Exhibit 10.22


 


[Execution Copy]


 


BRIDGE LOAN AGREEMENT


 


THIS BRIDGE LOAN AGREEMENT (this “Agreement”), dated as of
March 31, 2006, is made between AKSYS, LTD., a Delaware corporation (the “Company”),
and DURUS LIFE SCIENCES MASTER FUND LTD., a Cayman Islands Exempted Company
(the “Lender”).


 


The Company has requested the Lender to make a bridge loan to the
Company in an aggregate principal amount of $5,000,000 on the closing date
hereof. The Lender is willing to make the loan to the Company upon the terms and
subject to the conditions set forth in this Agreement.


 


Accordingly, the parties hereto agree as follows:


 


ARTICLE I

DEFINITIONS


 


SECTION 1.01       Certain
Defined Terms.. As used in this Agreement (including in the recitals
hereof), the following terms shall have the following meanings:


 


“Affiliate” means any Person which, directly or indirectly,
controls, is controlled by or is under common control with another Person. For
purposes of the foregoing, “control,” “controlled by” and “under common control
with” with respect to any Person shall mean the possession, directly or
indirectly, of the power (i) to vote 10% or more of the securities having
ordinary voting power of the election of directors of such Person, or
(ii) to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities or by contract
or otherwise.


 


“Bankruptcy Code” means Title 11 of the United States Code
entitled “Bankruptcy.”


 


“Business Day” means a day other than a Saturday, Sunday or
other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.


 


“Change of Control” means the occurrence of any of the
following: (a) the acquisition, directly or indirectly, by any Person or
group (within the meaning of Section 13(d)(3) of the Exchange Act) of
beneficial ownership of more than 35% of the aggregate outstanding voting power
of the capital stock of the Company (excluding, however, the acquisition of
such voting power as the result of any transaction or series of related
transactions pursuant to which Durus distributes securities of the Company to
its stockholders, limited partners or other interest holders); (b) during
any period of twelve consecutive calendar months, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the shareholders of the Company was approved
by a vote of at least a


 


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majority of the directors of
the Company then still in office who were either directors at the beginning of
such period, or whose election or nomination for election was previously
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company; (c) in one transaction or one or more series of
related transactions (i) the Company sells, transfers, leases or otherwise
disposes of, or parts with control of, all or substantially all of its assets
to another Person, or (ii) any entity merges with or consolidates with or
into the Company or a subsidiary of the Company in a transaction pursuant to
which the Company’s stockholders immediately prior to such transaction, or
series of related transactions, own less than 50% of the outstanding voting
stock (on an as-converted to common stock basis) of the surviving, continuing
or purchasing entity (or parent or subsidiary, if any) immediately after
the transaction or series of related transactions; or (d) the Company
shall cease to own and control, directly or indirectly, 100% of the aggregate
voting capital stock of and other voting ownership interests in each Guarantor.


 


“Closing Date” has the meaning set forth in Section 3.01.


 


“Collateral” means the property described in the Collateral
Documents, and all other property now existing or hereafter acquired which may
at any time be or become subject to a Lien in favor of the Lender pursuant to
the Collateral Documents or otherwise, securing the payment and performance of
the Obligations.


 


“Collateral Access Agreement” means a landlord waiver, bailee
letter, or acknowledgement agreement of any lessor, warehouseman, processor,
consignee, or other Person in possession of, having a Lien upon, or having
rights or interests in the Company’s or its Subsidiaries’ books and records,
equipment or inventory, in each case, in form and substance reasonably
satisfactory to the Lender.


 


“Collateral Documents” means any Pledge Agreement, any Security
Agreement, any other agreement pursuant to which the Company, any Guarantor or
any other Person provides a Lien on its assets in favor of the Lender and all
filings, documents and agreements made or delivered pursuant thereto.


 


“Company” has the meaning set forth in the recital of parties to
this Agreement.


 


“Default” means an Event of Default or an event or condition
which with notice or lapse of time or both would constitute an Event of
Default.


 


“Dollars” and the sign “$” each means lawful money of the
United States.


 


“Durus” has the meaning set forth in the recital of parties to
this Agreement.


 


“Environmental Laws” means all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes, together
with all administrative orders, directives, requests, licenses, authorizations
and permits of, and agreements with (including consent decrees), any
governmental agencies or authorities, in each case relating to or imposing
liability or standards of conduct concerning public health, safety and
environmental protection matters.


 


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“ERISA” means the Employee Retirement Income Security Act of
1974, including (unless the context otherwise requires) any rules or
regulations promulgated thereunder.


 


“ERISA Affiliate” means each business or entity which is, or
within the last six years was, a member of a “controlled group of corporations”,
under “common control” or an “affiliated service group” with the Company or any
Guarantor within the meaning of Section 414(b), (c) or (m) of the Internal
Revenue Code, required to be aggregated with the Company or any Guarantor under
Section 414(o) of the Internal Revenue Code, or is, or within the last six
years was, under “common control” with the Company or any Guarantor, within the
meaning of Section 4001(a)(14) of ERISA.


 


“ERISA Event” means (i) a reportable event as defined in
Section 4043 of ERISA with respect to a Pension Plan, excluding, however,
such events as to which the PBGC by regulation has waived the requirement of
Section 4043(a) of ERISA that it be notified within 30 days of the
occurrence of such event; (ii) the applicability of the requirements of
Section 4043(b) of ERISA with respect to a contributing sponsor, as
defined in Section 4001(a)(13) of ERISA, to any Pension Plan where an
event described in paragraph (9), (10), (11), (12) or (13) of
Section 4043(c) of ERISA is reasonably expected to occur with respect to
such plan within the following 30 days; (iii) a withdrawal by the Company,
any Guarantor or any ERISA Affiliate thereof from a Pension Plan or the
termination of any Pension Plan resulting in liability under Sections 4063
or 4064 of ERISA; (iv) the withdrawal of the Company, any Guarantor or any
ERISA Affiliate thereof in a complete or partial withdrawal (within the meaning
of Section 4203 and 4205 of ERISA) from any Multiemployer Plan if there is
any potential liability therefore, or the receipt by the Company, any Guarantor
or any ERISA Affiliate thereof of notice from any Multiemployer Plan that it is
in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA;
(v) the filing of a notice of intent to terminate, the treatment of a plan
amendment as a termination under Section 4041 or 4041A of ERISA, or the
commencement of proceedings by the PBGC to terminate a Pension Plan or
Multiemployer Plan; (vi) the imposition of liability on the Company, any
Guarantor or any ERISA Affiliate thereof pursuant to Sections 4062(e) or 4069
of ERISA or by reason of the application of Section 4212(c) of ERISA;
(vii) the failure by the Company, any Guarantor or any ERISA Affiliate
thereof to make any required contribution to a Plan, or the failure to meet the
minimum funding standard of Section 412 of the Internal Revenue Code with respect
to any Pension Plan (whether or not waived in accordance with Section 412(d) of
the Internal Revenue Code) or the failure to make by its due date a required
installment under Section 412(m) of the Internal Revenue Code with respect to
any Pension Plan or the failure to make any required contribution to a
Multiemployer Plan; (viii) an event or condition which might reasonably be
expected to constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Pension Plan
or Multiemployer Plan; (ix) the imposition of any liability under Title I
or Title IV of ERISA, other than PBGC premiums due but not delinquent
under Section 4007 of ERISA, upon the Company, any Guarantor or any ERISA Affiliate
thereof; (x) an application for a funding waiver under Section 303 of
ERISA or an extension of any amortization period pursuant to Section 412
of the Internal Revenue Code with respect to any Pension Plan; (xi) the
occurrence of a non-exempt prohibited transaction under Sections 406 or 407 of
ERISA for which the Company, any Guarantor or any Subsidiary thereof may be
directly or indirectly liable; (xii) a violation of the applicable
requirements of Section 404 or 405 of ERISA or the exclusive benefit
rule under


 


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Section 401(a) of the
Internal Revenue Code by any fiduciary or disqualified person for which the
Company, any Guarantor or any ERISA Affiliate thereof may be directly or
indirectly liable; (xii) the occurrence of an act or omission which could give
rise to the imposition on the Company, any Guarantor or any ERISA Affiliate
thereof of fines, penalties, taxes or related charges under Chapter 43 of the
Internal Revenue Code or under Sections 409, 502(c), (i) or (1) or 4071 of
ERISA; (xiii) the assertion of a material claim (other than routine claims for
benefits) against any Plan or the assets thereof, or against the Company, any
Guarantor or any Subsidiary thereof in connection with any such plan; (xiv)
receipt from the IRS of notice of the failure of any Qualified Plan to qualify
under Section 401(a) of the Internal Revenue Code, or the failure of any trust
forming part of any Qualified Plan to fail to qualify for exemption from
taxation under Section 501(a) of the Internal Revenue Code; (xv) the imposition
of any lien on any of the rights, properties or assets of the Company, any
Guarantor or any ERISA Affiliate thereof, in either case pursuant to
Title I or IV of ERISA or to Section 401(a)(29) or 412 of the Internal
Revenue Code; or (xvi) the establishment or amendment by the Company, any
Guarantor or any Subsidiary thereof of any “welfare plan”, as such term is
defined in Section 3(1) of ERISA, that provides post-employment welfare
benefits in a manner that would increase the liability of the Company or any
Guarantor.


