred to herein, certified as of the Closing by the Secretary or an Assistant Secretary of the Company. 5. INDEMNIFICATION 5.1 Indemnification by Seller. Seller shall indemnify and hold the Company and its officers, directors and shareholders harmless against and in respect of any and all losses, costs, expenses, claims, damages, obligations and liabilities, including interest, costs of investigation, penalties and reasonable attorneys' fees and disbursements ("Damages") which Buyer or any such person may suffer, incur or become subject to arising out of, based upon or otherwise in respect of any inaccuracy in or breach of any representation or warranty of Seller made in or pursuant to this Agreement or any agreement or document required to be delivered pursuant to this Agreement or any breach or nonfulfillment of any covenant or obligation of Seller contained in this Agreement or such other agreements and documents. 5.2 Indemnification by the Company. The Company shall indemnify and hold Seller and its officers, directors and shareholders harmless against and in respect of any and all Damages which Seller or any such person may suffer, incur or become subject to arising out of, based upon or otherwise in respect of any inaccuracy in or breach of any representation or warranty of the Company made in or pursuant to this Agreement or any agreement or document required to be delivered pursuant to this Agreement or any breach or nonfulfillment of any covenant or obligation of the Company contained in this Agreement or such other agreements and documents. 5.3 Third Party Claims. (a) Each party shall promptly notify the other of the assertion by any third party of any claim with respect to which the indemnification set forth in this Section relates. The indemnifying party shall have the right, upon notice to the indemnified party within ten (10 business days after the receipt of any such notice, to undertake the defense of or, with the consent of the indemnified party (which consent shall not unreasonably be withheld), to settle or compromise such claim. The failure of the indemnifying party to give such notice and to undertake the defense of or to settle or compromise such a claim shall constitute a waiver of the indemnifying party's rights under this Section 5.3(a) and in the absence of gross negligence or willful misconduct on the part of the indemnified party shall preclude the indemnifying party from disputing the manner in which the indemnified party may conduct the defense of such claim or the reasonableness of any amount paid by the indemnified party in satisfaction of such claim. 8 (b) The election by the indemnifying party, pursuant to Section 5.3(a), to undertake the defense of a third party claim shall not preclude the party against which such claim has been made also from participating or continuing to participate in such defense, so long as such party bears its own legal fees and expenses for so doing. 6. MISCELLANEOUS 6.1 Best Efforts. Each of the parties shall use its best reasonable efforts to take all action and do all things necessary, proper or advisable to consummate the transaction contemplated by this Agreement. 6.2 Parties in Interest; Assignment. Neither of the parties to this Agreement may assign any of its rights or obligations under this Agreement without the prior written consent of the other party hereto, provided that Seller may pledge, assign or otherwise transfer part or all of its interest in and to the Note without such consent. Subject to the foregoing, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns. 6.3 Entire Agreement; Amendments; Waiver. This Agreement contains the entire understanding between the Seller and the Company with respect to its specific subject matter. This Agreement may be amended only by written instrument duly executed by the parties hereto. No party may waive any term, provision, covenant or restriction of this Agreement except by duly signed writing referring to the specific provision to be waived. 6.4 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be delivered personally or transmitted by telex, fax or telegram, to the respective parties as follows: (a) If to the Seller, to it at: MEDIQ Incorporated One MEDIQ Plaza Pennsauken, New Jersey 08110-1460 Attention: Thomas E. Carroll, President Telecopier: (609) 661-0958 with a copy to: Drinker, Biddle & Reath Philadelphia National Bank Building 1345 Chestnut Street Philadelphia, Pennsylvania 19107-3496 Attention: F. Douglas Raymond, III, Esquire Telecopier: (215) 988-2757 9 (b) If to the Company, to it at: NutraMax Products, Inc. 9 Blackburn Drive Gloucester, Massachusetts 01930 Attention: Donald E. Lepone, President Telecopier: 508-281-7824 with a copy to: Goodwin, Procter & Hoar Exchange Place Boston, Massachusetts 02109 Attention: Richard E. Floor, P.C. Telecopier: 617-570-8150 or to such other address as any party may have furnished to the others in writing. 6.5 Governing Law. This Agreement will be governed by and construed in accordance with the internal laws of the State of Delaware. 6.6 Survival. All representations, warranties, covenants and agreements of the parties hereto shall survive indefinitely the Closing. 6.7 Termination. (a) This Agreement may be terminated and the transactions contemplated herein may be abandoned at any time prior to the Closing: (i) by Company or Seller, if the Closing has not occurred by December 31, 1996; (ii) by mutual consent of Company and Seller; (iii) by Company, if any representation or warranty of Seller made in or pursuant to this Agreement is untrue or incorrect in any material respect, Seller breaches its covenants or other terms of this Agreement or any of the conditions precedent to Closing contained in Section 3.2 are not satisfied on or before December 31, 1996; or any event or circumstance occurs such that any of such conditions will not be satisfied as of such date; or (iv) by Seller, if any representation or warranty of Company made in or pursuant to this Agreement is untrue or incorrect in any material respect, Company breaches the covenants or other terms of this Agreement or any of the conditions precedent to Closing contained in Section 3.3 are not satisfied on or before December 31, 1996 or any 10 event or circumstance occurs such that any of such conditions will not be satisfied as of such date. (b) A party terminating this Agreement pursuant to Section 6.7 shall give written notice thereof to each other party hereto, whereupon this Agreement shall terminate and the transactions contemplated hereby shall be abandoned without further action by any party; provided, however, that if such termination is pursuant to Section 6.7(a)(i) by reason of a breach by a party hereto, such termination is by Company pursuant to Section 6.7(a)(iii) or if such termination is by Seller pursuant to Section 6.7(a)(iv), nothing herein shall affect the non- breaching party's right to damages on account of such other party's breach. 6.8 Specific Performance. The Seller acknowledges that the NutraMax Shares are unique and that the Company will not have an adequate remedy at law if the Seller fails to perform any of its obligations hereunder, and the Seller agrees that the Company shall have the right, in addition to any other right it has, to specific performance or equitable relief by way of injunction if the Seller fails to perform any of its obligations hereunder. 6.9 Counterparts; Headings. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same document. The article and section headings contained herein are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 6.10 Expenses. Each of the parties hereto shall pay the fees and expenses it incurs in connection with this Agreement, other than as a result of the breach hereof by the other party hereto. 6.11 Certain Definitions. For purposes of the Agreement: (a) "beneficially owned" shall have the meaning set forth in Rule 13d-3 promulgated under the Exchange Act, as such Rule is in effect on the date hereof. (b) "business day" means any day which is neither a Saturday or Sunday nor a legal holiday on which banks are authorized or required to be closed in New York, New York or Philadelphia, Pennsylvania. 6.12 Stock Splits, etc. The number of NutraMax Shares and the purchase price therefor specified in this Agreement shall be appropriately adjusted for any stock split, reverse stock split, stock dividend or any similar event occurring after the date hereof and prior to the consummation of the purchase and sale of all such NutraMax Shares. 11 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written. MEDIQ INCORPORATED By: /s/ Michael Sandler ------------------------------ MEDIQ INVESTMENT SERVICES, INC. By: /s/ Michael Sandler ------------------------------ NUTRAMAX PRODUCTS, INC. By: /s/ Donald E. Lepone ------------------------------ PROMISSORY NOTE $20,294,118.00 _____________, 1996 FOR VALUE RECEIVED, NutraMax Products, Inc., a Delaware corporation with its principal place of business at 9 Blackburn Drive, Gloucester, MA 01930 ("Company"), hereby promises to pay to the order of MEDIQ Investment Services, Inc. ("Seller"), a Delaware corporation with its principal place of business c/o MEDIQ Incorporated ("MEDIQ"), One MEDIQ Plaza, Pennsauken, NJ 08110-1460, the principal amount of TWENTY MILLION TWO HUNDRED NINETY-FOUR THOUSAND ONE HUNDRED EIGHTEEN DOLLARS ($20,294,118.00) in installments as Escrowed Shares (as defined in that certain Stock Purchase Agreement among MEDIQ, Seller and Company, dated as of September 18, 1996 (the "Purchase Agreement")) are released from escrow under the Indenture and the Escrow Agreement (as such terms are defined in the Purchase Agreement) in accordance with Section 1.3 of the Purchase Agreement, together with interest at the annual rate of 7 1/2%, payable quarterly in arrears; provided, however, that (i) if this Note is still outstanding eighteen (18) months after the Closing Date (as such date is defined in the Purchase Agreement), the annual interest rate of this Note shall be reduced to 5%; (ii) if this Note is still outstanding thirty (30) months after the Closing Date, the annual interest rate on this Note shall be reduced to 4%; (iii) if this Note is still outstanding forty-two (42) months after the Closing Date, the annual interest rate on this Note shall be reduced to 3%; and (iv) if this Note is still outstanding fifty-four (54) months after the Closing Date, interest shall no longer accrue under this Note. Notwithstanding the foregoing, the outstanding principal amount of this Note is subject to reduction in accordance with the terms of the Purchase Agreement and is subject in all respects thereto. Payments of principal and interest shall be made in lawful money of the United States of America by wire transfer of immediately available funds to Seller at One MEDIQ Plaza, Pennsauken, New Jersey 08110-1460 or at such other place as Seller shall designate to Company in writing. This Note is entitled to be benefits of, and is secured by that certain Letter of Credit issued by ___________________________ (the "Letter of Credit"). The failure of Company to make any payment of principal or interest when due under this Note shall consititute an "Event of Default" hereunder. Upon the occurrence of an Event of Default, Seller may draw on the Letter of Credit to satisfy the obligations of Company hereunder. Payment under this Note is subject to the terms and conditions of the Purchase Agreement, including, without limitation, the delivery of Escrowed Shares to Company pursuant to Section 1.3 thereof. This Note shall inure to the benefit of Seller and its successors and assigns and shall be binding upon Company and its successors and assigns. Subject to applicable law, this Note may be amended, modified and supplemented only by written agreement of both Company and Seller. Any notice, request or other communication pursuant to this Note shall be deemed duly given if delivered pursuant to the notice provisions contained in the Purchase Agreement. No failure or delay on the part of Seller to insist on strict performance of Company's obligations hereunder or to exercise any remedy shall constitute a waiver of Seller's rights in that or any other instance. No waiver of any of Seller's rights shall be effective unless in writing, and any waiver of any default or any instance of non-compliance shall be limited to its express terms and shall not extend to any other default or instance of non-compliance. Company hereby waives presentment, notice of nonpayment or dishonor, protest, notice of protest and all other notices in connection with the delivery, acceptance, performance, default or enforcement of payment of this Note, and hereby waives all notice or right of approval of any extensions, renewals, modifications or forbearances which may be allowed. Company shall pay all reasonable costs and expenses (including attorneys' fees) incurred by Seller relating to the enforcement of this Note. Any provision hereof found to be illegal, invalid or enforceable for any reason whatsoever shall not affect the validity, legality or enforceability of the remainder hereof. If the effective interest rate on this Note would otherwise violate any applicable usury law, then the interest rate shall be reduced to the maximum permissible rate and any payment received by Seller in excess of the maximum permissible rate shall be treated as a prepayment of the principal of this Note. The execution, delivery and performance of this Note shall be governed by and construed in accordance with the laws of the State of Delaware. IN WITNESS WHEREOF, Company has caused this Note to be executed under seal by its duly authorized representatives as of the date set forth above. NUTRAMAX PRODUCTS, INC. By:____________________________ Name: Title: ATTEST: ________________________ EX-99.3 3 ESCROW AGREEMENT EXHIBIT 99.3 MEDIQ INCORPORATED, MEDIQ INVESTMENT SERVICES, INC. and FIRST FIDELITY BANK, N.A. PENNSYLVANIA, as Escrow Agent ESCROW AGREEMENT July 30, 1993 7 1/2% Exchangeable Subordinated Debentures Due 2003 Escrow Agent and its successors as such, the Company, MIS and the Escrow Agent hereby agree as follows: SECTION 1. Deposit. The Company, simultaneously with the execution and delivery of this Agreement, is delivering to the Escrow Agent, irrevocably except as provided in Section 7 hereof, to be held by the Escrow Agent hereunder certificates, registered in the name of the Escrow Agent or its agent or nominee, representing 2,254,902 shares of NutraMax Common Stock. The Company and MIS represent and warrant that MIS has good and lawful title to such shares, that such shares are fully paid and non-assessable, and that such shares are delivered free and clear of any liens, claims, charges and encumbrances. The Escrow Agent hereby acknowledges receipt of such certificates for 2,254,902 shares of NutraMax Common Shares and further acknowledges that it holds and will hold the NutraMax Common Stock and the proceeds thereof pursuant to and in accordance with the terms hereof and of the Indenture. The Company and the Escrow Agent recognize that the holders of the Debentures have an interest in the powers conferred on the Escrow Agent under this Agreement, and, except as provided in Section 8 hereof, such powers may not be revoked, amended or modified without the consent of the holders of at least a majority in principal amount of the Debentures at the time outstanding; provided that no revocation, amendment or modification shall affect adversely the right to exchange any Debentures for NutraMax Common Shares and other Escrowed Property (as defined below) at the then effective Exchange Rate and upon the terms set forth in Article Eleven of the Indebenture or reduce the aforesaid percentage of Debenture the holders of which are required to consent to any revocation, amendment or modification, without the consent of all the holders of all Debentures then outstanding. The shares of NutraMax Common Stock received by the Escrow Agent and retained for the benefit of the holders of the Debentures, together with such other securities, cash and other property as may be held by the Company for delivery to the Escrow Agent or delivered to the Escrow Agent in accordance with the Agreement and the Indenture, are herein