 


“Event of Default” has the meaning set forth in Section 6.01.


 


“Exchange Act” means the Securities Exchange Act of 1934.


 


“GAAP” means generally accepted accounting principles,
consistently applied.


 


“Guarantor” means any guarantor of the Obligations.


 


“Guarantor Documents” means the Guaranty of any Guarantor and
all other documents, agreements and instruments delivered to the Lender by such
Guarantor under or in connection with its Guaranty.


 


“Guaranty” means the Guaranty of a Guarantor, in form and
substance satisfactory to the Lender.


 


“Indebtedness” of any Person means, without duplication, all
liabilities, obligations and indebtedness of any kind and nature, including: (i) all
indebtedness for borrowed money, (ii) all obligations issued, undertaken
or assumed as the deferred purchase price of property or services,
(iii) all reimbursement or payment obligations with respect to letters of
credit, surety bonds and other similar instruments, (iv) all obligations
evidenced by notes, bonds, debentures or similar instruments, including
obligations so evidenced incurred in connection with the acquisition of
property, assets or businesses, (v) all indebtedness created or arising
under any conditional sale or other title retention agreement or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (vi) all monetary obligations
under any leasing or similar arrangement which would be capitalized in
accordance with GAAP, (vii) all indebtedness referred to in clauses (i) through
(vi) above secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any mortgage,


 


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lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment
of such indebtedness, and (viii) all Contingent Obligations in respect of
indebtedness or obligations of others of the kinds referred to in clauses
(i) through (vii) above. For purposes hereof; “Contingent Obligations”
means, as to any Person, any direct or indirect liability, contingent or
otherwise, of that Person with respect to any indebtedness, lease, dividend or
other obligation of another Person if the primary purpose or intent of the
Person incurring such liability, or the primary effect thereof, is to provide
assurance to the obligee of such liability that such liability will be paid or
discharged, or that any agreements relating thereto will be complied with, or
that the holders of such liability will be protected (in whole or in part)
against loss with respect thereto.


 


“Insolvency Proceeding” means (i) any case, action or
proceeding before any court or other governmental agency or authority relating
to bankruptcy, reorganization, insolvency, liquidation, receivership,
dissolution, winding-up or relief of debtors, or (ii) any general assignment
for the benefit of creditors, composition, marshalling of assets for creditors,
or other, similar arrangement in respect of any Person’s creditors generally or
any substantial portion of such Person’s creditors, in each case undertaken
under U.S. Federal, state or foreign law, including the Bankruptcy Code.


 


“Internal Revenue Code” means the Internal Revenue Code of 1986,
including (unless the context otherwise requires) any rules or regulations
promulgated thereunder.


 


“IRS” means the Internal Revenue Service or any successor
thereto.


 


“Lender” has the meaning set forth in the recital of parties to
this Agreement.


 


“Lien” means any mortgage, deed of trust, pledge, security
interest, assignment, deposit arrangement in the nature of a security interest,
charge or encumbrance, lien (statutory or otherwise) or other type of
preferential arrangement (including any conditional sale or other title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing or any agreement to give any security interest;
but not including a financing statement filed by a lessor in respect of an
operating lease not intended as security).


 


“Loan Documents” means this Agreement, the Note, the Collateral
Documents, any Guaranty, any other Guarantor Documents, and all other
certificates, documents, agreements and instruments delivered to the Lender
under or in connection with this Agreement.


 


“Loan” has the meaning set forth in Section 2.01.


 


“Material Adverse Effect” means any event, matter, condition or
circumstance (including any such event, matter, condition or circumstance which
would occur upon notice or lapse of time or both) which (i) has or would
reasonably be expected to have a material adverse effect on (A) the
business, prospects, properties, assets, operations, results of operations or
condition (financial or otherwise) of the Company and its Subsidiaries, taken
as a whole, (B) the intellectual property of the Company and its
Subsidiaries, taken as a whole, (C) the transactions contemplated in the
Loan Documents or the other Transactions Documents (as defined in the


 


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Securities Purchase Agreement),
or by the agreements and instruments to be entered into in connection herewith
or therewith, or (D) the authority or ability of the Company to perform
its obligations under the Loan Documents or the other Transactions Documents,
or (ii) materially adversely affects the legality, validity, binding
effect or enforceability of any of the Loan Documents or the other Transactions
Documents, the rights and remedies of the Lender thereunder, or the validity,
perfection or priority of any Lien granted to the Lender under any of the
Collateral Documents.


 


“Material Contract” means, (i) each contract or agreement
listed as a material contract in Schedule 1 hereto, and
(ii) all other contracts or agreements material to the business,
properties, assets, operations, results of operations or condition (financial
or otherwise) or prospects of the Company and its Subsidiaries entered into
after the date hereof.


 


“Maturity Date” means, unless the Loan is sooner paid or rolled
over into longer term Indebtedness with the Lender in accordance with the terms
of this Agreement or the Note, January 1, 2007.


 


“Multiemployer Plan” means a “multiemployer plan” (within the
meaning of Section 3(37) of ERISA) to which the Company, any Guarantor or
any ERISA Affiliate thereof makes, is making, or is obligated or has ever been
obligated to make, contributions.


 


“Net Cash Proceeds” means when used in respect of any sale of
assets of, issuance of any debt or equity securities of, or the receipt of
proceeds upon the incurrence of Indebtedness for borrowed money of, the Company
or any Subsidiary, the gross proceeds in cash or cash equivalents received by
the Company or such Subsidiary (including such proceeds subsequently received
in respect of noncash consideration initially received and amounts initially
placed in escrow that subsequently become available) from such disposition, issuance
or incurrence of Indebtedness, less all direct costs and expenses incurred or
to be incurred in connection therewith, and all federal, state, local and
foreign taxes assessed or to be assessed, in connection therewith.


 


“Note” means a secured promissory note made by the Company in
favor of the Lender evidencing the Loan made by the Lender, substantially in
the form of Exhibit A.


 


“Obligations” means the indebtedness, liabilities and other
obligations of the Company and any Guarantor to the Lender under or in
connection with this Agreement, the Note and the other Loan Documents,
including the Loan, all interest accrued thereon, all fees due under this
Agreement and all other amounts payable by the Company to the Lender thereunder
or in connection therewith, whether now or hereafter existing or arising, and
whether due or to become due, absolute or contingent, liquidated or
unliquidated, determined or undetermined, and including interest that accrues
after the commencement by or against the Company or any Guarantor of any
Insolvency Proceeding naming such Person as the debtor in such proceeding.


 


“PBGC” means the Pension Benefit Guaranty Corporation, or any
successor thereto.


 


“Pension Plan” means an employee benefit plan (as defined in
Section 3(3) of ERISA) other than a Multiemployer Plan (i) that is or was
at any time maintained or sponsored


 


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by the Company, any Guarantor
or any ERISA Affiliate thereof or to which the Company, any Guarantor or any
ERISA Affiliate thereof has ever made, or was obligated to make, contributions,
and (ii) that is or was subject to
Section 412 of the Internal Revenue Code, Section 302 of ERISA or Title IV of
ERISA.


 


“Permitted Liens” means: (i) Liens in favor of the Lender; (ii) the
existing Liens listed in Schedule 1; (iii) Liens for taxes,
fees, assessments or other governmental charges or levies, either not
delinquent or being contested in good faith by appropriate proceedings and
which are adequately reserved for in accordance with GAAP, provided the
same does not have priority over the Lender’s Lien and no notice of tax lien
has been filed of record; (iv) Liens of materialmen, mechanics,
warehousemen, carriers or employees or other similar Liens provided for by
mandatory provisions of law and securing obligations either not delinquent or
being contested in good faith by appropriate proceedings, provided
(A) such Liens do not have priority over the Lender’s Lien and do not in
the aggregate materially impair the use or value of the property or risk the
loss or forfeiture thereof and (B) with respect to delinquent amounts
being contested in good faith by appropriate proceedings, the aggregate amount
secured by such Liens does not at any time exceed $100,000; (v) Liens
consisting of deposits or pledges to secure the performance of bids, trade
contracts, leases, public or statutory obligations, or other obligations of a
like nature incurred in the ordinary course of business (other than for
Indebtedness); (vi) restrictions and other minor encumbrances on real
property which do not in the aggregate impair the use or value of such property
or risk the loss or forfeiture thereof; (vii) Liens arising from judgments
in circumstances not constituting an Event of Default under Section 6.01(i);
and (viii) any non-exclusive licenses or sublicenses of intellectual
property granted to others in the ordinary course of business of the Company
which are permitted under this Agreement and do not interfere with the business
of the Company and any interest or title of a licensor under any license
permitted by this Agreement.