sometimes referred to as the "Escrowed Property." SECTION 2. Covenant by Escrow Agent. The Escrow Agent covenants and agrees to hold the Escrowed Property received by it pursuant to this Agreement for the purposes and upon the terms and conditions set forth in the Indenture and this Agreement. SECTION 3. Notification of Adjustment of Exchange Rate; Exchange of Debentures. The Company will notify the Escrow Agent in writing forthwith upon any adjustment of the Exchange Rate, and will, upon request, notify the Escrow Agent in writing of the Market Price (as defined in the Indenture) of the NutraMax Common Stock (or per unit Market Price of any other securities or property which is part of the Escrowed Property) as of any relevant date for the purpose of computing cash adjustments in respect of fractional interests. The Escrow Agent shall be under no duty or responsibility with respect to any such notice except to exhibit such notice from time to time to any holder of Debentures requesting inspection thereof. Upon surrender to the Escrow Agent of any Debenture (or a principal portion thereof which is an integral multiple of $1,000) for exchange in accordance with the terms thereof and of the Indenture, the Escrow Agent shall promptly (i) cause to be delivered, to or on the written order of the person for whose account such Debenture (or portion thereof) was to surrender for exchange, a certificate or certificates representing the number of shares of NutraMax Common Stock (or such other securities, property or cash as shall be added to such shares of NutraMax Common Stock or as such Nutramax Common Stock shall have been changed into as provided in Article 11 of the Indenture) deliverable upon the exchange of any such Debenture (or portion thereof), the property (other than securities or cash), if any, apportioned thereto, a check for any cash apportioned thereto and for any fractional interest in NutraMax Common Stock or other securities or property), (ii) deliver to the Trustee the Debenture so exchanged marked cancelled, and (iii) if only a portion of said Debenture is exchanged, obtain from the Trustee and deliver to or on the order of the person for whose account the Debenture was surrendered for exchange a new Debenture or Debentures for the principal amount thereof not exchanged; provided that if the Company elects to make a cash payment in lieu of exchange of NutraMax, Common Stock pursuant to Section 11.14 of the Indenture and if immediately available funds are simultaneously deposited with the Escrow Agent by the Company, the Escrow Agent shall pay to the holder of the Debentures so surrendered an amount in cash equal to the value of the NutraMax Common Stock for which such Debentures are exchangeable (based on the Market Price was defined in the Indenture) on the date of receipt by the Escrow Agent of the notice of exchange delivered by the holder of Debentures pursuant to Section 11.02 of the Indenture) and as set forth in Section 12 hereof, the Escrow Agent shall deliver to the Company such shares of NutraMax Common Stock which otherwise would have been delivered upon exchange to the holder. -3- In any case in which Section 11.04 of the Indenture shall require that an adjustment of the Exchange Rate be made immediately following a record date, the Escrow Agent may defer delivering to the holder of any Debenture surrendered for exchange after such record date the additional securities and other property deliverable upon such exchange: as a result of such adjustment until such additional securities and other property have been delivered to the Escrow Agent; and, in lieu of the additional securities and other property the delivery of which is so deferred, the Escrow Agent shall deliver to such holder due bills or other appropriate evidence (determined in the sole discretion of the Escrow Agent) of the right to receive such additional securities and other property. SECTION 4. Division of Certificates; Payment of Taxes, Fees and Charges, and Cash Adjustments; Payment of Fractional Interest. The Company shall make, execute and deliver or cause to be made, executed and delivered any and all such instruments end assurances, and take all such further action, as may be reasonably necessary or proper to carry out the intention of or to facilitate the performance of the terms of this Agreement or to secure the rights and remedies hereunder of the holders of the Debentures. The Company shall pay (i) any and all documentary, stamp, transfer or similar taxes that may be payable in respect of the deposit of the shares of NutraMax Common Stock and the transfer or delivery of the Escrowed Property to holders of Debentures upon exchange thereof; (ii) any income or other taxes incurred by the Escrow Agent in its capacity as such for any reason (except for payment or accrual of its own fees); (iii) all out-of-pocket fees or charges of the Escrow Agent in connection with or arising out of the Agreement, the Indenture or any exchange of Debentures in accordance with the terms hereof and thereof; (iv) all cash adjustments in respect of fractions of shares of NutraMax Common Stock or other fractional units of property or other securities which the holders of Debentures may be entitled to receive upon exchange thereof (after giving effect to moneys received by the Escrow Agent from the sale of Escrowed Property for the purpose of paying for such fractional interests); and (v) cash in an amount equal to any losses on investments made pursuant to Section 6 of this Agreement to the extent necessary to maintain on deposit with the Escrow Agent funds equal from time to time to the aggregate amount of cash apportioned to all NutraMax Common Stock at each such time deliverable upon exchange of all Debentures then outstanding. Notwithstanding the foregoing, the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the delivery, upon an exchange of Debentures, of Escrowed Property in a name other than that in which the Debentures so exchanged were registered, and no such transfer or delivery shall be made unless and until the person requesting -4- such transfer has paid to the Company or the Escrow Agent the amount of any such tax or has established, to the satisfaction of the Company, that such tax has been paid. The Escrow Agent shall be authorized to, and, at the Company's direction, shall, sell any shares of NutraMax Common Stock or other securities or property which are part of the Escrowed Property held by it in order to obtain the funds necessary, or anticipated by it to be necessary, for payment of fractional interests with respect to Debentures delivered to it for exchange; provided that after any such sale, the number of shares of NutraMax Common Stock and any such other securities or property remaining on deposit with the Escrow Agent shall be sufficient to allow the exchange of all the then outstanding Debentures for shares of NutraMax Common Stock and other Escrowed Property on the basis of the then applicable Exchange Rate. If a sale of shares of NutraMax Common Stock to make cash payments for fractional shares is not permitted or if the funds obtained from such a sale are insufficient, then the Company shall furnish additional moneys to permit such payment in accordance with Section 11.03 of the Indenture. SECTION 5. Voting of Escrowed Property. The Company shall have the full and unqualified right and power to exercise any rights to vote, or to give consents to take any other action in respect of, its shares of the NutraMax Common Stock or other securities which are part of the Escrowed Property, and the Escrow Agent shall have no duty to exercise any rights. The Escrow Agent or its nominee shall from time to time deliver, or cause to be delivered, to the Company in a timely fashion such proxies as may be necessary or appropriate to permit the Company to vote on each matter submitted to the holders of shares of NutraMax Common Stock of other securities which are part of the Escrowed Property. SECTION 6. Investment of Cash. All cash received and retained by the Escrow Agent under Section 11.05 of the Indenture and Section 13 hereof shall be invested at the direction of the Company in a money market account of a domestic commercial bank, which may include the Trustee, having capital and surplus in exccess of $250 million or in securities issued or guaranteed by the United States of America or any agency or instrumentality thereof, provided that such obligations shall mature by their terms within 12 months following their purchase. The Company will be entitled to receive upon request any net income or gain on such investments, and the Company shall deposit with the Escrow Agent, as additional Escrowed Property, the amount of any losses realized -5- in respect of such investments. The Escrow Agent shall not be responsible for any losses realized with respect to any investment made in accordance with a direction of the Company. SECTION 7. Distribution of Escrowed Property to Company. The Escrow Agent shall cause any Escrowed Property which the Company is entitled to receive under Section 11.05 of the Indenture to be delivered to the Company. SECTION 8. Amendment or Modification of Agreement. The Company and the Escrow Agent may by mutual accord cure any ambiguity or correct or supplement any provision contained herein which may be inconsistent with any other provision contained herein or with any provision of the Indenture. Otherwise, except with respect to an amendment which is for one or more of the following purposes: (1) to evidence the succession of another corporation to the Company and the assumption by any such successor of the covenants of the Company herein contained; (2) to add to the covenants of the Company, for the benefit of the holders of the Debentures, or to surrender any right or power herein conferred upon the Company; (3) to comply with the requirements of Section 11.10 of the Indenture; or (4) to make any other provisions with respect to matters or questions arising under this Agreement or the Indenture so long as such action shall not adversely affect the interest of the holders of the Debentures and provided that the Escrow Agent receives from the Company an Officers' Certificate (as defined in the Indenture) and an opinion of counsel, addressed to Escrow Agent, to the effect that such action will not adversely affect the interest of the holders of the Debentures; This Agreement may not be amended or modified at any time without the written consent of the Escrow Agent, the written consent of the Company and the consent of the holders of not less than a majority of the outstanding aggregate principal amount of the Debentures. No amendment or modification shall adversely affect the right to exchange any Debentures for shares of NutraMax Common Stock and other Escrowed Property at the Exchange Rate and upon the terms set forth in Article 11 of the Indenture or reduce the aforesaid percentage of Debentures the holders of which are required to consent to any amendment or modification, without the consent of all the holders of all Debentures then outstanding. -6- SECTION 9. Duties and Obligations of Escrow Agent. (a) The Escrow Agent shall not at any time be under any duty or responsibility to any holder of Debentures to determine whether any facts exist which may require any adjustments of the Exchange Rate, or with respect the nature or extent of any such adjustment when made, or with respect to the method employed in making such adjustment; and the Escrow Agent may conclusively rely as to all such matters upon the notice furnished by the Company or upon the absence of such notice. The Escrow Agent shall not be accountable with respect to the validity or value (or the kind or amount) of any shares, of NutraMax Common Stock, or of any other securities or other property, which may at any time be issued or delivered upon the exchange of any Debenture; and the Escrow Agent makes no representation with respect thereto. The Escrow Agent shall not be responsible for any failure of the Company to comply with any of its covenants contained in this Agreement or in the Indenture. (b) The Escrow Agent, either directly or through its nominee, shall be under no duty or obligation to enforce, through the institution of legal proceedings or otherwise, any of its rights as the record owner (either directly or through its nominee) of the shares of NutraMax Common Stock or any other Escrowed Property either to secure possession of any cash or other securities or other property or otherwise to assert any rights or claims in the interest of any holder of Debentures, nor shall it be required to make independent inquiry as to as to any matter but can conclusively rely upon such written notice pertaining to the shares of NutraMax Common Stock or other securities or other property as it shall receive from the Company, the Trustee or from the issuer of any, of the securities held by it hereunder; provided that if the Escrow Agent shall be furnished with indemnity, in manner and form satisfactory to it, against losses or expenses which may be sustained or incurred by it in taking such action, the Escrow Agent shall take such action as may be specifically directed in writing by the Company, but the Escrow Agent shall have the right to decline to follow any such direction if it shall be advised by counsel that the actions so directed may not be lawfully taken or if the Escrow Agent shall in good faith determine that such action so directed would be prejudicial to the holders of Debentures. (c) The Escrow Agent shall be obligated to perform only such duties as are herein specifically set forth and shall have no duty or obligation to inquire into than terms or conditions of any other document. The Escrow Agent shall not be liable for any action taken, omitted or suffered by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Agreement, and may conclusively rely and shall be protected in acting or refraining from acting in reliance upon advice of -7- counsel (which need not constitute an Opinion of Counsel, as defined in the Indenture) or upon any certificate, request or other document believed by it to be genuine and to have been signed or presented by the proper party or parties; provided that the Escrow Agent shall not make any payment or deliver any Escrowed Property to the Company until delivery to the Escrow Agent of an Officers' Certificate as to compliance with the conditions precedent provided for in Section 11.05(h) of the Indenture. The Escrow Agent shall not be required to take any action hereunder which, in the opinion of its counsel, will be contrary to law. In the event the Escrow Agent is instructed by the Company to sell any securities (including any shares of Nutramax Common Stock) that constitute Escrowed Property, the Escrow Agent shall be entitled to an opinion of counsel (which counsel is satisfactory to the Escrow Agent), to the effect that the proposed sale of securities will not violate any applicable United States federal or state securities laws. SECTION 10. Sales and Tenders of Escrowed Property. In the event that Article 11 of the Indenture permit the Company to direct the Escrow Agent to sell or tender any Escrowed Property, the Escrow Agent shall sell or tender such Escrowed Property in such manner as shall be set forth in written instructions concerning any such sale or tender which are given by the Company by means of an Officers' Certificate and shall remit the proceeds thereof as provided in such officers, Certificate. Such Officers' Certificate shall demonstrate to the reasonable satisfaction of the Escrow Agent that such sale or tender and such disposition of proceeds is permitted under the Indenture. SECTION 11. Release or Sale of Excess Escrowed Property. To the extent Debentures are repurchased pursuant to Section 3.07 of the Indenture or redeemed pursuant to paragraph 5 of the Debentures, the Company shall be entitled, out of the Escrowed Property held by the Escrow Agent, to receive in a timely fashion such number of shares of NutraMax Common Stock and kind and amount of other Escrowed Property which otherwise would have been deliverable upon exchange to the holder of the repurchased or redeemed Debenture. SECTION 12. Cash Equivalent. In lieu of delivering certificates representing shares of NutraMax Common Stock upon surrender of any Debenture for exchange in accordance with the terms thereof and of the Indenture, the Escrow Agent shall, if so directed by the Company within five Business Days following the receipt by the Escrow -8- Agent and the Company of the holder's notice of exchange, pay to the holder in cash an amount equal to the Market Price (as defined in the Indenture) of the NutraMax Common Stock for which such Debenture is exchangeable, determined as of the date of receipt by the Escrow Agent of the notice of exchange relating to such Debenture plus any cash or other property which the holder of such Debenture shall be entitled to receive in accordance with the terms of the Indenture. Simultaneously with directing the Escrow Agent to make any such cash payment, the Company shall deposit with the Escrow Agent the cash so payable. After depositing the cash payable upon exchange of the Debentures, the Company shall be entitled, out of the Escrowed Property held by the Escrow Agent, to receive in a timely fashion such number of shares of NutraMax Common Stock which otherwise would have been delivered upon exchange to the holder. SECTION 13. Interest Payments, Cash Dividends, Other Distributions and Subscription Rights. Promptly upon its receipt thereof, the Escrow Agent shall deliver to the Company all interest payments on any debt securities held for exchange by the Escrow Agent which are issued in exchange for NutraMax Common Stock pursuant to any merger or consolidation of NutraMax or in connection with the sale of all or substantially all of the assets of NutraMax and cash dividends received with respect to any shares of NutraMax Common Stock held by the Escrow Agent, to the extent that the Company is entitled to receive such dividends pursuant to the terms of the Indenture, in accordance with the terms of the Indenture. To the extent the Company receives any distribution of cash, securities or other property or if subscription rights, options, warrants or similar rights are granted to the Company (with respect to any securities or property held by the Escrow Agent) which, pursuant to the Indenture, are to be delivered (or sold and the proceeds delivered) on exchange of Debentures, the Company shall, except as expressly provided in the preceding paragraph, as soon as reasonably practicable after its receipt thereof, deliver such securities, other property, cash and rights to the Escrow Agent. On instructions of the Company, the Escrow Agent shall sell such rights, options, warrants, securities or other property received by it for cash, which cash proceeds, net of any tax payable by the Company, shall then be held for delivery on exchange of Debentures. SECTION 14. Consolidation, Merger, etc., of the Company and MIS. (a) The Company and MIS hereby covenant and agree that, upon any consolidation or merger, or any sale, assignment -9- transfer, lease, conveyance or other disposition of all or substantially all of its properties or assets other than a consolidation or merger in which the Company or MIS is the continuing corporation, the rights and obligations of the Company and MIS under this Agreement shall be expressly assumed, by a supplemental agreement reasonably satisfactory in form to the Escrow Agent, executed and delivered to the Escrow Agent, by the Person (as defined in the Indenture) formed by such consolidation, or with or into which the Company or MIS shall have merged or to which the assets of the Company or MIS shall have been sold, assigned, transferred, leased, conveyed or otherwise disposed. (b) In the case of any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the Company's or MIS's properties or assets referred to in subsection (a) hereof, and upon the execution and deliver to the Escrow Agent of the supplemental agreement referred to therein by the successor or acquiring Person, such successor or acquiring Person shall succeed to the rights and obligations of and be substituted for the Company or MIS under this Agreement, with the same effect as if such Person had been named herein as that Company or MIS, and in the event of any such sale, assignment, transfer, lease, conveyance or other disposition, the Company or MIS shall be discharged from all obligations and covenants under this Agreement. SECTION 15. Reliance on Information Supplied. The Escrow Agent may conclusively rely on the contents of any Officers' Certificate furnished hereunder and, in delivering any such certificate, the Company may rely on information furnished to the Company by the Escrow Agent as to the quantity and identity of NutraMax Common Stock and other Escrowed Property delivered to holders of Debentures upon exchange thereof. The Escrow Agent will furnish on request to the Company such information as to the Escrow Agent's holdings and as to Escrowed Property delivered to holders of Debentures upon exchange thereof. SECTION 16. Expenses and Indemnification of the Escrow Agent. The Company covenants and agrees to pay to the Escrow Agent from time to time, and the Escrow Agent shall be entitled to, compensation, as mutually agreed by the Company and the Escrow Agent, and the Company will pay or reimburse the Escrow Agent upon its request for all out-of-pocket expenses, disbursements and advances incurred or made by the Escrow Agent in accordance with any of the provisions of this Agreement (including the out-of-pocket compensation and the expenses and disbursements of its counsel and of all persons not regularly in -10- its employ) except any such expense, disbursement or advance as may arise from its gross negligence or misconduct. The Trustee and the holders of the Debentures shall not be liable for any expenses or compensation of the Escrow Agent and no charge shall be made for such expenses or compensation against the Escrowed Property. The Company and MIS hereby agree, jointly and severally, to indemnify the Escrow Agent, its, officers, employees and agents and hold it and them harmless from any and all claims, liabilities, losses, actions, suits, or proceedings at law or in equity, which it or they may incur or with which it or they may be threatened by reason of its acting under this Agreement, except in the case of the Escrow Agent's own willful misconduct or gross negligence; and in connection therewith to indemnify the Escrow Agent, its officers, employees and agents against any and all expenses, including attorneys' fees and expenses and the cost of defending any action, suit or proceeding or resisting any claim. SECTION 17. Resignation or Removal of the Escrow Agent. (a) The Escrow Agent may at any time resign by giving 60 days' written notice of resignation to the Company and the Trustee. The Company may at any time remove the Escrow Agent by giving like written notice of removal to the Escrow Agent and the Trustee. The holders of a majority in principal amount of the Debentures at the time outstanding may at any time remove the Escrow Agent. If the Escrow Agent shall resign or be removed, a successor Escrow Agent, which in each case shall be a bank or trust company having surplus and capital of at least $50,000,000, shall be appointed by the Company by written instrument executed and delivered to the Escrow Agent and to such successor Escrow Agent, a copy of which shall be delivered by the Company to the Trustee. (b) Any resignation or removal of the Escrow Agent and any appointment of a successor Escrow Agent pursuant to any of the provisions of this Agreement shall become effective upon acceptance of appointment by the successor as provided in Section 18 hereof. SECTION 18. Acceptance by Successor Escrow Agent. Any successor Escrow Agent appointed as provided in Section 17 of this Agreement shall execute, acknowledge and offer to the Company and to its predecessor Escrow Agent an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor Escrow Agent shall become effective and such successor Escrow Agent, without any further act, deed or conveyance, shall become vested with all the right, title and interest to all property held hereunder, and all -11- other rights, powers, duties and obligations hereunder, of such predecessor Escrow Agent; but nevertheless such predecessor Escrow Agent shall forthwith deliver to such successor Escrow Agent physical possession of the certificates evidencing the NutraMax Common Stock and of all other Escrowed Property, and such predecessor Escrow Agent shall, on the written request of the Company or such successor Escrow Agent and upon payment of any amounts then due it pursuant to the provisions of Section 16 hereof, execute and deliver to such successor Escrow Agent an instrument transferring to such successor Escrow Agent all right, title and interest hereunder in and to the NutraMax Common Stock and the other Escrowed Property, and all other rights and powers hereunder, of such predecessor Escrow Agent. SECTION 19. Succession by Consolidation, Merger, etc. Any Person into which the Escrow Agent may be merged converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which the Escrow Agent shall be a party, or any Person succeeding to the business of the Escrow Agent, shall be the successor of the Escrow Agent hereunder without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such corporation shall be eligible under Section 17 hereof. SECTION 20. Termination of Agreement. This Agreement shall terminate when the rights of all holders of Debentures under the Indenture to surrender Debentures for exchange pursuant to Article 11 of the Indenture shall have expired or been terminated and when all other obligations of the Company shall have been satisfied under this Agreement, which termination or expiration and satisfaction shall be evidenced by an officer's Certificate of the Company to that effect. Upon termination of this Agreement pursuant to this Section 20, any NutraMax Common Stock and any other Escrowed Property remaining in the hands of the Escrow Agent hereunder which are not required for the exchange of Debentures previously duly surrendered and duly accepted for the exchange shall be delivered by the Escrow Agent to the Company. -12- SECTION 21. Notices. Any notice or communication shall be sufficiently given if in writing and delivered in person or mailed by first-class mail, postage prepaid, addressed as follows: If to the Company: MEDIQ Incorporated One MEDIQ Plaza Pennsauken, New Jersey 08110 Attention: President, with a copy to the legal department If to the Escrow Agent: First Fidelity Bank, N.A., Pennsylvania 123 S. Broad Street Philadelphia, PA 19109 Attention: Corporate Trust Administration The Company or the Escrow Agent by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a holder of Debentures shall be mailed by first-class mail, postage prepaid, to such holder at such holder's address as it appears on the registration books of the registrar for the Debentures and shall be sufficiently given to such holder if so mailed within the time prescribed. Failure to mail any notice or communication to a holder of Debentures or any defect in it shall not affect its sufficiency with respect to other holders of Debentures. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 22. Benefits of Agreement. Nothing in this Agreement or the Debentures, expressed or implied, shall give or be construed to give any person, firm or corporation, other than the parties hereto, the holders of Debentures as such and the Trustee as such holders' representative, any legal or equitable right, remedy or claim under any covenant, condition or provision herein contained, all the covenants, conditions and provisions contained in this Agreement being for the sole benefit of the parties hereto, the -13- holders of the Debentures as such and the Trustee as such holders' representative. SECTION 23. Headings. The headings contained in this Agreement are for convenience of reference only and shall have no effect on the interpretation or operation of this Agreement. SECTION 24. Choice of Laws. This Agreement and the legal relations between the parties hereto shall be governed by and construed in accordance with the laws of the State of New Jersey, without regard to principles of conflicts of laws. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and their respective corporate seals to be affixed hereto by duly authorized officers as of this day and year first above written. MEDIQ INCORPORATED By: /s/ Donald Gleklen -------------------------------- MEDIQ INVESTMENT SERVICES, INC. By: /s/ Donald Gleklen -------------------------------- FIRST FIDELITY BANK, N.A. PENNSYLVANIA, as Escrow Agent By: /s/ George J. Rayzis -------------------------------- -14- EX-99.4 4 SECURITY AGREEMENT EXHIBIT 99.4 SECURITY AGREEMENT SECURITY AGREEMENT dated October 1, 1996 made by the Persons listed on the signature pages hereof and the Additional Grantors (as defined in Section 23(b)) (such Persons so listed and the Additional Grantors being, collectively, the "Grantors") to BANQUE NATIONALE DE PARIS ("BNP"), as administrative agent (the "Administrative Agent") for the Secured Parties (as defined in the Credit Agreement referred to below). PRELIMINARY STATEMENTS. (1) MEDIQ/PRN Life Support Services, Inc., a Delaware corporation (the "Borrower"), has entered into a Credit Agreement dated as of October 1, 1996 (said Agreement, as it may hereafter be amended, supplemented or otherwise modified from time to time, being the "Credit Agreement"), with BNP, as Administrative Agent, NationsBank as Documentation Agent and the Lender Parties party thereto. Capitalized terms used herein and not otherwise defined are used herein as defined in the Credit Agreement. (2) It is a condition precedent to the making of Advances and the issuance of Letters of Credit by the Lender Parties under the Credit Agreement that each Grantor shall have granted the assignment and security interest and made the pledge and assignment contemplated by this Agreement. (3) Each Grantor is the owner of the shares of stock set forth opposite such Grantor's name in Part I of Schedule I hereto and issued by the corporations indicated therein and of the indebtedness set forth opposite such Grantor's name in Part II of Schedule I hereto and issued by the obligors indicated therein. (4) The Borrower has opened a non-interest bearing cash collateral account (the "Asset Sale Blocked Account") with BNP at its office at 499 Park Avenue, New York, New York 10022, Account No. 202506-001-48, in the name of the Borrower but under the sole control and dominion of the Administrative Agent and subject to the terms of this Agreement. (5) The Borrower has opened a non-interest bearing cash collateral account (the "L/C Cash Collateral Account") with BNP at its office at 499 Park Avenue, New York, New York 10022, Account No. 200875-001-77, in the name of the Borrower but under the sole control and dominion of the Administrative Agent and subject to the terms of this Agreement. (6) Each Grantor will derive substantial direct and indirect benefit from the transactions contemplated by the Credit Agreement. 