 


“Person” means an individual, corporation, partnership, limited
liability company, joint venture, trust, unincorporated organization or any
other entity of whatever nature or any governmental agency or authority.


 


“Plan” means (i) an employee benefit plan (as defined in
Section 3(3) of ERISA) other than a Multiemployer Plan which is or was at
any time maintained or sponsored by the Company, any Guarantor or any
Subsidiary thereof or to which the Company, any Guarantor or any Subsidiary
thereof has ever made, or was obligated to make, contributions, (ii) a Pension
Plan, or (iii) a Qualified Plan.


 


“Pledge Agreement” means a Stock Pledge Agreement among the
Company, or any Guarantor, and the Lender, in form and substance satisfactory
to the Lender.


 


“Qualified Plan” means an employee benefit plan (as defined in
Section 3(3) of ERISA) other than a Multiemployer Plan (i) that is or was
at any time maintained or sponsored by the Company, any Guarantor or any ERISA
Affiliate thereof or to which the Company, any Guarantor or any ERISA Affiliate
thereof has ever made, or was ever obligated to make, contributions, and (ii)
that is intended to be tax-qualified under Section 401(a) of the Internal
Revenue Code.


 


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“Responsible Officer” means, with respect to any Person, the
chief executive officer, the president or the chief financial officer of such
Person, or any other senior officer of such Person having substantially the
same authority and responsibility.


 


“SEC” means the Securities and Exchange Commission.


 


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


 


“Securities Purchase Agreement” means the Securities Purchase
Agreement, dated as of the date hereof, among the Company and the investors
listed on signature pages thereof.


 


“Security Agreement” means a Security Agreement among the
Company (or any Guarantor) and the Lender, in form and substance satisfactory
to the Lender.


 


“Solvent” means, as to any Person at any time, that (i) the
fair value of the property of such Person is greater than the amount of such
Person’s liabilities (including disputed, contingent and unliquidated
liabilities) as such value is established and liabilities evaluated for
purposes of Section 101(32) of the Bankruptcy Code; (ii) the present
fair saleable value of the property of such Person is not less than the amount
that will be required to pay the probable liability of such Person on its debts
as they become absolute and matured; (iii) such Person is able to realize
upon its property and pay its debts and other liabilities (including disputed,
contingent and unliquidated liabilities) as they mature in the normal course of
business; (iv) such Person does not intend to, and does not believe that
it will, incur debts or liabilities beyond such Person’s ability to pay as such
debts and liabilities mature; and (v) such Person is not engaged in
business or a transaction, and is not about to engage in business or a
transaction, for which such Person’s property would constitute unreasonably
small capital.


 


“Subordinated Debt” means the Indebtedness of the Company to the
Lender and Artal Long Biotech Portfolio LLC pursuant to the Subordinated Note
Purchase Agreement, and any other Indebtedness of the Company or any Subsidiary
subordinated to the Obligations, incurred or outstanding and subject to a
Subordination Agreement.


 


“Subordination Agreement” means the notes issued to the Lender
and Artal Long Biotech Portfolio LLC pursuant to the Subordinated Note Purchase
Agreement, and any other subordination agreement with respect to Subordinated
Debt among the Company, the applicable creditor(s) and the Lender, in form and
substance satisfactory to the Lender and on terms satisfactory to the Lender.


 


“Subordinated Note Purchase Agreement” means that certain Note
Purchase Agreement, dated as of February 23, 2004, by and among the Company,
the Lender and Artal Long Biotech Portfolio LLC.


 


“Subsidiary” means any corporation, association, partnership,
limited liability company, joint venture or other business entity of which more
than 50% of the voting stock or other equity interest is owned directly or
indirectly by any Person or one or more of the other Subsidiaries of such
Person or a combination thereof.


 


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“United States” and “U.S.” each means the United States
of America.


 


SECTION 1.02       Interpretation.
In the Loan Documents, except to the extent the context otherwise requires: (i) any
reference to an Article, a Section, a Schedule or an Exhibit is a reference to
an article or section thereof, or a schedule or an exhibit thereto,
respectively, and to a subsection or a clause is, unless otherwise stated, a
reference to a subsection or a clause of the Section or subsection in which the
reference appears; (ii) the words “hereof,” “herein,” “hereto,” “hereunder”
and the like mean and refer to this Agreement or any other Loan Document as a
whole and not merely to the specific Article, Section, subsection, paragraph or
clause in which the respective word appears; (iii) the meaning of defined
terms shall be equally applicable to both the singular and plural forms of the
terms defined; (iv) the words “including,” “includes” and “include” shall
be deemed to be followed by the words “without limitation;” (v) references
to agreements and other contractual instruments shall be deemed to include all
subsequent amendments, amendments and restatements and other modifications
thereto (including any extensions or renewals), but only to the extent such
amendments, amendments and restatements and other modifications are not
prohibited by the terms of the Loan Documents; (vi) references to statutes
or regulations are to be construed as including all statutory and regulatory
provisions consolidating, amending, supplementing, interpreting or replacing
the statute or regulation referred to; (vii) any table of contents,
captions and headings are for convenience of reference only and shall not
affect the construction of this Agreement or any other Loan Document; and
(viii) in the computation of periods of time from a specified date to a
later specified date, the word “from” means “from and including”; the words “to”
and “until” each mean “to but excluding”; and the word “through” means “to and
including.”


 


ARTICLE II

THE LOAN


 


SECTION 2.01     The Loan.


 


(a)           Loan. The
Lender agrees, on the terms and conditions hereinafter set forth, to make a
loan (the “Loan”) to the Company on the Closing Date, in a principal amount of
$5,000,000.


 


(b)           No Reborrowing.
Any amount of the Loan repaid may not be reborrowed.


 


SECTION 2.02       Borrowing
Procedure for Loan. Upon fulfillment of the conditions set forth in Article
III, the Lender shall make the Loan available to the Company on the Closing
Date in same day funds, or such other funds as shall separately be agreed upon
by the Company and the Lender, in accordance with the payment instructions
provided to the Lender .


 


SECTION 2.03       Note.
As additional evidence of the Indebtedness of the Company to the Lender
resulting from the Loan made by the Lender, the Company shall execute and
deliver to the Lender pursuant to Article III, a Note, dated the Closing Date,
in the principal amount of the Loan made by the Lender. The Lender shall record
in its internal records the date and amount of the Loan made by it, the amount
of principal and interest due and payable to the


 


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Lender from time to time
hereunder, the increase to principal as a result of interest added thereto from
time to time hereunder, each payment of principal and interest and the
resulting unpaid principal balance of the Loan. Any such recordation shall be
conclusive absent manifest error of the accuracy of the information so recorded.
Any failure so to record or any error in doing so shall not, however, limit or
otherwise affect the obligations of the Company hereunder and under the Note to
pay any amount owing with respect to the Loan.


 


SECTION 2.04     Interest.


 


(a)           Interest Rate;
Interest Payment Dates. Subject to subsection (b) below, the Company
shall pay to the Lender interest on the unpaid principal amount of the Loan (as
such principal amount may be increased as a result of the provisions of this
Section) from the date of the Loan until the maturity thereof, at a rate per
annum equal at all times to 7% per annum, quarterly in arrears on the last
Business Day in each quarter, on the date of any prepayment of the Loan, and at
maturity. Except as otherwise provided herein, in lieu of payment in cash of
any interest due and payable on the Loan, on each interest payment date any and
all such interest payable shall be paid by adding an amount equal to the
aggregate accrued but unpaid interest payable with respect to such interest
payment date to the principal amount of the Loan. Notwithstanding the
foregoing, upon written notice to the Lender made at least five (5) Business
Day prior to the applicable interest payment date, the Company may pay in cash
all interest due and payable on the Loan with respect to any interest payment
dates specified in such notice.