2 NOW, THEREFORE, in consideration of the premises and in order to induce the Lender Parties to make Advances and to issue Letters of Credit under the Credit Agreement and to induce the Hedge Banks to enter into Bank Hedge Agreements with the Borrower from time to time, each Grantor hereby agrees with the Administrative Agent for the ratable benefit of the Secured Parties as follows: SECTION 1. Grant of Security. Each Grantor hereby assigns and pledges to the Administrative Agent for the ratable benefit of the Secured Parties, and hereby grants to the Administrative Agent for the ratable benefit of the Secured Parties a security interest in, the following, in each case, as to each type of property described below, whether now owned or hereafter acquired by such Grantor, wherever located and whether now or hereafter existing (the "Collateral"): (a) All of the following (the "Security Collateral"): (i) the shares of stock set forth opposite such Grantor's name in Part I of Schedule I hereto and issued by the corporations indicated therein (collectively referred to herein as the "Initial Pledged Shares", and together with the shares referred to in clause (iii) below, the "Pledged Shares"), together with the certificates representing such Initial Pledged Shares and all dividends, 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 Initial Pledged Shares; (ii) the indebtedness (whether or not evidenced by instruments) set forth opposite such Grantor's name in Part II of Schedule I hereto and issued by the obligors indicated therein (collectively referred to herein as the "Initial Pledged Debt", and together with the indebtedness referred to in clause (iv) below, the "Pledged Debt") and the instruments (if any) evidencing such Initial Pledged Debt, all security therefor 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 of such Initial Pledged Debt; (iii) all additional shares of stock of any issuer of any Initial Pledged Shares or of any other Loan Party or any Subsidiary of any Loan Party or of any other Person from time to time acquired by such Grantor in any manner, and all additional shares of stock of each other Subsidiary of such Grantor to the extent required pursuant to Section 5.01(m) of the Credit Agreement, together with the certificates representing such additional shares and all dividends, 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; 3 (iv) all additional indebtedness from time to time owed to such Grantor by any obligor of the Initial Pledged Debt (whether or not evidenced by instruments) and the instruments evidencing such indebtedness (if any), and all additional indebtedness owed to such Grantor by any other obligor to the extent required pursuant to Section 5.01(m) of the Credit Agreement, all security therefor 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 of such indebtedness; and (v) within five days after acquiring or organizing any foreign Subsidiary or joint venture or any domestic joint venture, (A) in the case of any foreign Subsidiary or joint venture, 66% of the total outstanding shares or other ownership interests of such Person held by such Grantor and (B) in the case of any domestic joint venture, 100% of the shares or other ownership interests of such Person held by such Grantor; (b) All of the following (collectively, the "Account Collateral"): (i) the L/C Cash Collateral Account, all funds held therein and all certificates and instruments, if any, from time to time representing or evidencing the L/C Cash Collateral Account; (ii) the Asset Sale Blocked Account, all funds held therein and all certificates and instruments, if any, from time to time representing or evidencing the Asset Sale Blocked Account; (iii) all Blocked Accounts (as hereinafter defined), all funds held therein and all certificates and instruments, if any, from time to time representing or evidencing the Blocked Accounts; (iv) all other deposit accounts of such Grantor, all funds held therein and all certificates and instruments, if any, from time to time representing or evidencing such deposit accounts; (v) all Collateral Investments (as hereinafter defined) from time to time and all certificates and instruments, if any, from time to time representing or evidencing the Collateral Investments; (vi) all notes, certificates of deposit, deposit accounts, checks and other instruments from time to time hereafter delivered to or otherwise possessed by the Administrative Agent for or on behalf of such Grantor, 4 including, without limitation, those delivered to or possessed in substitution for or in addition to any or all of the then existing Account Collateral; and (vii) all interest, dividends, 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 the then existing Account Collateral; (c) All of such Grantor's right, title and interest, in and to all equipment in all of its forms (including, without limitation, (i) all adult and infant ventilators, portable volume ventilators, adult, infant, neonatal and fetal monitors, infant apnea monitors, phototherapy units, pediatric aerosol tents, compressors, infusion and suction pumps and poles, incubators, infant warmers, pulse oximeters, sequential compression devices and all other medical equipment of every kind and nature, and (ii) all machinery, equipment, office machinery, furniture, computers, computer hardware, automotive equipment, trucks and motor vehicles), wherever located, all fixtures and all parts thereof and all accessions and additions thereto, parts and appurtenances thereof, substitutions therefor and replacements thereof (any and all such equipment, fixtures, accessions, additions, parts, appurtenances, substitutions and replacements being the "Equipment"); (d) All of such Grantor's right, title and interest, in and to all inventory in all of its forms, wherever located (including, but not limited to, (i) all medical equipment and raw materials and work in process therefor, finished goods thereof and materials used or consumed in the manufacture, production or preparation thereof, (ii) goods in which such Grantor has an interest in mass or a joint or other interest or right of any kind (including, without limitation, goods in which such Grantor has an interest or right as consignee) and (iii) goods that are returned to or repossessed by such Grantor), and all accessions thereto and products thereof and documents therefor (any and all such inventory, accessions, products and documents being the "Inventory"); (e) All of such Grantor's right, title and interest, in and to all accounts, contract rights, chattel paper, instruments, deposit accounts and general intangibles and all other obligations of any kind, now or hereafter existing, whether or not arising out of or in connection with the sale or lease of goods or the rendering of services and whether or not earned by performance (including, without limitation, any rights with respect to workers' compensation or other deposits made by such Grantor and any rights to receive tax refunds or other refunds, reimbursements and payments from any federal, state or local government or any political subdivision, agency or instrumentality thereof), and all rights now or hereafter existing in and to all security agreements, leases and other contracts securing or otherwise relating to any such accounts, contract rights, chattel paper, instruments, deposit accounts, general 5 intangibles or obligations (any and all such accounts, contract rights, chattel paper, instruments, deposit accounts, general intangibles and obligations, to the extent not referred to in clause (a), (b), (f) or (g) of this Section 1, being the "Receivables", and any and all such leases, security agreements and other contracts being the "Related Contracts"); (f) All of such Grantor's right, title and interest in and to each of the agreements listed on Schedule II hereto, and each Hedge Agreement to which such Grantor is now or may hereafter become a party, in each case as such agreements may be amended, supplemented or otherwise modified from time to time (collectively, the "Assigned Agreements"), including, without limitation, (i) all rights of such Grantor to receive moneys due and to become due under or pursuant to the Assigned Agreements, (ii) all rights of such Grantor to receive proceeds of any insurance, indemnity, warranty or guaranty with respect to the Assigned Agreements, (iii) claims of such Grantor for damages arising out of or for breach of or default under the Assigned Agreements and (iv) the right of such Grantor to terminate the Assigned Agreements, to perform thereunder and to compel performance and otherwise exercise all remedies thereunder (all such Collateral being the "Agreement Collateral"); (g) All general intangibles of such Grantor (other than general intangibles for moneys due or to become due which are covered by Section 1(e) above, including, without limitation, (i) all partnership, corporate and other interests in and to any Person (other than any Security Collateral), (ii) all governmental permits, licenses (and any subsequent renewals thereof), franchises, registrations, authorizations and approvals and (iii) all trademarks, trade names, trade styles, trade secrets, service marks, logos, copyrights, patents, patent applications and all licenses, license applications, registrations and good will relating to or associated with any of the foregoing (including, without limitation, all such items listed on Schedule 4.01(ii)); (h) To the extent not otherwise covered above, all of the Borrower's right, title and interest in and to any funds or other property under or pursuant to the 12.125% Indenture, including, without limitation, the Borrower's right to receive monies or U.S. Government Obligations (as defined in the 12.125% Indenture) from the Trustee or the Paying Agent (each such term as defined in the 12.125% Indenture) under or pursuant to the 12.125% Indenture; (i) All proceeds of any and all of the foregoing Collateral (including, without limitation, proceeds that constitute property of the types described in clauses (a) through (i) of this Section 1) and, to the extent not otherwise included, all (i) payments under insurance (whether or not the Administrative Agent is the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason of loss or 6 damage to or otherwise with respect to any of the foregoing Collateral, and (ii) cash; and (j) With respect to any Alternative Lender, the Collateral shall be limited to all of the foregoing Collateral except for Margin Stock Collateral. SECTION 2. Security for Obligations. This Agreement secures, in the case of each Grantor, the payment of all Obligations of such Grantor now or hereafter existing under the Loan Documents, whether direct or indirect, absolute or contingent, including any extensions, modifications, substitutions, amendments and renewals thereof, whether for principal (including reimbursement for amounts drawn under Letters of Credit), interest, premiums, penalties, fees, indemnifications, contract causes of action, costs, expenses or otherwise (all such Obligations secured hereby being the "Secured Obligations"). Without limiting the generality of the foregoing, this Agreement secures, as to each Grantor, the payment of all amounts that constitute part of the Secured Obligations of such Grantor and that would be owed by such Grantor to the Secured Parties under the Loan Documents but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving such Grantor. SECTION 3. Grantors Remain Liable. Anything contained herein to the contrary notwithstanding, (a) each Grantor shall remain liable under the contracts and agreements included in the Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by the Administrative Agent of any of its rights hereunder shall not release any Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral, and (c) no Secured Party shall have any obligation or liability under the contracts and agreements included in the Collateral by reason of this Agreement or any other Loan Document, nor shall any Secured Party be obligated to perform any of the obligations or duties of any Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. SECTION 4. Delivery of Security Collateral, Account Collateral, Agreement Collateral and Receivables. All certificates or instruments representing or evidencing any Security Collateral, Account Collateral, Agreement Collateral or Receivables (and, to the extent requested by the Administrative Agent, representing or evidencing any other Collateral) shall be delivered to and held by or on behalf of the Administrative Agent pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Administrative Agent; provided, however, that this Section 4 shall not apply to any certificate of title representing automotive equipment, trucks and motor vehicles referred to in Section 1(c). Upon and after an Event of Default, the Administrative Agent shall have the right, at any time in its discretion and without notice to any Grantor, to 7 transfer to or to register in the name of the Administrative Agent or any of its nominees any or all of the Security Collateral and Account Collateral, subject only to the revocable rights specified in Section 14(a). In addition, upon and after an Event of Default, the Administrative Agent shall have the right at any time to exchange certificates or instruments representing or evidencing the Security Collateral or Account Collateral for certificates or instruments of smaller or larger denominations. SECTION 5. Maintaining the L/C Cash Collateral Account and the Asset Sale Blocked Account. (a) So long as any Advance shall remain unpaid, any Letter of Credit or Bank Hedge Agreement shall be outstanding or any Lender Party shall have any Commitment under the Credit Agreement: (i) The Borrower will maintain the L/C Cash Collateral Account with BNP. (ii) It shall be a term and condition of the L/C Cash Collateral Account, notwithstanding any term or condition to the contrary in any other agreement relating to the L/C Cash Collateral Account, and except as otherwise provided by the provisions of Section 20, that no amount (including interest on Collateral Investments) shall be paid or released to or for the account of, or withdrawn by or for the account of, the Borrower or any other Person from the L/C Cash Collateral Account. (b) All Excess Cash from Permitted Asset Sales shall be promptly deposited in the Asset Sale Blocked Account. It shall be a term and condition of the Asset Sale Blocked Account, and except as otherwise provided by the provisions of Section 8 and Section 20, that no amount (including interest on Collateral Investments) shall be paid or released to or for the account of, or withdrawn by or for the account of, the Borrower or any other Person from the Asset Sale Blocked Account, provided, however, that so long as no Default has occurred and is continuing, upon the request of the Borrower, such interest shall be released to the Borrower on the last day of each fiscal quarter. The L/C Cash Collateral Account and the Asset Sale Blocked Account shall be subject to such applicable laws, and such applicable regulations of the Board of Governors of the Federal Reserve System and of any other appropriate banking or governmental authority, as may now or hereafter be in effect. SECTION 6. Maintaining the Blocked Accounts. So long as any Advance shall remain unpaid, any Letter of Credit or Bank Hedge Agreement shall be outstanding or any Lender Party shall have any Commitment under the Credit Agreement: (a) Each Grantor shall, to the extent such Grantor shall have at any time an aggregate amount on deposit in excess of $250,000, maintain blocked deposit accounts 8 ("Blocked Accounts") only with banks ("Blocked Account Banks") that have entered into letter agreements in substantially the form of Exhibit A (or such other form as the Administrative Agent and such Grantor shall agree) with such Grantor and the Administrative Agent ("Blocked Account Letters"). (b) At the end of each Business Day, the Grantors required to maintain Blocked Accounts pursuant to the foregoing paragraph shall deposit all cash in Blocked Accounts; provided, however, that the provisions of this Section 6(b) shall not apply to (i) the Citibank Account and payments required to be made thereto and (ii) any deposit account held in the name of the Borrower at PNC Bank for miscellaneous cash receipts and payments thereto so long as the aggregate amount on deposit in such accounts shall not exceed $25,000. (c) Upon any termination of any Blocked Account Letter or other agreement with respect to the maintenance of a Blocked Account by any Grantor required to maintain any Blocked Account pursuant to Section 6(a) or any Blocked Account Bank, such Grantor shall immediately notify all Obligors that were making payments to such Blocked Account to make all future payments to another Blocked Account. Following the occurrence and during the continuance of an Event of Default, such Grantor agrees to terminate any or all Blocked Accounts and Blocked Account Letters upon request by the Administrative Agent. SECTION 7. Investing of Amounts in the L/C Cash Collateral Account and the Asset Sale Blocked Account. If requested by the Borrower, the Administrative Agent will, subject to the provisions of Sections 8 and 20, from time to time (a) invest amounts on deposit in the L/C Cash Collateral Account and the Asset Sale Blocked Account in such Cash Equivalents in the name of the Administrative Agent or as to which all action required by Section 10 shall have been taken as the Borrower may select and the Administrative Agent may approve and (b) invest interest paid on the Cash Equivalents referred to in clause (a) above, and reinvest other proceeds of any such Cash Equivalents that may mature or be sold, in each case in such Cash Equivalents in the name of the Administrative Agent or as to which all actions required by Section 10 shall have been taken as the Borrower may select and the Administrative Agent may approve (the Cash Equivalents referred to in clauses (a) and (b) above being collectively "Collateral Investments"). Interest and proceeds that are not invested or reinvested in Collateral Investments as provided above shall be deposited and held in the L/C Cash Collateral Account or the Asset Sale Blocked Account, as the case may be; provided, however, that so long as no Default has occurred and is continuing, upon the request of the Borrower, such interest deposited and held in the Asset Sale Blocked Account shall be released to the Borrower on the last day of each fiscal quarter. 