 


(b)           Default Rate of
Interest. In the event that any amount of principal of or interest on the
Loan, or any other amount payable hereunder or under the Loan Documents, is not
paid in full when due (whether at stated maturity, by acceleration or
otherwise), the Company shall pay interest on such unpaid principal, interest
or other amount, from the date such amount becomes due until the date such
amount is paid in full, payable on demand, at a rate per annum which is equal
at all times to 3% higher than the rate of interest set forth in
Section 2.04(a). Payment of any such interest at the rate described above
shall not constitute a waiver of any Event of Default and shall be without
prejudice to the right of the Lender to exercise any of its rights and remedies
under the Loan Documents.


 


(c)           Computations.
All computations of interest hereunder shall be made on the basis of a year of
365 or 366 days, as the case may be, for the actual number of days occurring in
the period for which any such interest is payable.


 


(d)           Highest Lawful
Rate. In no event shall the Company be obligated to pay the Lender
interest, charges or fees at a rate in excess of the highest rate permitted by
applicable law.


 


SECTION 2.05       Rollover
or Repayment of the Loan.


 


(a)           Rollover.
Upon the closing of a longer term debt financing provided by the Lender to the
Company (as to which no commitment is made herein), the entire outstanding
principal amount of the Loan and all accrued and unpaid interest thereon shall
be rolled-over into such financing, without novation.


 


10

















 


(b)           Repayment.
The Company shall repay to the Lender the outstanding principal amount of the
Loan in full on the Maturity Date.


 


SECTION 2.06     Prepayments of the Loan. The Company may, upon written
notice to the Lender at least five (5) Business Days prior to the proposed
prepayment date, prepay the outstanding amount of the Loan in whole or in part,
without premium or penalty, at any time and from time to time; provided,
that any prepayment shall be in a principal amount of at least $500,000 or a
greater amount in increments of $50,000. The notice given of any such
prepayment shall specify the date and amount of the prepayment. If the notice
of prepayment is given, the Company shall make such prepayment and the
prepayment amount specified in such notice shall be due and payable on the date
specified therein, with accrued and unpaid interest to such date on the amount
prepaid.


 


SECTION 2.07     Payments.


 


(a)           Payments. The
Company shall make each payment under the Loan Documents, unconditionally in
full without set-off, counterclaim or, to the extent permitted by applicable
law, other defense, and free and clear of, and without reduction for or on
account of, any present and future taxes or withholdings, and all liabilities
with respect thereto. Subject to Section 2.04(a), each payment shall be
made not later than 12:00 noon (New York time) on the day when due to the
Lender in Dollars and in same day funds, or such other funds as shall be
separately agreed upon by the Company and the Lender, in accordance with the
Lender’s payment instructions.


 


(b)           Extension. Whenever
any payment hereunder shall be stated to be due, or whenever any interest
payment date or any other date specified hereunder would otherwise occur, on a
day other than a Business Day, then, except as otherwise provided herein, such
payment shall be made, and such interest payment date or other date shall
occur, on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of payment of interest hereunder.


 


(c)           Application. After
the exercise of remedies provided for in Section 6.02 (or after the Loan has
automatically become immediately due and payable as set forth in Section 6.02)
each payment by or on behalf of the Company hereunder shall, unless a specific
determination is made by the Lender with respect thereto, be applied (i) first, to any fees, costs, expenses and
other amounts (other than principal and interest) due the Lender; (ii) second, to accrued and unpaid interest due
the Lender; and (iii) third,
to principal due the Lender.


 


SECTION 2.08       Right
of Set-Off. Upon the occurrence and during the continuance of any Event of
Default, the Lender hereby is authorized at any time and from time to time,
without notice to the Company (any such notice being expressly waived by the
Company), to set off and apply any obligations or indebtedness at any time
owing by such Lender to the Company against any and all of the then due
Obligations of the Company now or hereafter existing under this Agreement and
the other Loan Documents, irrespective of whether or not the Lender shall have
made any demand under this Agreement or any such other Loan Document. The
Lender agrees promptly to notify the Company after any such set-off and
application made by the Lender; provided that the failure to give such
notice shall not affect the


 


11

















 


validity of such set-off and
application. The rights of the Lender under this Section 2.08 are in addition
to other rights and remedies (including other rights of set-off) which the
Lender may have.


 


ARTICLE III          

CONDITIONS PRECEDENT


 


SECTION 3.01       Conditions
Precedent to the Loan. The obligation of the Lender to make the Loan on the
date of borrowing hereunder (the “Closing Date”) shall be subject to the
satisfaction of each of the following conditions precedent before or
concurrently with the making of the Loan:


 


(a)           Loan Document.
The Lender shall have received the following Loan Documents: (i) this
Agreement and the Note required hereunder with respect to the Loan, executed by
the Company; and (ii) the Collateral Documents and the Guaranty of Aksys
International, Inc., executed by each of the respective parties thereto.


 


(b)           Documents and
Actions Relating to Collateral. The Lender shall have received, in form and
substance satisfactory to it, results of such Lien searches as it shall reasonably
request, and evidence that all filings, registrations and recordings have been
made in the appropriate governmental offices, and all other action requested by
the Lender has been taken, which shall be necessary to create, in favor of the
Lender, a perfected first priority Lien on the Collateral.


 


(c)           Additional
Closing Documents. The Lender shall have received the following, in form
and substance satisfactory to it:


 


(i)            certificates
of one or more nationally recognized insurance brokers or other insurance
specialists acceptable to the Lender, dated as of a recent date prior to the
Closing Date, certifying the insurance maintained by the Company and any
Guarantor as required hereunder and under the Collateral Documents is in full
force and effect;


 


(ii)           evidence
that all (A) authorizations, consents or approvals of, or notices to or
filings with any governmental agency or authority, and (B) as requested by
the Lender, approvals or consents of any other Person (including the consent of
any party to a Material Contract to the grant of a security interest therein to
the Lender), required in connection with the execution, delivery and
performance of the Loan Documents shall have been obtained;


 


(iii)          (A) a
certificate evidencing the formation and good standing of the Company and each
Guarantor in each such Person’s jurisdiction of formation issued by the
Secretary of State (or equivalent) of such jurisdiction of formation as of a
date within five (5) days prior to the Closing Date, and (B) a certificate
evidencing the Company’s and each Guarantor’s qualification as a foreign
corporation and good standing issued by the Secretary of State (or comparable
office) of each jurisdiction in which such Person conducts business and is
required to so qualify, as of a date within five (5) days of the Closing Date.


 


(iv)          (A) a
certificate of the Secretary or other appropriate officer of the Company, dated
the Closing Date, certifying (1) copies of the articles or certificate of


 


12

















 


incorporation,
and bylaws, or other applicable organizational documents, of the Company and
the resolutions and other actions taken or adopted by the Company authorizing
the execution, delivery and performance of the Loan Documents, and (2) the
incumbency, authority and signatures of each officer of the Company authorized
to execute and deliver the Loan Documents and act with respect thereto; and
(B) a certificate of the Secretary or other appropriate officer of each
Guarantor, dated the Closing Date, certifying (1) copies of the articles
or certificate of incorporation, and bylaws, or other applicable organizational
documents, of such Guarantor and the resolutions and other actions taken or
adopted by such Guarantor authorizing the execution, delivery and performance
of its Guarantor Documents, and (2) the incumbency, authority and
signatures of each officer of such Guarantor authorized to execute and deliver
its Guarantor Documents and act with respect thereto.


 


(d)           Legal Opinion.
The Lender shall have received an opinion of legal counsel to the Company and
any Guarantor, dated the Closing Date, in form and substance satisfactory to
the Lender.


 


(e)           Securities
Purchase Agreement. The Securities Purchase Agreement shall have been
executed and delivered by the Company and the Lender.


 


(f)            Continued
Listing. The common stock of the Company shall be listed on the NASDAQ
Capital Market and shall not have been suspended, as of the Closing Date, by
the SEC or the NASDAQ Capital Market from trading on the NASDAQ Capital Market
nor shall proceedings regarding such suspension by the SEC or the NASDAQ
Capital Market have been threatened, as of the Closing Date, either by the SEC
or the NASDAQ Capital Market or by falling below the minimum maintenance
requirements of the NASDAQ Capital Market.


 


(g)           Representations
and Warranties; No Default. On the date of the borrowing of the Loan, both
before and after giving effect thereto and to the application of proceeds
therefrom: (i) the representations and warranties contained in
Article IV and in the other Loan Documents shall be true, correct and
complete in all material respects on and as of the Closing Date as though made
on and as of such date; (ii) no Default shall have occurred and be
continuing or shall result from the making of the Loan and (iii) no event,
matter, condition or circumstance shall exist that with notice, lapse of time
or other action constitutes or would be reasonably expected to constitute a
Material Adverse Effect. The acceptance by the Company of the proceeds of the
Loan shall be deemed a certification to the Lender that on and as of the
Closing Date such statements are true.