9 SECTION 8. Release of Amounts. Any amount on deposit in the Asset Sale Blocked Account shall be released by the Administrative Agent in accordance with the terms and conditions set forth in Section 2.16 of the Credit Agreement. SECTION 9. Representations and Warranties. Each Grantor represents and warrants as follows: (a) Such Grantor is the legal and beneficial owner of the Collateral of such Grantor free and clear of any Lien, claim, option or right of others, except for the liens and security interests created under this Agreement or permitted by the Credit Agreement. No effective financing statement or other instrument similar in effect covering all or any part of such Collateral (including, without limitation, accounts and general intangibles relating to the Collateral) or listing such Grantor or any of its Subsidiaries or any trade name of such Grantor or any of its Subsidiaries as debtor with respect to Collateral is on file in any recording office, except such as may have been filed in favor of the Administrative Agent relating to the Loan Documents or as permitted by Section 5.02(a) of the Credit Agreement. (b) The Pledged Shares owned by such Grantor have been duly authorized and validly issued and are fully paid and non-assessable. The Pledged Debt held by such Grantor has been duly authorized, authenticated or issued and delivered, is the legal, valid and binding obligation of the issuers thereof and is not in default. (c) The Initial Pledged Shares owned by such Grantor constitute the percentage of the issued and outstanding shares of stock of the issuers thereof indicated on Schedule I hereto. The Initial Pledged Debt constitutes all of the outstanding indebtedness owed to such Grantor for money borrowed or for the deferred purchase price of property of the issuers thereof. (d) On the date hereof and thereafter on the most recent date on which a revised Schedule III is required to be furnished to the Administrative Agent pursuant to Section 11(d), all of the Equipment and Inventory of such Grantor, other than such Equipment and Inventory as has been rented or leased to such Grantor's customers, is located at the places specified in Schedule III hereto. The chief place of business and chief executive office of such Grantor and the office where such Grantor keeps its records concerning the Receivables, and the original copies of each Assigned Agreement and all originals of all Related Contracts and all chattel paper, if any, that evidence Receivables (other than (i) those delivered to the Administrative Agent and (ii) rental contracts located in the ordinary course of business at the Borrower's branch offices), are located at the address set forth on the signature pages hereto beneath such Grantor's name. Such Grantor has delivered to the Administrative Agent the originals of all agreements, certificates or instruments representing or 10 evidencing any Collateral and all security therefor and guaranties thereof, in each case to the extent that the delivery thereof to the Administrative Agent is required under Section 4 above. None of the Receivables or Agreement Collateral is evidenced by a promissory note or other instrument that is required to be delivered to the Administrative Agent hereunder and has not been so delivered (other than promissory notes issued to the Borrower with respect to amounts due to the Borrower, in the ordinary course of business on a basis consistent with current practice). (e) The Assigned Agreements to which such Grantor is a party, true and complete copies of which have been furnished to each Lender Party, have been duly authorized, executed and delivered by all parties thereto, have not been amended or otherwise modified, are in full force and effect and are binding upon and enforceable against all parties thereto in accordance with their terms. There exists no default under any Assigned Agreement to which such Grantor is a party by any party thereto. Each party to any Assigned Agreement to which such Grantor is a party (other than such Grantor) has executed and delivered to such Grantor a consent, in substantially the form of Exhibit B hereto or otherwise in form and substance satisfactory to the Administrative Agent, to the assignment of the Agreement Collateral to the Administrative Agent for the benefit of the Secured Parties pursuant to this Agreement. (f) Such Grantor has no Blocked Accounts or other deposit accounts other than the Blocked Accounts listed on Part I of Schedule V hereto and the other deposit accounts listed on Part II of Schedule V hereto. Each Grantor has instructed all existing Obligors to make all payments to a Blocked Account to the extent required by the terms hereof. (g) This Agreement, the pledge of the Security Collateral pursuant hereto and the pledge and assignment of the Account Collateral pursuant hereto create in favor of the Administrative Agent for the benefit of the Secured Parties a valid and perfected security interest in the Collateral of such Grantor, securing the payment of the Secured Obligations of such Grantor, and all filings and other actions necessary or desirable to perfect and protect such security interest have been duly taken. Such security interest is subject in priority only to (i) the lien imposed on the Collateral pursuant to the 12.125% Indenture as in effect on the date of the Initial Extension of Credit, (ii) the existing lien of Meridian Bank on the promissory note issued by Medifac, Inc. to MEDIQ, (iii) the existing lien of Meridian Bank on the promissory note issued by Granary Partners, L.P. to MEDIQ, and (iv) the prior liens permitted under Section 5.02(a) of the Credit Agreement. Upon the release of the liens referred to in the foregoing clauses (i), (ii), (iii) and (iv), such security interest shall be a first priority security interest. 11 (h) Such Grantor has no trade names except as set forth on Schedule IV hereto; such trade names were adopted in good faith; and, to the best of such Grantor's knowledge, there exist no adverse claims against such trade names as of the Closing Date. (i) No consent of any other Person and no authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or other Person is required (i) for the grant by such Grantor of the assignment and security interest granted hereby, for the pledge by such Grantor of any Security Collateral hereunder or for the execution, delivery or performance of this Agreement by such Grantor, (ii) for the perfection or maintenance of the pledge, assignment and security interest created hereunder (including the first priority nature of such pledge, assignment and security interest, except as otherwise permitted), except for the filing of financing and continuation statements under the Uniform Commercial Code, which financing statements have been duly filed, or (iii) for the exercise by the Administrative Agent of its voting or other rights provided for in this Agreement or the remedies in respect of the Collateral pursuant to this Agreement, except as may be required in connection with the disposition of any portion of the Security Collateral by laws affecting the offering and sale of securities generally. (j) There are no conditions precedent to the effectiveness of this Agreement that have not been satisfied or waived. (k) Such Grantor has, independently and without reliance upon any Secured Party and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement, and such Grantor has established adequate means of obtaining from any other Loan Parties on a continuing basis information pertaining to, and is now and on a continuing basis will be completely familiar with, the financial condition, operations, properties and prospects of such other Loan Parties. SECTION 10. Further Assurances. (a) Each Grantor agrees that from time to time, at the expense of such Grantor, such Grantor will promptly execute and deliver all further instruments and documents, and take all further action, that such Grantor believes may be necessary or desirable, or that the Administrative Agent may reasonably request, in order to perfect and protect any pledge, assignment or security interest granted or purported to be granted hereby or to enable the Administrative Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, each Grantor will: (i) mark conspicuously (A) each invoice issued in connection with the rental or lease of any Equipment or Inventory, from 60 days after the Initial Extension of Credit, with the following legend: "THIS EQUIPMENT MAY BE SUBJECT TO A SECURITY INTEREST GRANTED TO BANQUE NATIONALE DE PARIS AS 12 ADMINISTRATIVE AGENT" and (B) each Assigned Agreement of such Grantor included in the Collateral, and each of its records pertaining to the Collateral, with a legend, in form and substance satisfactory to the Administrative Agent, indicating that such Collateral is subject to the security interest granted hereby, (ii) if any Collateral shall be evidenced by a promissory note or other instrument (other than promissory notes permitted pursuant to Section 5.02(f)(ix) of the Credit Agreement), deliver and pledge to the Administrative Agent for the benefit of the Secured Parties hereunder such note or instrument duly indorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to the Administrative Agent, (iii) deliver and pledge to the Administrative Agent for the benefit of the Secured Parties hereunder certificates representing the Pledged Shares accompanied by undated stock powers executed in blank and evidence that all other action that the Administrative Agent may deem necessary or desirable in order to perfect and protect the liens and security interests created under this Agreement has been taken and (iv) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as the Administrative Agent may request, in order to perfect and preserve the pledge, assignment and security interests granted or purported to be granted hereunder. (b) Each Grantor hereby authorizes the Administrative Agent to file one or more financing or continuation statements, and amendments thereto, relating to all or any part of the Collateral without the signature of such Grantor where permitted by law. A photocopy or other reproduction of this Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. (c) Each Grantor will furnish to the Administrative Agent from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Administrative Agent may reasonably request, all in reasonable detail. (d) The Borrower will furnish to the Administrative Agent, at any time within six months prior to the fifth anniversary of the date hereof, an opinion of counsel acceptable to the Required Lenders to the effect that all financing or continuation statements have been filed, and all other action has been taken, to perfect and validate continuously from the date hereof the pledge, assignment and security interests granted hereunder (excluding, in the case of perfection, any Collateral in which a security interest may not be perfected by the filing of a financing statement under the Uniform Commercial Code of any jurisdiction). 13 SECTION 11. As to Equipment and Inventory. Each Grantor shall: (a) On the date hereof and thereafter on the most recent date on which a revised Schedule III is required to be furnished to the Administrative Agent pursuant to Section 11(d), all of the Equipment and Inventory of such Grantor, other than such Equipment and Inventory as has been rented or leased to such Grantor's customers, shall be located at the places specified in Schedule III hereto or at such other places in jurisdictions where all action required by Section 10 shall have been taken with respect to such Equipment and Inventory. (b) Cause all of its Equipment and Inventory to be maintained and preserved, as is reasonably required in the conduct of its business, in good working order and condition, excluding (i) ordinary wear and tear and (ii) properties that have become obsolete or no longer fit for their intended purposes, and shall forthwith, or in the case of any loss or damage to any of such Equipment or Inventory as soon as practicable after the occurrence thereof, make or cause to be made all repairs, replacements and other improvements in connection therewith which are necessary or desirable to such end. (c) Pay promptly when due all property and other taxes, assessments and governmental charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, the Equipment and Inventory; provided, however, that such Grantor shall not be required to pay or discharge any such tax, assessment, charge, levy or claim (x) that is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained, or (y) in respect of which the Lien resulting therefrom, if any, attaches to its property and becomes enforceable against its other creditors, to the extent that the aggregate amount of all such taxes, assessments, charges or claims does not exceed $250,000. (d) Furnish to the Administrative Agent, at the same time as the quarterly financial statements are required to be furnished to the Administrative Agent pursuant to Section 5.03(c) of the Credit Agreement, unless no revisions are required, a revised Schedule III specifying each place where the Equipment and Inventory of such Grantor is located excluding such Equipment or Inventory rented or leased to such Grantor's customers. Such revised Schedule III shall be deemed to replace the then existing Schedule III and shall be of full force and effect as of the date of delivery of such Schedule to the Administrative Agent. (e) In the event that Equipment and/or Inventory of the Grantors with a book value equal to or greater than 10% of the aggregate book value of all Equipment and Inventory of the Grantors' is relocated, in one move or in a series of moves, from one county to another, furnish within five Business Days after such relocation 14 notice of such relocation to the Administrative Agent (such notice to include the percentage book value of the relocated Equipment and Inventory and the old and new locations of such Equipment and Inventory). (f) For each leased location at which at any time Equipment and Inventory of the Grantors with a book value equal to or greater than 10% of the aggregate book value of the Equipment and Inventory is located, use its good faith efforts to furnish at such time to the Administrative Agent a landlord access letter or consent on terms and conditions reasonably acceptable to the Administrative Agent. SECTION 12. Insurance. (a) Each Grantor shall, at its own expense, maintain insurance with respect to the Equipment and Inventory in such amounts, against such risks, in such form and with such insurers, as shall be reasonably satisfactory to the Administrative Agent from time to time. Each policy for liability insurance shall provide for all losses to be paid on behalf of the Administrative Agent and such Grantor as their interests may appear, and each policy for property damage insurance shall provide for all losses (except for losses of less than $1,000,000 per occurrence) to be paid directly to the Administrative Agent, except to the extent permitted to be paid to a Grantor pursuant to Section 12(b). Each such policy shall in addition (i) name such Grantor and the Administrative Agent as insured parties thereunder (without any representation or warranty by or obligation upon the Administrative Agent) as their interests may appear, (ii) contain the agreement by the insurer that any loss thereunder shall be payable to the Administrative Agent notwithstanding any action, inaction or breach of representation or warranty by such Grantor, (iii) provide that there shall be no recourse against the Administrative Agent for payment of premiums or other amounts with respect thereto and (iv) provide that at least 10 days' prior written notice of cancellation or of lapse shall be given to the Administrative Agent by the insurer. Each Grantor shall, if so requested by the Administrative Agent, deliver to the Administrative Agent certificates evidencing such insurance, make the original policies of such insurance reasonably available for inspection by the Administrative Agent and, as often as the Administrative Agent may reasonably request, a report of a reputable insurance broker with respect to such insurance. Further, each Grantor shall, at the request of the Administrative Agent, duly exercise and deliver instruments of assignment of such insurance policies to comply with the requirements of Section 10 and cause the insurers to acknowledge notice of such assignment. (b) Reimbursement under any insurance maintained by any Grantor pursuant to this Section 12 may be paid directly to the Person who shall have incurred liability covered by such insurance. In case of any loss involving damage to Equipment or Inventory when subsection (c) of this Section 12 is not applicable, such Grantor shall make or cause to be made the necessary repairs to or replacements of such Equipment or Inventory, and any proceeds of insurance properly received by or released to such Grantor 15 shall be used by such Grantor, except as otherwise required or permitted hereunder or by the Credit Agreement to pay or as reimbursement for the cost of such repairs or replacements. (c) Upon the occurrence and during the continuance of any Event of Default, all insurance payments in respect of such Equipment or Inventory shall be paid to and applied by the Administrative Agent as specified in Section 20(b). SECTION 13. Place of Perfection; Records; Collection of Receivables. (a) Each Grantor shall keep its chief place of business and chief executive office and the office where it keeps its records concerning the Collateral; and the original copies of the Assigned Agreements of such Grantor, and all originals of all chattel paper which evidences or constitutes Receivables (other than rental contracts located in the ordinary course of business at the Borrower's branch offices), at the location therefor specified in Section 9(d) or, upon 30 days' prior written notice to the Administrative Agent, at such other locations in a jurisdiction where all actions required by Section 10 shall have been taken with respect to the Collateral. Each Grantor will hold and preserve such records, Assigned Agreements and chattel paper and will permit representatives of the Administrative Agent at any time during normal business hours to inspect and make abstracts from such records and chattel paper. (b) Except as otherwise provided in this subsection (b), such Grantor shall continue to collect, at its own expense, all amounts due or to become due such Grantor under the Receivables and Related Contracts. In connection with such collections, upon and after an Event of Default, such Grantor may take (and, at the Administrative Agent's direction, shall take) such action as such Grantor or the Administrative Agent may deem necessary or advisable to enforce collection of the Receivables and Related Contracts; provided, however, that the Administrative Agent shall have the right upon the occurrence and during the continuance of an Event of Default and upon written notice to the Borrower of its intention to do so, to notify the Obligors under any Receivables or Related Contracts of the assignment of such Receivables or Related Contracts to the Administrative Agent and to direct such Obligors to make payment of all amounts due or to become due to such Grantor thereunder directly to the Administrative Agent and, upon such notification and at the expense of such Grantor, to enforce collection of any such Receivables or Related Contracts, and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as such Grantor might have done. After receipt by such Grantor of the notice from the Administrative Agent referred to in the proviso to the preceding sentence, (i) all amounts and proceeds (including instruments) received by such Grantor in respect of the Receivables or the Related Contracts shall be received in trust for the benefit of the Administrative Agent hereunder, shall be segregated from other funds of such Grantor and shall be forthwith paid over to the Administrative Agent in the same form as so received (with any necessary indorsement) to be applied as provided by the terms of the Credit Agreement and (ii) such Grantor shall not adjust, settle or compromise the amount or payment of any Receivable, release wholly or partly any obligor thereof, or allow any credit or discount thereon. 16 SECTION 14. Voting Rights; Dividends; Etc. (a) So long as no Default under Section 6.01(a) or (f) of the Credit Agreement or Event of Default shall have occurred and be continuing: (i) Each Grantor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Security Collateral of such Grantor or any part thereof for any purpose not inconsistent with the terms of this Agreement or the other Loan Documents; provided, however, that no Grantor shall exercise or refrain from exercising any such right if, in the Administrative Agent's judgment, such action would have a material adverse effect on the value of the Security Collateral or any part thereof. (ii) Each Grantor shall be entitled to receive and retain any and all dividends and interest paid in respect of the Security Collateral of such Grantor if and to the extent that the payment thereof is not otherwise prohibited by the terms of the Loan Documents; provided, however, that any and all (A) dividends and interest paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Security Collateral, (B) dividends and other distributions paid or payable in cash in respect of any Security Collateral in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in-surplus, and (C) cash paid, payable or otherwise distributed in respect of principal of, or in redemption of, or in exchange for, any Security Collateral, shall be, and shall be forthwith delivered to the Administrative Agent to hold as, Security Collateral except as otherwise required under the Credit Agreement and shall, if received by any Grantor, be received in trust for the benefit of the Administrative Agent, be segregated from the other property or funds of such Grantor and be forthwith delivered to the Administrative Agent as Security Collateral in the same form as so received (with any necessary endorsement). (iii) The Administrative Agent shall execute and deliver (or cause to be executed and delivered) to each Grantor all such proxies and other instruments as such Grantor may reasonably request for the purpose of enabling such Grantor to exercise the voting and other rights that it is entitled to exercise pursuant to paragraph (i) above and to receive the dividends or interest payments that it is authorized to receive and retain pursuant to paragraph (ii) above. 17 (b) Upon the occurrence and during the continuance of any Default under Section 6.01(a) or (f) of the Credit Agreement or Event of Default: (i) All rights of each Grantor (A) to exercise or refrain from exercising the voting and other consensual rights that it would otherwise be entitled to exercise pursuant to Section 14(a)(i) shall, upon notice to such Grantor by the Administrative Agent, cease, and (B) to receive the dividends and interest payments that it would otherwise be authorized to receive and retain pursuant to Section 14(a)(ii) shall automatically cease, and all such rights shall thereupon become vested in the Administrative Agent, which shall thereupon have the sole right to exercise or refrain from exercising such voting and other consensual rights and to receive and hold as Security Collateral such dividends and interest payments. (ii) All dividends and interest payments that are received by any Grantor contrary to the provisions of paragraph (i) of this Section 14(b) shall be received in trust for the benefit of the Administrative Agent, shall be segregated from other funds of such Grantor and shall be forthwith paid over to the Administrative Agent as Security Collateral in the same form as so received (with any necessary endorsement). SECTION 15. As to the Assigned Agreements. (a) Each Grantor shall at its expense: (i) perform and observe all the terms and provisions of the Assigned Agreements to be performed or observed by it, maintain the Assigned Agreements to which it is a party in full force and effect, enforce the Assigned Agreements in accordance with the terms thereof and take all such action to such end as may be requested from time to time by the Administrative Agent; and (ii) furnish to the Administrative Agent promptly upon receipt thereof copies of all notices, requests and other documents received by such Grantor under or pursuant to the Assigned Agreements to which it is a party, and from time to time (A) furnish to the Administrative Agent such information and reports regarding the Assigned Agreements and such other Collateral of such Grantor as the Administrative Agent may reasonably request, and (B) upon request of the Administrative Agent make to each other party to any Assigned Agreement to which it is a party such demands and requests for information and reports or for action as such Grantor is entitled to make thereunder. (b) Each Grantor agrees that it shall perform and observe all of the terms and provisions of each Assigned Agreement to be performed or observed by it, maintain each such Assigned Agreement in full force and effect, enforce such Assigned Agreement in 18 accordance with its terms, take all such action to such end as may be from time to time requested by the Administrative Agent. (c) Each Grantor hereby consents on its behalf and on behalf of its Subsidiaries to the assignment and pledge to the Administrative Agent for the ratable benefit of the Secured Parties of each Assigned Agreement to which it is a party by any other Grantor hereunder. SECTION 16. Transfers and Other Liens; Additional Shares. (a) Each Grantor agrees that it shall not (i) sell, assign (by operation of law or otherwise), lease or otherwise dispose of, or grant any option with respect to, any of the Collateral of such Grantor (other than sales, assignments, options, leases and other dispositions permitted under the terms of the Credit Agreement including, without limitation, Section 5.02(e) of the Credit Agreement) or (ii) create or suffer to exist any Lien upon or with respect to any of the Collateral of such Grantor, except for the Liens created under the Collateral Documents or permitted under the Credit Agreement. (b) Each Grantor agrees that it shall (i) cause each issuer of the Pledged Shares owned by such Grantor not to issue any stock or other securities in addition to or in substitution for the Pledged Shares issued by such issuer, except to such Grantor, and (ii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all additional shares of stock or other securities of each issuer of any Pledged Shares. SECTION 17. Administrative Agent Appointed Attorney-in-Fact. Each Grantor hereby irrevocably appoints for the term that this Agreement is in effect the Administrative Agent such Grantor's attorney-in-fact, with full authority in the place and stead of such Grantor and in the name of such Grantor or otherwise, from time to time in the Administrative Agent's discretion, to take any action and to execute any instrument that the Administrative Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation: (a) to obtain and adjust insurance required to be paid to the Administrative Agent pursuant to Section 12, (b) to ask for, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral, (c) to receive, indorse and collect any drafts or other instruments, documents and chattel paper in connection with clause (a) or (b) above, and 19 (d) to file any claims or take any action or institute any proceedings that the Administrative Agent may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce compliance with the terms and conditions of any Assigned Agreement or the rights of the Administrative Agent with respect to any of the Collateral. SECTION 18. Administrative Agent May Perform. If any Grantor fails to perform any agreement contained herein, the Administrative Agent may, but without any obligation to do so and without further notice, itself perform, or cause performance of, such agreement, and the expenses of the Administrative Agent incurred in connection therewith shall be payable by such Grantor under Section 21. SECTION 19. The Administrative Agent's Duties. The powers conferred on the Administrative Agent hereunder are solely to protect its and the other Secured Parties' interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Administrative Agent shall have no duty as to any Collateral, as to ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Security Collateral, whether or not the Administrative Agent or any other Secured Party has or is deemed to have knowledge of such matters, or as to the taking of any necessary steps to preserve rights against any parties or any other rights pertaining to any Collateral. The Administrative Agent shall be deemed to have exercised reasonable care in the custody and preservation of any Collateral in its possession if such Collateral is accorded treatment substantially equal to that which it accords its own property. SECTION 20. Remedies. If any Event of Default shall have occurred and be continuing: (a) The Administrative Agent may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party upon default under the New York Uniform Commercial Code as in effect at such time (the "Code"), whether or not the Code applies to the affected Collateral, and also may (i) require any Grantor to, and each Grantor hereby agrees that it will at its expense and upon request of the Administrative Agent forthwith, assemble all or part of the Collateral as directed by the Administrative Agent and make it available to the Administrative Agent at a place and time to be designated by the Administrative Agent which is reasonably convenient to both parties; (ii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Administrative Agent's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Administrative Agent may deem 20 commercially reasonable; (iii) occupy any premises owned or leased by any Grantor where the Collateral or any part thereof is assembled or located for a reasonable period in order to effectuate its rights and remedies hereunder or under law, without obligation to such Grantor in respect of such occupation; and (iv) exercise any and all rights and remedies of any Grantor under or in connection with the Assigned Agreements, the Receivables and the Related Contracts or otherwise in respect of the Collateral, including, without limitation, any and all rights of such Grantor to demand or otherwise require payment of any amount under, or performance of any provision of, the Assigned Agreements, the Receivables and the Related Contracts. Each Grantor agrees that, to the extent notice of sale shall be required by law, at least ten days' notice to such Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Administrative Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Administrative Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) Any cash held by the Administrative Agent as Collateral and all cash proceeds received by the Administrative Agent in respect of any sale of, collection from, or other realization upon all or any part of the Collateral may, in the discretion of the Administrative Agent, be held by the Administrative Agent as collateral for, and/or then or at any time thereafter applied (after payment of any amounts payable to the Administrative Agent pursuant to Section 21) in whole or in part by the Administrative Agent for the ratable benefit of the Secured Parties against all or any part of the Secured Obligations as permitted or required by the Credit Agreement. Any surplus of such cash or cash proceeds held by the Administrative Agent and remaining after payment in full of all the Secured Obligations shall be paid over to the Grantor or to whomsoever may be lawfully entitled to receive such surplus. (c) All payments received by any Grantor under or in connection with any Assigned Agreement or otherwise in respect of the Collateral shall be received in trust for the benefit of the Administrative Agent and the other Secured Parties, shall be segregated from other funds of such Grantor and shall be forthwith paid over to the Administrative Agent in the same form as so received (with any necessary endorsement). (d) The Administrative Agent may, without notice to the Borrower except as required by law and at any time or from time to time, charge, set-off and otherwise apply all or any part of the Secured Obligations against the L/C Cash Collateral Account and the Asset Sale Blocked Account or any part thereof. 