 


(h)           Additional
Documents. The Lender shall have received, in form and substance
satisfactory to it, such additional approvals, opinions, documents and other
information as the Lender may reasonably request.


 


(i)            Fees and
Expenses. The Company shall have paid all invoiced costs and expenses then
due hereunder and under this Agreement and the other Loan Documents


 


13

















 


ARTICLE IV

REPRESENTATIONS AND WARRANTIES


 


The Representations and Warranties of the Company set forth in
Section 2 of the Securities Purchase Agreement shall be applicable to this
Agreement and are incorporated herein by this reference, mutatis mutandis, and
made a part of this Agreement as if fully set forth herein, including for
purposes of this Article IV, all capitalized terms used in such
representations and warranties, except that for purposes of this Agreement, Transaction
Documents as defined therein shall be deemed to include this Agreement and the
Loan Documents.


 


ARTICLE V

COVENANTS


 


SECTION 5.01       Reporting
Covenants. So long as any of the Obligations shall remain unpaid (other
than inchoate indemnity obligations and any other obligations which by their
terms are to survive the termination of the Loan Documents), the Company agrees
that:


 


(a)           Financial
Statements and Other Reports. The Company will furnish to the Lender:


 


(i)            Unless
filed with the SEC through the EDGAR System and are available to the public
through the EDGAR system, within one (1) Business Day after the filing
thereof with the SEC, a copy of its annual reports and quarterly reports on
Form 10-K and 10-Q, any interim reports or any consolidated balance sheets,
income statements, shareholders’ equity statements and/or cash flow statements
for any period, any current reports on Form 8-K and any registration
statements (other than on Form S-8) or amendments filed pursuant to the
Securities Act, which annual reports shall be accompanied by a report and
opinion thereon of a firm of independent certified public accountants of
recognized national standing acceptable to the Lender and shall not be subject
to any “going concern” or like qualification or exception or any qualification
or exception as to the scope of such audit; and


 


(ii)           within
one (1) Business Day of the filing of any annual report and quarterly report
referred to clause (i), a certificate of a Responsible Officer of the
Company in form and substance satisfactory to the Lender stating whether any
Default exists on the date of such certificate, and if so, setting forth the
details thereof and the action which the Company is taking or proposes to take
with respect thereto;


 


(iii)          as
soon as available and in any event not later than 30 days prior to the end of
each fiscal year of the Company, an operating budget for the Company and its
Subsidiaries approved by the Board of Directors of the Company for the upcoming
fiscal year, in form and substance satisfactory to the Lender, such budget to
be prepared in accordance with GAAP and on a fair and reasonable basis and in
good faith, and to be based on estimates and assumptions believed by the
Company to be fair and reasonable as of the time made and from the best
information then available to the Company in the light of the current and
reasonably foreseeable business conditions: and


 


14

















 


(iv)          not
later than the last Business Day of each week, a report listing the amount of
and describing in reasonable detail all expenditures to be made by the Company
and its Subsidiaries for the upcoming week.


 


(b)           Additional
Information. The Company will furnish to the Lender:


 


(i)            promptly
after the Company has knowledge or becomes aware thereof, notice of the
occurrence of any Default;


 


(ii)           prompt
written notice of all actions, suits and proceedings before any governmental
agency or authority or arbitrator pending, or to the best of the Company’s
knowledge, threatened against or affecting the Company or any of its
Subsidiaries, including any actions, suits, claims, notices of violation,
hearings, investigations or proceedings pending, or to the best of the Company’s
knowledge, threatened against or affecting the Company or any of its
Subsidiaries, or with respect to the ownership, use, maintenance and operation
of their respective properties, relating to Environmental Laws, which
(A) involve an aggregate liability equal to $50,000 or more, or
(B) otherwise would reasonably be expected to have a Material Adverse
Effect;


 


(iii)          promptly
after submission to any governmental agency or authority, all documents and
information furnished to such governmental agency or authority in connection
with any investigation of the Company or any of its Subsidiaries other than
routine inquiries by such governmental agency or authority;


 


(iv)          prompt
written notice of any ERISA Event affecting the Company or any ERISA Affiliate
(but in no event more than ten (10) Business Days after such event), together
with a copy of any notice with respect to such event that may be required to be
filed with a governmental agency or authority and any notice delivered by a
governmental agency or authority to the Company or any ERISA Affiliate with
respect to such event;


 


(v)           as
soon as possible and in any event within ten (10) Business Days after
execution, receipt or delivery thereof, copies of material notices that the
Company or any Subsidiary delivers or receives in connection with any Material
Contract;


 


(vi)          prompt
written notice of any other condition or event which has resulted, or that
could reasonably be expected to result, in a Material Adverse Effect;


 


(vii)         prompt
notice of (A) any material change in the composition of the Company’s and
its Subsidiaries’ intellectual property, taken as a whole, (B) the
registration (or filed application for registration) of any copyright, patent
or trademark not previously disclosed in writing to the Lender, and
(C) any event that materially adversely affects the value of the Company’s
and its Subsidiaries’ intellectual property;


 


(viii)        within
three (3) Business Day after release thereof, facsimile copies of all
press releases issued by the Company or any of its Subsidiaries,


 


(ix)           Unless
filed with the SEC through the EDGAR system and available to the public through
the EDGAR system, copies of any notices, reports and other


 


15

















 


information
made available or given to the shareholders of the Company generally, and
copies of all other reports or filings, if any, by the Company or any of its
Subsidiaries with the SEC or any national securities exchange;
contemporaneously with the making available or giving thereof to the
shareholders or the filing with the SEC or such other national securities
exchange; and


 


(x)            such
other statements, budgets, forecasts, projections, reports, or other
information respecting the operations, prospects, value, properties, business
or condition (financial or otherwise) of the Company or its Subsidiaries
(including with respect to the Collateral) as the Lender may from time to time
reasonably request, in form and substance reasonably satisfactory to the
Lender.


 


Each notice pursuant to clauses (i) through (vii)of this
subsection (b) shall be accompanied by a written statement of a Responsible
Officer of the Company setting forth details of the occurrence referred to
therein and the action which the Company is taking or proposes to take with
respect thereto.


 


SECTION 5.02       Affirmative
Covenants. So long as any of the Obligations shall remain unpaid (other
than inchoate indemnity obligations and any other obligations which by their
terms are to survive the termination of the Loan Documents), the Company agrees
that (provided, that if any action required to be taken by the Company or any
of its Subsidiaries under this Section 5.02 will require the Company or
such Subsidiary to make any expenditure in respect thereof, the Company or such
Subsidiary may take such action and make such expenditure in the ordinary
course of business, consistent with past practice until the Company receives
written notice from the Lender stating that all expenditures of the Company and
its Subsidiaries after the date thereof will require the Lender’s prior
approval, which notice the Lender may give at any time in its sole discretion;
thereafter such action and expenditure may only be made with the Lender’s prior
approval):


 


(a)           Preservation of
Existence, Etc. The Company will, and will cause each of its Subsidiaries
to, maintain and preserve its legal existence, its rights to transact business
and all other rights, franchises and privileges necessary or desirable in the
normal course of its business and operations and the ownership of its
properties, except in connection with any transactions expressly permitted by
Section 5.03, and become or remain, and cause each of its Subsidiaries to
become or remain, duly qualified and in good standing in the jurisdiction of
its formation and in each jurisdiction in which the character of the properties
owned or leased by it or in which the transaction of its business makes such
qualification necessary.


 


(b)           Reporting
Status. The Company will timely file all reports required to be filed with
the SEC pursuant to the Exchange Act, and the Company shall not terminate its
status as an issuer required to file reports under the Exchange Act even if the
Exchange Act or the rules and regulations thereunder would no longer require or
otherwise permit such termination.


 


(c)           Listing.
The Company will use its best efforts, to obtain and maintain the listing and
trading of the Common Stock (as defined in the Securities Purchase Agreement)
of the Company on the NASDAQ Capital Market or, in lieu thereof, the NASDAQ
National Market, and the Company will comply in all respects with the Company’s
reporting, filing and other obligations under the bylaws or rules of NASDAQ
Capital Market or the NASDAQ


 


16

















 


National
Market, as the case may be, and other exchanges or quotation systems, as
applicable. Neither the Company nor any of its Subsidiaries shall take any
action which would be reasonably expected to result in the delisting or
suspension of the Common Stock on the NASDAQ Capital Market.


 


(d)           Payment of Taxes,
Etc. The Company will, and will cause each of its Subsidiaries to, timely
file all tax returns and reports, and to pay and discharge (i) all taxes,
fees, assessments and governmental charges or levies imposed upon it or upon
its properties or assets prior to the date on which penalties attach thereto,
all trade accounts payable in accordance with usual and customary business
terms, and all lawful claims for labor, materials and supplies which, if
unpaid, might become a Lien upon any properties or assets of the Company or any
Subsidiary, except to the extent such taxes, fees, assessments or governmental
charges or levies, or such trade accounts or claims, are being contested in
good faith by appropriate proceedings and are adequately reserved against in
accordance with GAAP; (ii) all other lawful claims which, if unpaid, would
by law become a Lien upon its property not constituting a Permitted Lien; and
(iii) all permitted Indebtedness, as and when due and payable, except to
the extent any trade accounts are being contested in good faith by appropriate
proceedings and are adequately reserved against in accordance with GAAP, but
subject to any subordination provisions contained in any instrument or
agreement evidencing such Indebtedness.


 


(e)           Maintenance of
Insurance. The Company will, and will cause each of its Subsidiaries to,
carry and maintain in full force and effect, at its own expense and with
financially sound and reputable insurance companies (not Affiliates of the
Company), insurance in such amounts, with such deductibles and covering such
risks as is customarily carried in accordance with sound business practice by
companies engaged in the same or similar businesses and owning similar
properties in the localities where the Company or such Subsidiary operates, and
in any event in amount, adequacy and scope satisfactory to the Board of
Directors of the Company.


 


(f)            Keeping of
Records and Books of Account. The Company will, and will cause each of its
Subsidiaries to, keep adequate records and books of account, in which complete
entries will be made in accordance with GAAP, reflecting all financial
transactions of the Company and its Subsidiaries.


 


(g)           Inspection Rights.
The Company will at any reasonable time and from time to time, at the Company’s
expense, (i) permit the Lender or any of its agents or representatives to
visit and inspect any of the Collateral or other properties of the Company and
its Subsidiaries and to examine and make copies of and abstracts from the
records and books of account of the Company and its Subsidiaries, and to
discuss the business affairs, finances and accounts of the Company and any such
Subsidiary with any of the officers, employees or accountants of the Company or
such Subsidiary, and (ii) and permit the Lender or any of its agents or
representatives to conduct periodic audits of the Collateral at such
frequencies as the Lender shall deem appropriate; provided, that so long
as no Event of Default shall have occurred and be continuing, such inspections
and audits for which the Company shall be charged shall be limited to two (2)
in any one calendar year. In furtherance of the foregoing, the Company hereby
authorizes and will cause each of its Subsidiaries to authorize, its and each
Subsidiaries’


 


17

















 


independent accountants to
discuss the business affairs, finances and accounts of such Person with the
agents and representatives of the Lender in accordance with this Section.


 


(h)           Compliance with
Laws, Agreements, Etc. The Company will, and will cause each of its
Subsidiaries to, comply with the requirements of all applicable laws, rules,
regulations and orders of any governmental agency or authority, including all
Environmental Laws and ERISA, and the terms of any Material Contract and (to
the extent such non-compliance could reasonably be expected to have a Material
Adverse Effect) the terms of any indenture, contract or other instrument to
which it may be a party or under which it or its properties may be bound.


 


(i)            Maintenance of
Properties, Etc. The Company will, and will cause each of its Subsidiaries
to, conduct its business in the ordinary course, consistent with past
practices, and maintain and preserve all of its properties necessary or useful
in the proper conduct of its business in good working order and condition and
otherwise in accordance with the general practice of other Persons of similar
character and size, ordinary wear and tear excepted.


 


(j)            Licenses. The
Company will, and will cause each of its Subsidiaries to, obtain and maintain,
and to take all action necessary to timely renew, all licenses, permits,
authorizations, consents, filings, exemptions, registrations and other
governmental approvals of any governmental agency or authority necessary or
useful in connection with the execution, delivery and performance of the Loan
Documents, the consummation of the transactions therein contemplated or (except
where the failure to do so could not reasonably be expected to result in
liabilities or obligations in excess of $10,000 individually or in the
aggregate at any time outstanding) the operation and proper conduct of its
business and ownership of its properties.


 


(k)           Protection
of Intellectual Property Rights. Except, in the case of clauses (i)
and (iii), if reasonably and in good faith determined by the Board of Directors
of the Company that such intellectual property is of negligible economic value
to the Company or its Subsidiaries, the Company will, and will cause each of
its Subsidiaries to: (i) protect, defend and maintain the validity and
enforceability of its intellectual property; (ii) promptly advise the
Lender in writing of any infringements of its intellectual property; and
(iii) not allow any intellectual property to be abandoned, forfeited or
dedicated to the public without the Lender’s written consent


 


(l)            Use of Proceeds.
The Company will use the proceeds of the Loan (i) solely to fund the
Company’s ordinary course business operations as specified in reasonable detail
in writing to the Lender from time to time and as approved in writing by the
Lender prior to such use of the Loan proceeds, and (ii) only after the
Company has demonstrated that it has expended all of the Company’s other cash
and cash equivalents including any investments or other liquid assets, other
than any restricted cash or cash equivalents held at, and for the benefit of,
JPMorgan Chase Bank, NA, to secure the Company’s reimbursement obligation as of
the date hereof with respect to a letter of credit issued by JPMorgan Chase
Bank, NA, for the benefit of Two Lincolnshire Office Venture, LLC in connection
with the Company’s lease of the premises at Two Marriott Drive, Lincolnshire,
Illinois, provided that in no event shall the amount of such restricted cash or
cash equivalents be increased without the Lender’s approval. The Company will
hold the unexpended proceeds of the Loan in a segregated bank account apart
from the other


 


18

















 


cash assets of the Company
which account will be subject to an account control agreement in favor of the
Lender. No part of such proceeds will be used for “purchasing” or “carrying”
any “margin stock”, or for any purpose which violates, or which would be
inconsistent with, the provisions of Regulations T, U or X of the Board of
Governors of the Federal Reserve System.


 


(m)          Additional
Subsidiaries. (i) Promptly after the date the Company organizes,
creates or acquires any additional Subsidiary, and, in any event, within two
Business Days following receipt by the Company from the Lender of a security
agreement and a guaranty of the Obligations each in form and substance
satisfactory to the Lender, the Company shall cause such Subsidiary to execute
and deliver such guaranty and security agreement to the Lender;
(ii) within five days after the date such Subsidiary becomes a Subsidiary,
the Company shall (A) deliver to the Lender a supplement to the Security
Agreement executed by the Company referencing such new Subsidiary, and
(B) cause such Subsidiary to have executed and filed any UCC-1 financing
statements furnished by the Lender in each jurisdiction in which such filing is
necessary to perfect the security interest of the Lender in the Collateral of
such Subsidiary and in which the Lender request that such filing be made; (iii) additionally,
the Company and such Subsidiary shall have executed and delivered to the Lender
such other items as reasonably requested by the Lender in connection with the
foregoing, including resolutions, incumbency and officers’ certificates,
opinions of counsel, search reports and other certificates and documents; and
(iv) the Lender may elect in its sole discretion to waive any such
collateral delivery requirement set forth in this subsection (m) for any
Subsidiary that will remain a dormant or shell Subsidiary. The Lender agrees to
waive any such requirement in the case of any non-U.S. Subsidiary (or in the
case of a stock pledge, to require the pledge of not more than 65% of the
capital stock or other ownership interests of any such Subsidiary constituting
a direct (i.e., “first tier”)
non-U.S. Subsidiary), if any adverse tax consequences under applicable U.S. tax
law would result therefrom. The provisions of this subsection (m) shall
not be deemed to be implied consent to any such organization, creation or
acquisition of any additional Subsidiary otherwise prohibited by the terms and
conditions of this Agreement.


 


(n)           Subordination.
The Company will cause all Specified Indebtedness now or hereafter owed by it
to any Person to be subordinated in right of payment and security to the
Indebtedness and other Obligations owing to the Lender in accordance with a
Subordination Agreement. As used herein, “Specified Indebtedness” means all
Indebtedness owing to any of its Affiliates (other than the Lender) and Indebtedness
of the types referred to in clauses (i), (iii), (iv), (v) and (vi) of the
definition of “Indebtedness” herein and all Contingent Obligations in respect
of indebtedness or obligations of others of the kinds referred to in such
clauses (i), (iii), (iv), (v) and (vi), but Specified Indebtedness shall
not include the Indebtedness listed on Schedule 1 (other than the
Indebtedness under the Subordinated Note Purchase Agreement).