21 SECTION 21. Indemnity and Expenses. (a) Each Grantor agrees to defend, protect, indemnify and hold harmless each Secured Party from and against any and all claims, losses and liabilities growing out of or resulting from this Agreement (including, without limitation, enforcement of this Agreement), except claims, losses or liabilities resulting from such Secured Party's gross negligence or willful misconduct as determined by a final judgment of a court of competent jurisdiction. (b) Each Grantor will upon demand pay to the Administrative Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, that the Administrative Agent may incur in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from or other realization upon, any of the Collateral of such Grantor, (iii) the exercise or enforcement of any of the rights of the Administrative Agent or any other Secured Party against such Grantor, or (iv) the failure by such Grantor to perform or observe any of the provisions hereof. (c) Without prejudice to the survival of any other agreement of any Loan Party hereunder or under any other Loan Document, the agreements and obligations of the Grantors contained in this Section 21 shall survive the payment in full of principal, interest and all other amounts payable hereunder and under any of the other Loan Documents. SECTION 22. Security Interest Absolute. The obligations of each Grantor under this Agreement are independent of the Secured Obligations, and a separate action or actions may be brought and prosecuted against such Grantor to enforce this Agreement, irrespective of whether any action is brought against the other Grantors or whether the other Grantors are joined in any such action or actions. All rights of the Administrative Agent and the pledge, assignment and security interest hereunder, and all obligations of each Grantor hereunder, shall be absolute and unconditional, irrespective of: (i) any lack of validity or enforceability of any Loan Document, any Hedge Agreement or any other agreement or instrument relating thereto; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from any Loan Document or any Hedge Agreement, including, without limitation, any increase in the Secured Obligations resulting from the extension of additional credit to any Grantor or any of its Subsidiaries or otherwise; (iii) any taking, exchange, release or nonperfection of 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 Secured Obligations; 22 (iv) any manner of application of collateral, or proceeds thereof, to all or any of the Secured Obligations, or any manner of sale or other disposition of any collateral for all or any of the Secured Obligations or any other assets of the Borrower or any of its Subsidiaries; (v) any change, restructuring or termination of the corporate structure or existence of any Grantor or any of its Subsidiaries; or (vi) any other circumstance that might otherwise constitute a defense available to, or a discharge of, such Grantor or a third-party grantor of a security interest. 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 Secured Obligations is rescinded or must otherwise be returned by any Secured Party 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. SECTION 23. Amendments; Waivers; Etc. (a) No amendment or waiver of any provision of this Agreement, and no consent to any departure by any Grantor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Administrative Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure on the part of the Administrative Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. (b) Upon the execution and delivery by any Person of a security agreement supplement in substantially the form of Exhibit C hereto (each a "Security Agreement Supplement"), (i) such Person shall be referred to as an "Additional Grantor" and shall be and become a Grantor and each reference in this Agreement to "Grantor" shall also mean and be a reference to such Additional Grantor, and (ii) the annexes attached to each Security Agreement Supplement shall be incorporated into and become a part of and supplement Schedules I, II, III, IV and V hereto, and the Administrative Agent may attach such annexes as supplements to such Schedules; and each reference to such Schedules shall mean and be a reference to such Schedules as supplemented pursuant hereto. SECTION 24. Addresses for Notices. All notices and other communications provided for hereunder shall be in writing (including telecopier, telegraphic or telex communication) and, mailed, telecopied, telegraphed, telexed or delivered to the Borrower or to the Agent, as the case may be, in each case addressed to it at its address specified in the Credit Agreement or, as to either party at such other address as shall be designated by such 23 party in a written notice to each other party complying as to delivery with the terms of this Section 24. All such notices and other communications shall, when mailed, telecopied, telegraphed, telexed or cabled, respectively, be effective when deposited in the mails, telecopied, delivered to the telegraph company, confirmed by telex answerback or delivered to the cable company, respectively, addressed as aforesaid. SECTION 25. Continuing Security Interest; Assignments. This Agreement shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect until the latest of the cash payment in full of the Secured Obligations, the Termination Date and the termination or expiration of all Bank Hedge Agreements, (b) be binding upon each Grantor, its successors and assigns and (c) inure, together with the rights and remedies of the Administrative Agent hereunder, to the benefit of the Secured Parties and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), any Lender Party 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 Advances owing to it and the Note or Notes 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 Party herein or otherwise, in each case as provided in Section 8.07 of the Credit Agreement. No Grantor shall have the right to assign its rights hereunder or any interest herein without the prior written consent of the Secured Parties. SECTION 26. Release and Termination. (a) Upon any sale, lease, transfer or other disposition of any item of Collateral (including, without limitation, as a result of the sale, in accordance with the terms of the Loan Documents, of the Person that owns such Collateral) in accordance with the terms of the Loan Documents (other than sales or rentals of Equipment and Inventory in the ordinary course of business), the Administrative Agent will, at any Grantor's expense, execute and deliver to such Grantor such documents as such Grantor shall reasonably request to evidence the release of such item of Collateral from the assignment and security interest granted hereby; provided, however, that (i) at the time of such request and such release no Event of Default shall have occurred and be continuing, (ii) the Borrower shall have delivered to the Administrative Agent, at least five Business Days prior to the date of the proposed release, a written request for release describing the item of Collateral and the terms of the sale, lease, transfer or other disposition in reasonable detail, including the price thereof and any expenses in connection therewith, together with a form of release for execution by the Administrative Agent and a certification by the Borrower to the effect that the transaction is in compliance with the Loan Documents and as to such other matters as the Administrative Agent may request and (iii) the proceeds of any such sale, lease, transfer or other disposition required to be applied in accordance with Section 2.06(b)(ii) of the Credit Agreement shall be paid to, or in accordance with the instructions of, the Administrative Agent at the closing. 24 (b) With respect to the sale or other disposition of Equipment or Inventory in the ordinary course of business permitted by the Loan Documents, so long as at the time of such sale no Event of Default shall have occurred and be continuing, such sale or other disposition may be made free from the lien of this Agreement and the other Loan Documents without the necessity of any release from or consent by the Administrative Agent and no purchaser of any such property shall be bound to inquire into any question affecting the right of any Grantor to sell or otherwise dispose of such Equipment or Inventory free from the lien of this Agreement and the Loan Documents. (c) In connection with any sale, lease, transfer or other disposition of all or part of the stock of any Discontinued Subsidiary by any Grantor in accordance with the terms of the Loan Documents, so long as no Event of Default shall have occurred and be continuing and the Borrower shall have delivered to the Administrative Agent, at least five Business Days prior to the date of the such sale, lease, transfer or other disposition, written notice requesting that the certificates held by the Administrative Agent evidencing such stock be delivered to such Grantor, the pledge and assignment of, and security interest in, such stock granted hereby shall be released and such certificates shall be released to such Grantor. (d) Upon the latest of the cash payment in full of the Secured Obligations, the Termination Date and the termination or expiration of all Bank Hedge Agreements, the pledge, assignment and security interest granted hereby shall terminate and all rights to the Collateral shall revert to the Grantors. Upon any such termination, the Administrative Agent will, at the Borrower's expense, execute and deliver to the Borrower such documents as the Borrower shall reasonably request to evidence such termination. SECTION 27. The 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 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. SECTION 28. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 29. Governing Law; Terms. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, except to the extent that the validity or perfection of the security interest hereunder, or remedies hereunder, in 25 respect of any particular Collateral are governed by the laws of a jurisdiction other than the State of New York. Unless otherwise defined herein or in the Credit Agreement, terms used in Article 8 or Article 9 of the Code are used herein as therein defined. IN WITNESS WHEREOF, each Grantor has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. MEDIQ/PRN LIFE SUPPORT SERVICES, INC. By /s/ Jay M. Kaplan --------------------------------- Name: Jay M. Kaplan Title: Senior Vice-President Address of Chief Executive Office and for Notices: One MEDIQ Plaza Pennsauken, NJ 08110 Attention: Chief Financial Officer MEDIQ INCORPORATED By /s/ Michael Sandler --------------------------------- Name: Michael Sandler Title: Senior Vice-President Address of Chief Executive Office and for Notices: One MEDIQ Plaza Pennsauken, NJ 08110 Attention: Chief Financial Officer 26 PRN HOLDINGS, INC. By /s/ Jay M. Kaplan --------------------------------- Name: Jay M. Kaplan Title: Senior Vice-President Address of Chief Executive Office and for Notices: 1403 Faulk Road Suite 102 Wilmington, DE 19803 Attention: Chief Financial Officer MEDIQ INVESTMENT SERVICES, INC. By /s/ Michael Sandler --------------------------------- Name: Michael Sandler Title: Vice President Address of Chief Executive Office and for Notices: 1403 Faulk Road, Suite 102 Wilmington, DE 19803 Attention: Chief Financial Officer MEDIQ MANAGEMENT SERVICES, INC. By /s/ Michael Sandler --------------------------------- Name: Michael Sandler Title: Chief Financial Officer Address of Chief Executive Office and for Notices: One MEDIQ Plaza Pennsauken, NJ 08110 Attention: Chief Financial Officer 27 MEDIQ SURGICAL EQUIPMENT SERVICES, INC. By /s/ Jay M. Kaplan --------------------------------- Name: Jay M. Kaplan Title: Senior Vice-President Address of Chief Executive Office and for Notices: One MEDIQ Plaza Pennsauken, NJ 08110 Attention: Chief Financial Officer VALUE-MED PRODUCTS, INC. By /s/ Jay M. Kaplan --------------------------------- Name: Jay M. Kaplan Title: Treasurer Address of Chief Executive Office and for Notices: One MEDIQ Plaza Pennsauken, NJ 08110 Attention: Chief Financial Officer SCHEDULE 1 Part I: Initial Pledged Shares Grantor: MEDIQ Incorporated MEDIQ Investment Services, Inc.: 100 shares of common stock, $10 par PRN Holdings, Inc.: 1000 shares of common stock $.01 par MEDIQ Management Services, Inc.: 100 shares of common stock, $10 par MEDIQ Mobile X-Ray Services, Inc.: 1000 shares of common stock, $1 par Health Examinetics, Inc.: 100 shares of common stock, $10 par MEDIQ Services, Inc.: 100 shares of common stock $10 par Thera-Kinetics Acquisition Corporation: 1000 shares of common stock, $10 par MEDIQ Imaging Services, Inc.: 100 shares of common stock, $10 par MEDIQ Diagnostic Centers Inc.: 100 shares of common stock, $10 par MEDIQ Home Therapy Services of Arizona, Inc.: 100 shares of common stock, $10 par Grantor: PRN Holdings, Inc. MEDIQ/PRN Life Support Services, Inc.: 10,000 shares of common stock, $.01 par Value-Med Products, Inc.: 100 shares of common stock, $10 par 29 Grantor: MEDIQ Investment Services, Inc. PCI Services, Inc.: 2,875,000 shares of common stock, $.001 par NutraMax Products, Inc.: 1,782,356 shares of common stock, $.001 par P. I. Corporation: 100 shares of common stock $10 par Grantor: MEDIQ/PRN Life Support Services, Inc. MEDIQ Surgical Equipment Services, Inc.: 100 shares of common stock, $10 par Grantor: MEDIQ Management Services, Inc. Alpha Health Consultants, Inc.: 100 shares of common stock, $10 par Part II: Initial Pledged Debt Grantor: MEDIQ Incorporated (1) Non-negotiable Subordinated Note, in the original principal amount of $1,500,000, from Medifac, Inc., dated June 27, 1995; (2) Note A, in the original principal amount of $2,500,000 from Granary Partners, L.P., dated June 27, 1995; (3) Promissory Note, in the original principal amount of $11,500,000 from Mental Health Management, Inc., dated August 31, 1993. SCHEDULE II Assigned Agreements None SCHEDULE III LOCATIONS OF EQUIPMENT AND INVENTORY 120 Oxmoor Blvd, Ste A, Homewood, AL AL 175 West Oxmoor Rd., Homewood, AL AL 411 A Twain Curve, Montgomery, AL AL 521 South 48th Street, Ste 105, Tempe, AZ 85251 AZ 305 South Euclid, Suite 105, Tucson, AZ AZ 13311 Brooks Dr, Ste C,D,E, Baldwin Park, CA CA 4230 West Swift, Suites 101-103, Fresno, CA CA 15500 Erwin St, Ste 1113, Van Nuys, CA CA 1411 N. Batavia Ave, Stes. 104-106, 2056, 206, Orange, CA CA 1506 Columbia Ave, Stes 7&8, Riverside, CA CA 250 Harris Ave., Suite 1, Sacramento, CA CA 4900 Roseville Rd., N. Highlands, CA (Unit #K011 & K012) CA 5482 Complex St, Ste 109, San Diego, CA CA 1121 Regatta Square, Richmond, CA CA 1621 South Main St, Milpitas, CA CA 12317 Telegraph Rd, Santa Fe Springs, CA CA 12337 Telegraph Rd, Santa Fe Springs, CA CA 13650 E. Imperial Hwy, Units 21, 22 & 1015, SFS, CA CA 5063 Borwick Ave., South Gate, CA CA 2275 Waynoka Rd. Suite A, Colorado Spr, CO CO 3568 Peona St, Ste 609, Aurora, CO CO 29L Kripes Rd, East Granby, CT CT 1395 South Street, Suffield, CT CT 3728 Phillips Hwy, Ste 216, Jacksonville, FL FL 826 Creighton Rd, #B-100-B, Pensacola, FL FL 11220 Metro Pkwy, Ste 1, Ft Myers, FL FL 2842 NW 79th Ave, Miami, FL FL 3350 NW 22nd Terrace #700B & 800B, Pompano Beach, FL FL 6802 Citicorp Dr #400, Tampa, FL FL 140 Concord Dr., Bldg. G, Space 35 & 40, Casselberry, FL FL 718 S North Lake, Ste 1016, Altamonte Springs, FL FL 9401 NW 106th St., Suites 104 & 105, Medley, FL FL 7401 NW 68th St., Miami, FL (Unit #A-7 & A-9) FL 32 4757 S. Cobb Dr., Smyrna, GA (3 units) GA 200 Technology Ct., Suite 1200, Smyrna, GA GA 750 Baconsfield Dr #105, Macon, GA GA 1955 Dove St., Macon, GA GA 1780 S. Cobb Dr., Marietta, GA (Unit #C058) GA 870 S Capitol St, Iowa City, IA IA 1110 N. Cole Rd., Boise, ID ID 330 NE Perry Ave., Peoria, IL IL 655 W Grand Ave, #170, Elmhurst, IL IL 0 South 680, Route 83, Oakbrook Terrace, IL IL 224 William St., Bensenville, IL IL 7918 Zionsville Rd, Indianapolis, IN IN 6888 N. Michigan, Indianapolis, IN (Unit #M05) IN 409 Pattie Ave, Wichita, KS KS 1306 Adams, Kansas City, KS KS 10900 Plantside Dr.