 


(o)           Responsible
Officer Change. If any Responsible Officer ceases to hold such office with
the Company, the Company shall replace such Responsible Officer with a
replacement satisfactory to the Lender within 60 days after such Responsible
Officer’s departure from the Company.


 


(p)           Further
Assurances and Additional Acts. The Company will execute, acknowledge,
deliver, file, notarize and register at its own expense all such further
agreements, instruments, certificates, documents and assurances and perform
such acts as the Lender shall


 


19

















 


deem necessary or reasonably
appropriate to effectuate the purposes of the Loan Documents, and promptly
provide the Lender with evidence of the foregoing satisfactory in form and
substance to the Lender.


 


(q)           Collateral Access
Agreements. On or prior to the date that is 30 days after the Closing Date,
the Company will deliver to the Lender Collateral Access Agreements with
respect to each of the following locations: (i) 2 Marriott Drive,
Lincolnshire, IL 60069; and (ii) Optimum Warehousing and Distribution, 450
Barclay Blvd., Lincolnshire, IL 60069, and (iii) Ameriwater, 1257 Stanley
Ave., Dayton, OH 45404.


 


(r)            Third Party
Consents. On or prior to the date that is 30 days after the Closing Date,
the Company will deliver to the Lender all consents, approvals and
authorizations from third Persons required under any Material Contract or other
document necessary for the grant in the Loan Documents of any Lien in favor of
the Lenders as reasonably requested by, and in form and substance reasonably
satisfactory to, the Lender.


 


SECTION 5.03       Negative
Covenants. So long as any of the Obligations shall remain unpaid (other
than inchoate indemnity obligations and any other obligations which by their
terms are to survive the termination of the Loan Documents), the Company agrees
that (provided, that, notwithstanding anything to the contrary in
clauses (e) and (m) below, the Company or any of its Subsidiaries may take
any action or make any expenditure described in clauses (e) and (m) in the
ordinary course of business, consistent with past practice until the Company
receives written notice from the Lender stating that all expenditures and such
actions of the Company and its Subsidiaries after the date thereof will require
the Lender’s prior approval, which notice the Lender may give at any time in
its sole discretion; thereafter such expenditures and such actions may only be
made with the Lender’s prior approval):


 


(a)           Indebtedness.
The Company will not, and will not permit any of its Subsidiaries to, create,
incur, assume or otherwise become liable for or suffer to exist any
Indebtedness, other than: (i) Indebtedness of the Company to the Lender;
(ii) the existing Indebtedness listed in Schedule 1;
(iii) accounts payable to trade creditors for goods and services and current
operating liabilities (not the result of the borrowing of money) incurred in
the ordinary course of the Company’s or such Subsidiary’s business in
accordance with customary terms and paid within the specified time, unless
contested in good faith by appropriate proceedings and reserved for in
accordance with GAAP; and (iv) Indebtedness consisting of guarantees
resulting from endorsement of negotiable instruments for collection by the
Company or any such Subsidiary in the ordinary course of business.


 


(b)           Liens; Negative
Pledges. The Company will not, and will not permit any of its Subsidiaries
to, (i) create, incur, assume or suffer to exist any Lien upon or with
respect to any of its properties, revenues or assets, whether now owned or
hereafter acquired, other than Permitted Liens, and (ii) enter into any
agreement prohibiting the creation or assumption of any Lien upon any of its
properties, revenues or assets, whether now owned or hereafter acquired.


 


(c)           Change in Nature
of Business. The Company will not, and will not permit any of its
Subsidiaries to, engage in any line of business different from those lines of
business carried on by it at the date hereof.


 


20

















 


(d)           Restrictions on
Fundamental Changes. The Company will not, and will not permit any of its
Subsidiaries to, enter into any merger, consolidation or other combination, or
acquire all or substantially all of the assets of, any Person, or sell,
transfer, lease or otherwise dispose of (whether in one transaction or in a
series of transactions) all or substantially all of its assets, or agree to do
any of the foregoing.


 


(e)           Sales of Assets.
The Company will not, and will not permit any of its Subsidiaries to, sell,
lease, transfer, or otherwise dispose of, or part with control of (whether in
one transaction or a series of transactions) any assets (including any shares
of stock in any Subsidiary or other Person), except: (i) sales or
operating leases of, or other dispositions of inventory, and the license,
sublicense and grant of distribution and similar rights, in the ordinary course
of business.


 


(f)            Distributions.
(i) The Company will not declare or pay any dividends in respect of the
Company’s capital stock or other equity interests, or purchase, redeem, retire
or otherwise acquire for value any of its capital stock or other equity
interests now or hereafter outstanding, return any capital to its shareholders
as such, or make any distribution of assets, shares of capital stock, warrants,
rights, options, obligations or securities thereto to its shareholders as such,
or permit any of its Subsidiaries to purchase, redeem, retire, or otherwise
acquire for value any stock of the Company, or make any payment to retire, or
to obtain the surrender of, any outstanding warrants, options or other rights
for the purchase or acquisition of its capital stock now or hereafter
outstanding. (ii) The Company will not permit any Subsidiary of the
Company to grant or otherwise agree to or suffer to exist any consensual
restrictions on the ability of such Subsidiary to pay dividends and make other
distributions to the Company, or to pay any Indebtedness owed to the Company or
transfer properties and assets to the Company.


 


(g)           Loans and
Investments. The Company will not, and will not permit any of its
Subsidiaries to, purchase or otherwise acquire the capital stock or other
equity interests, assets (constituting a business unit), obligations or other
securities of or any interest in any Person, or otherwise make any loan,
advance or extend any other credit to, guarantee the obligations of or make any
additional capital contributions or other investments in any Person, or commit
or agree to any of the foregoing, other than investments (i) listed in Schedule 1,
and (ii) in connection with extensions of credit in the nature of accounts
receivable or notes receivable arising from the sales of goods or services in
the ordinary course of business, and (iii) received in connection with any
Insolvency Proceeding in respect of any customers or suppliers. The Company
will not, and will not permit any of its Subsidiaries to organize, create or
acquire any Subsidiaries other than the Subsidiaries set forth in Schedule 1.


 


(h)           Transactions with
Related Parties. The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly enter into any transaction with any
Affiliate unless disclosed to and approved by the Lender.


 


(i)            ERISA. The
Company shall not, and shall not permit any of its ERISA Affiliates to: (i) terminate
any Pension Plan so as to result in liability to the Company or any ERISA
Affiliate: (ii) permit to exist any ERISA Event, or any other event or
condition, which presents the risk of a liability to any ERISA Affiliate;
(iii) make a complete or partial withdrawal (within the meaning of ERISA
Section 4201) from any Multiemployer Plan so as to result in any


 


21

















 


liability to the Company or any
ERISA Affiliate; (iv) enter into any new Plan or modify any existing Plan
so as to increase its obligations thereunder which could result in any
liability to any ERISA Affiliate; (v) permit the present value of all
nonforfeitable accrued benefits under any Plan (using the actuarial assumptions
utilized by the PBGC upon termination of a Plan) to exceed the fair market
value of Plan assets allocable to such benefits, all determined as of the most
recent valuation date for each such Plan; or (vi) engage in any transaction
which would cause any obligation, or action taken or to be taken, hereunder (or
the exercise by the Lender of any of its rights under this Agreement, the Note
or the other Loan Documents) to be a non-exempt (under a statutory or
administrative class exemption) prohibited transaction under ERISA or Section
4975 of the Internal Revenue Code.


 


(j)            Limitation
on Issuance of Capital Stock. The Company shall not, and shall not permit
any of its Subsidiaries to, issue or sell or enter into any agreement or
arrangement for the issuance and sale of, any shares of its capital stock or
other equity interests, any securities convertible into or exchangeable for its
capital stock or any options or warrants with respect thereto, except, with the
Lender’s approval, any such issuance and sale of equity securities of the Company
pursuant to a stock option plan or restricted stock purchase plan approved by
the Compensation Committee of the Company’s Board of Directors, including the
approval of the member(s) of the Compensation Committee elected or otherwise
designated by Durus.