-C, Louisville, KY KY 5605 Salman St, Harahan, LA LA 5100 Interstate Circle Dr., Suite 1, Shreveport, LA LA 72 Rowe St, Suite A, Auburndale, MA MA 195 Bear Hill Rd., Waltham, MA (Unit #B-16) MA 2600 Cabover Dr, Ste L-M, Hanover, MD MD 44353 Plymouth Oaks Blvd., Plymouth, MI MI 48200 West Road, Wixom, MI MI 48200 West Rd., Wixom, MI (Unit #515) MI 1301 Corporate Center Dr., Suite 117, Eagan, MN MN 5350 Industrial Blvd., #7141, Fridley, MN (three units) MN 1248 Hanley Industrial Court, Brentwood, MO MO 2001 Airport Rd., #105, Flowood, MS MS 2500 Gateway Center Blvd, Ste 650, Morrisville, NC NC Unit 19, Morrisville, NC NC Morrisville, NC (Unit #7) NC 33 258 North 76th St., Omaha, NE NE One MEDIQ Plaza, Pennsauken, NJ NJ 248 Cox Street, Roselle, NJ NJ 9000 Commerce Pwy, Suite C, Mt. Laurel, NJ NJ 601 South Avenue, Cranford, NJ NJ 5344 Pan American Fwy, Albuquerque, NM NM 6000 S. Eastern Ave, #14J, Las Vegas, NV NV 10435 Palms Airport Dr, Las Vegas, NV NV 6875 Paradise Rd, Las Vegas, NV NV 130 Commercial St, Plainview, NY NY 201 64th St., Brooklyn, NY (Unit #1145 and 1151) NY 110 No. Main St., Port Chester, NY NY 6145 Scherers Place, Suite A, Dublin, OH OH 6405 Old Avery Rd., Unit 812, Amlin, OH OH 9903 Royalton Rd., North Royalton, OH (Unit #0812, 0814) OH 380 Ken-Mark Ind. Pkwy, Broadview Hts, OH OH 2144 Schappele Lane, Cincinnati, OH OH 4422 S. W. 34th St., Oklahoma City, OK OK 5415 S. 125th East Ave., Ste 203, Tulsa, OK OK 6807 NE 79th Court #5, Portland, OR OR 1202 SE 82nd Ave., Portland, OR OR 517 Parkway View Dr., Pittsburgh, PA PA 1929 Lincoln Highway East, Lancaster, PA PA 4295 Cromwell Rd, Suite 207, Chattanooga, TN TN 7537 South Freeway, Houston, TX TX 5407 Bandera Rd, #117, San Antonio, TX TX 4801 Frankford Ave, Unit D, Lubbock, TX TX 9419 Buffalo Speedway, Houston, TX (Unit #F39/56) TX 8101 Cameron Rd., Suite 306, Austin, TX TX Redelco Plaza, 9 & 10, 1920 Duvall, Harlingen, TX TX 7365 Remcon, B204 & B205, El Paso, TX TX 2100 No Hwy 360, Ste. 800, Grand Prarie, TX TX 2100 No Hwy 360, Ste. 802, Grand Prarie, TX TX 720 Memorial Highway, Nederland, TX TX 34 2265 South 1300 West, Suite C, SLC, UT UT 2265 South 1300 West, Suite C, SLC, UT UT 5729 South Labumum Ave, Richmond, VA VA 3801 Williamsburg Rd., Richmond, VA (Unit #C-15) VA 734 Middleground Blvd, Ste D, Newport News, VA VA 3425 S. 116th St., Suite 101, Seattle, WA WA 2648 15th Ave W, Units A21 & A28, Seattle, WA WA 109 S. Scott, Units C-4 & 5, Spokane, WA WA 2217 Industrial Dr, Monona, WI WI 2233 South Stoughton Rd., Madison, WI WI N8 W22350 Johnson Rd, Ste A7, Waukesha, WI WI W220N515 Springdale Rd., Pewaukee, WI WI SCHEDULE IV Trade Names CAMP Telstar Trackstar MEDIQ/PRN MEDIQ MEDIQ Care Units Value-Med Criticare Hospital Services MEDIQ Consulting Group MEDIQ Healthcare Resources SCHEDULE V Blocked Accounts and Other Bank Accounts 1. MEDIQ Incorporated o Summit Bank Operating Account (Account No. 345004469)** 2. MEDIQ Management Services, Inc. o Mellon Bank, N.A. Operating Account (Account No. 2-820-933)** Payroll Account (Account No. 2-949-493)** Payroll ACH Prefunding (Account No. 2-834-166)** 3. MEDIQ/PRN Life Support Services, Inc. o Mellon Bank, N.A. Master Account (Account No. 2-229-870)** Operating Account (Account No. 2-951-135)** Payroll Account (Account No. 2-951-143)** Lockbox Account (Lockbox No. 7777-W0815)** o CoreStates Bank, N.A. Concentration Account (Account No. 00017-03189)** Operating Account (Account No. 00003-23387)** Payroll Account (Account No. 00003-16080)** Lockbox Account - Blocked Account (Account No. 00017-03170)** o Citibank, N.A. Health Account (Account No. 38343762) o PNC Bank (Midlantic Bank) Petty Cash Account (Account No. 1-40672154-6) o Congress Financial Corp. Congress Account **Accounts covered by Blocked Account Agreements. EXHIBIT A TO THE SECURITY AGREEMENT FORM OF BLOCKED ACCOUNT LETTER October 1, 1996 [Blocked Account Bank Address] Attn: [ ] [Grantor] Ladies and Gentlemen: Reference is made to the deposit accounts listed on the attached Schedule I into which certain monies, instruments and other properties are deposited from time to time (the "Accounts") maintained with you by [Grantor], a ________ corporation (the "Company"). Pursuant to a Security Agreement dated as of October 1, 1996 (the "Security Agreement"), the Company has granted to Banque Nationale de Paris, as administrative agent (the "Administrative Agent") for the Secured Parties referred to in the Credit Agreement dated as of October 1, 1996 (the "Credit Agreement") with the Company, a security interest in certain property of the Company, including, among other things, the following (the "Account Collateral"): the Accounts, all funds held therein and all certificates and instruments, if any, from time to time representing or evidencing the Accounts, all interest, dividends, 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 the then existing Account Collateral and all proceeds of any and all of the foregoing Account Collateral and, to the extent not otherwise included, all (i) payments under insurance (whether or not the Administrative Agent is the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Account Collateral and (ii) cash. It is a condition to the continued maintenance of the Accounts with you that you agree to this letter agreement. By signing this letter agreement, you acknowledge notice of the Security Agreement and confirm to the Administrative Agent that you have received no notice of any other pledge or assignment of the Accounts. Further, you hereby agree with the Administrative Agent that: (a) Notwithstanding anything to the contrary in any other agreement relating to the Accounts, the Accounts are and will be subject to the terms and conditions of the Security Agreement, will be maintained solely for the benefit of the Administrative Agent, will be entitled "Banque Nationale de Paris, as Administrative 2 Agent, Re: [Grantor]" and will be subject to written instructions only from an officer of the Administrative Agent. (b) Upon the written request of the Administrative Agent to you, which request shall specify that an "Event of Default" under the Credit Agreement has occurred and is continuing (which writing may be by telex or telecopy and upon which you may conclusively rely, absent manifest error), you shall immediately transfer (at the cost and expense of the Company) subject to your usual deposit terms, all funds then or thereafter deposited in the Accounts by wire transfer into the Administrative Agent's Account at the Federal Reserve Bank of New York, 33 Liberty Street, New York, NY, 10048, ABA No. 026007689, for further credit to Account No. 750420-701-03. (c) From and after the date that the Administrative Agent shall have sent to you a written notice (which writing may be by telex or telecopy and upon which you may conclusively rely, absent manifest error) that an "Event of Default" under the Credit Agreement has occurred and until the date, if any, that the Administrative Agent shall have advised you in writing (which writing may be by telex or telecopy and upon which you may conclusively rely, absent manifest error) that no Event of Default is continuing, you shall not honor any withdrawal or transfer from, or any check, draft or other item of payment on, the Accounts, other than any withdrawal, transfer, check, draft or other item made in writing by the Administrative Agent or bearing the written consent of the Administrative Agent, and, to the extent of collected funds in the Accounts, you shall honor each such withdrawal, transfer, check, draft or other item made in writing by the Administrative Agent or bearing the written consent of the Administrative Agent. (d) You will follow your usual operating procedures for the handling of the Accounts, including any remittance received in the Accounts that contains restrictive endorsements, irregularities (such as a variance between the written and numerical amounts), undated or postdated items, missing signatures, incorrect payees, etc. (e) You shall furnish to the Administrative Agent, promptly upon the reasonable written request of the Administrative Agent in each instance, all information regarding the Accounts, to the extent the same is provided to the Company, for the period of time specified in such written notice, and the Company hereby authorizes you to furnish same. (f) You agree that you will not make, and you hereby waive all of your rights to make, any charge, debit or offset to the Accounts for any reason whatsoever, and waive any and all liens, whether contractual or provided under law, which you may have or hereafter acquire on the Accounts or funds therein, in each case, other than any charge, offset, debit or lien in respect of your customary service charges relating to the Accounts. 3 (g) All service charges and fees with respect to the Accounts shall be payable by the Company. (h) After the giving of notice referred to in paragraphs (b) and (c) above, the Administrative Agent shall be entitled to exercise any and all rights of the Company in respect of the Accounts, and the undersigned shall comply in all respects with such exercise. This letter agreement shall be binding upon you and your successors and assigns and shall inure to the benefit of the Administrative Agent, the other Secured Parties and their successors, transferees and assigns. You may terminate this letter agreement only upon thirty days' prior written notice to the Company and the Administrative Agent. Upon such termination you shall close the Accounts and transfer all funds in the Accounts to the Administrative Agent's Account specified in paragraph (b) above. 4 This letter agreement shall be governed by and construed in accordance with the laws of the State of New York. Very truly yours, [GRANTOR] By ----------------------------- Name: Title: BANQUE NATIONALE DE PARIS, as Administrative Agent By ----------------------------- Title: By ----------------------------- Title: Acknowledged and agreed to as of the date first above written: [BLOCKED ACCOUNT BANK NAME] By --------------------------- Title: SCHEDULE I TO EXHIBIT A TO THE SECURITY AGREEMENT Accounts EXHIBIT B TO THE SECURITY AGREEMENT FORM OF CONSENT AND AGREEMENT The undersigned hereby acknowledges notice of, and consents to the terms and provisions of, the Security Agreement dated October 1, 1996 (the "Security Agreement", the terms defined therein being used herein as therein defined) from MEDIQ/PRN Life Support Services, Inc. (the "Borrower") and certain other parties thereto (together with the Borrower, the "Grantors") to Banque Nationale de Paris as agent (the "Administrative Agent") for the Secured Parties referred to therein, and hereby agrees with the Administrative Agent that: (a) Upon written notice from the Administrative Agent, the undersigned will make all payments to be made by it under or in connection with the __________ Agreement dated _______________, 19__ (the "Assigned Agreement") between the undersigned and the Borrower in accordance with the instructions of the Administrative Agent. (b) All payments referred to in paragraph (a) above shall be made by the undersigned irrespective of, and without deduction for, any counterclaim, defense, recoupment or set-off and shall be final, and the undersigned will not seek to recover from the Administrative Agent or any Lender for any reason any such payment once made. (c) The Administrative Agent shall be entitled to exercise any and all rights and remedies of the Borrower under the Assigned Agreement in accordance with the terms of the Security Agreement, and the undersigned shall comply in all respects with such exercise. (d) The undersigned will not, without the prior written consent of the Administrative Agent, (i) cancel or terminate the Assigned Agreement or consent to or accept any cancellation or termination thereof, [or] (ii) amend or otherwise modify the Assigned Agreement [, or (iii) make any prepayment of amounts to become due under or in connection with the Assigned Agreement, except as expressly provided therein]. This Consent and Agreement shall be binding upon the undersigned and its successors and assigns, and shall inure, together with the rights and remedies of the Administrative Agent hereunder, to the benefit of the Administrative Agent, the other Secured Parties and their successors, transferees and assigns. This Consent and Agreement shall be governed by and construed in accordance with the laws of the State of New York. IN WITNESS WHEREOF, the undersigned has duly executed this Consent and Agreement as of the date set opposite its name below. 2 Dated: _______________, ____ [NAME OF OBLIGOR] By ----------------------------- Name: Title: EXHIBIT C TO THE SECURITY AGREEMENT FORM OF SECURITY AGREEMENT SUPPLEMENT Banque Nationale de Paris, as Administrative Agent under the Credit Agreement referred to below [Address] [Date] Attention: Security Agreement dated as of October 1, 1996 made by MEDIQ/PRN Life Support Services, Inc. and the other Grantors to Banque Nationale de Paris, as Administrative Agent Ladies and Gentlemen: Reference is made to the above-captioned Security Agreement (such Security Agreement, as in effect on the date hereof and as it may hereafter be amended, modified or otherwise supplemented from time to time, being the "Security Agreement"). The terms defined in the Security Agreement (or in the Credit Agreement referred to therein) and not otherwise defined herein are used herein as therein defined. The undersigned hereby agrees, as of the date first above written, to become a Grantor under the Security Agreement as if it were an original party thereto and agrees that each reference in the Security Agreement to "Grantor" shall also mean and be a reference to the undersigned. The undersigned hereby assigns and pledges to the Administrative Agent for the ratable benefit of the Secured Parties, and hereby grants to the Administrative Agent for the ratable benefit of the Secured Parties as security for the Secured Obligations a lien on and security interest in, all of the right, title and interest of the undersigned, whether now owned or hereafter acquired, in and to the Collateral owned by the undersigned, including, but not limited to, the property listed on Annex I hereto. Schedules I, II, III, IV and V to the Security Agreement are hereby supplemented by Annexes I, II, III, IV and V hereto, respectively. The undersigned hereby certifies that such Annexes have been prepared by the undersigned in substantially the form of Schedules I, II, III, IV and V to the Security Agreement and are accurate and complete as of the date hereof. The undersigned hereby makes each representation and warranty set forth in Section 9 of the Security Agreement (as supplemented by the attached Annexes) to the same extent as 2 each other Grantor and hereby agrees to be bound as a Grantor by all of the terms and provisions of the Security Agreement to the same extent as each other Grantor. This Security Agreement Supplement shall be governed by, and construed in accordance with, the laws of the State of New York. Very truly yours, [NAME OF ADDITIONAL GRANTOR] By ----------------------------- Name: Title: Address of Chief Executive Office and for Notices: [Address] Attention: Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----