 


(k)           Modifications
of Indebtedness, Organizational Documents and Certain Other Agreements; Etc.
The Company shall not, and shall not permit any of its Subsidiaries to
(i) amend, modify or otherwise change any statement, budget, forecast,
projection and operating plan and report delivered to the Lender, unless
approved by its Board of Directors and the Lender; (ii) amend, modify or
otherwise change (or permit the amendment, modification or other change in any
manner of) any of the provisions of any of its or its Subsidiaries’
Indebtedness or of any instrument or agreement (including, without limitation,
any purchase agreement, indenture, loan agreement or security agreement)
relating to any such Indebtedness if such amendment, modification or change
would shorten the final maturity or average life to maturity of, or require any
payment to be made earlier than the date originally scheduled on, such
Indebtedness, would increase the interest rate applicable to such Indebtedness,
or would otherwise be adverse to the Lender or the issuer of such Indebtedness
in any respect, (iii) except for the Obligations, make any voluntary or
optional payment, prepayment, redemption, defeasance, sinking fund payment or
other acquisition for value of any of its or its Subsidiaries’ Indebtedness, or
refund, refinance, replace or exchange any Indebtedness, or make any payment,
prepayment, redemption, defeasance, sinking fund payment or repurchase of any
outstanding Indebtedness as a result of any asset sale, change of control, issuance
and sale of debt or equity securities or similar event, or give any notice with
respect to any of the foregoing, (iv) amend, modify or otherwise change
any of its organizational documents, or (v) amend, modify or otherwise
change any material provision of any Material Contract, or accelerate,
terminate or cancel any Material Contract.


 


(l)            Redemption
of Subordinated Debt. The Company shall not, and shall not permit any of
its Subsidiaries to (other than with respect to Subordinated Debt owing to the Lender)
(i) agree to or permit any amendment, modification or waiver of any
provision of any agreement related to any Subordinated Debt (including any amendment,
modification or waiver


 


22

















 


pursuant
to an exchange of other securities or instruments for outstanding Subordinated
Debt), or (ii) make any voluntary or optional payment or repayment on,
redemption, conversion, exchange or acquisition for value of, or any sinking
fund or similar payment with respect to, any Subordinated Debt. 


 


(m)          Other
Changes. The Company shall not, and shall not suffer or permit any of its
Subsidiaries, to (i) make any expenditures, including any expenditures in
respect of (A) any lease or any sale and leaseback (real or personal property),
(B) any purchase or other acquisition of any fixed or capital assets or
any other assets, or (C) any other expenditures in the ordinary course of
business, (ii) enter into any new contract, agreement, indenture, license
or instrument or enter into any other transaction, (iii) establish any new
Plan or change any Plan except as required by law, (iv) have any material
loss of customers of the Company or its Subsidiaries except for potential loss
of customers who are outside of a PHD operating districts established at the
direction of the Board of Directors of the Company, or (v) pay or increase
the compensation of any existing employee, officer, director or consultant, or
to pay or award any bonus, incentive compensation, service award or other like benefit
to any employee, officer, director or consultant, or to make any severance or
termination payments, or enter into or amend any severance agreement with, any
employee, officer or director, or enter into any new employment, consulting,
non-competition, retirement, parachute or indemnification agreement with any
officer, director, employee or agent, or modify any such existing agreement.


 


(n)           Accounting
Changes. The Company shall not, and shall not suffer or permit any of its
Subsidiaries to, make any change in accounting treatment or reporting
practices, except as required or permitted by GAAP, or change its fiscal year
or that of any of its consolidated Subsidiaries.


 


ARTICLE VI          

EVENTS OF DEFAULT


 


SECTION 6.01       Events
of Default. Any of the following events which shall occur shall constitute
an “Event of Default”:


 


(a)           Payments. The
Company shall fail (i) to pay when due any amount of principal of, or
interest on, the Loan or the Note, or (ii) to pay any other amount payable
under any of the Loan Documents within three (3) Business Days after written
demand therefor.


 


(b)           Representations
and Warranties. Any representation or warranty by the Company or any
Guarantor under or in connection with the Loan Documents shall prove to have
been incorrect in any material respect when made or deemed made.


 


(c)           Failure by
Company to Perform Certain Covenants. The Company shall fail to perform or
observe any term, covenant or agreement contained in Sections 5.01 or
5.03, or clauses (a), (e), (g), (l), (m), (q) and (r) of 5.02


 


(d)           Failure by
Company to Perform Other Covenants. The Company shall fail to perform or
observe any other term, covenant or agreement contained in any Loan Document on
its part to be performed or observed and any such failure shall remain unremedied
for a period


 


23

















 


of 12 days from the occurrence
thereof (unless the Lender determines that such failure is not capable of
remedy).


 


(e)           Insolvency;
Voluntary Proceedings. The Company, any Guarantor or any Subsidiary thereof
(i) ceases or fails to be Solvent, or generally fails to pay, or admits in
writing its inability to pay, its debts as they become due, subject to
applicable grace periods, if any, whether at stated maturity or otherwise; (ii) voluntarily
ceases to conduct its business in the ordinary course; (iii) commences any
Insolvency Proceeding with respect to itself; or (iv) takes any action to
effectuate or authorize any of the foregoing.


 


(f)            Involuntary
Proceedings. (i) Any involuntary Insolvency Proceeding is commenced or
filed against the Company, any Guarantor or any Subsidiary thereof, or any
writ, judgment, warrant of attachment, execution or similar process, is issued
or levied against a substantial part of such Person’s properties, and any such
proceeding or petition shall not be dismissed, or such writ, judgment, warrant
of attachment, execution or similar process shall not be released, vacated or
fully bonded within 30 days after commencement, filing or levy; (ii) the
Company, any Guarantor or any Subsidiary thereof admits the material
allegations of a petition against it in any Insolvency Proceeding, or an order
for relief (or similar order under non-U.S. law) is ordered in any Insolvency
Proceeding; or (iii) the Company, any Guarantor or any Subsidiary thereof
acquiesces in the appointment of a receiver, trustee, custodian, conservator,
liquidator, mortgagee in possession (or agent therefor), or other similar
Person for itself or a substantial portion of its property or business.


 


(g)           Dissolution, Etc.
The Company, any Guarantor or any of their respective Subsidiaries shall
(i) liquidate, wind up or dissolve (or suffer any liquidation, wind-up or
dissolution), (ii) suspend its operations, or (iii) take any action
to authorize any of the actions or events set forth above in this
subsection (g).


 


(h)           Default Under
Other Agreements. (i) The Company, any Guarantor or any of their respective
Subsidiaries shall fail (A) to make any payment of any principal of, or
interest or premium on, any Indebtedness (other than in respect of the Loan)
having an aggregate principal amount (including undrawn committed or available
amounts) of more than $100,000 when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) and such failure shall
continue after the applicable notice or grace period, if any, specified in the
agreement or instrument relating to such Indebtedness as of the date of such
failure; or (B) to perform or observe any term, covenant or condition on its
part to be performed or observed under any agreement or instrument relating to
any such Indebtedness, when required to be performed or observed, or any other
event shall occur or condition shall exist under any such agreement or
instrument, and such failure, event or condition shall continue after the
applicable, notice or grace period, if any, specified in such agreement or
instrument, if the effect of such failure, event or condition is to accelerate,
or to permit the acceleration of, the maturity of such Indebtedness; (ii) any
such Indebtedness shall be declared to be due and payable, or required to be
prepaid (other than by a regularly scheduled required prepayment), prior to the
stated maturity thereof; or (iii) there is a default under any Material
Contract and such default results in the right by the other party thereto,
irrespective of whether exercised, to accelerate the maturity of the Company’s,
any Guarantor’s or any of their respective Subsidiaries’ obligations
thereunder, to terminate, cancel or amend such Material Contract, or to refuse
to renew such


 


24

















 


Material Contract pursuant to
an automatic renewal right therein, or any Material Contract terminates other
than in accordance with its terms or with the approval of the Board of
Directors of the Company.


 


(i)            Judgments. (i) Any
judgment or order for the payment of money in excess of, individually or in the
aggregate, $100,000 shall be rendered against the Company, any Guarantor or any
of their respective Subsidiaries; or (ii) any non-monetary judgment or
order shall be rendered against the Company, any Guarantor or any such
Subsidiary involving an aggregate amount in excess of $100,000; and in each
case there shall be any period of 10 consecutive days during which such
judgment continues unsatisfied or during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect.


 


(j)            Material Adverse
Effect. Any event, matter, condition or circumstance occurs (including any
such event, matter, condition or circumstance which would occur upon notice or
lapse of time or both) which has or would reasonably be expected to have a
Material Adverse Effect.


 


(k)           Failure by
Guarantor to Perform Covenants; Invalidity of Guaranty. Any Guarantor shall
fail to perform or observe any term, covenant or agreement contained in its
Guaranty on its part to be performed or observed, or any default shall occur
under the Guaranty, and any such failure or default shall continue after the
applicable grace period, if any, specified in its Guaranty as of the date of
such failure, or any “Event of Default” as defined in such Guaranty shall have
occurred; or any Guaranty or any other Guarantor Document shall for any reason
be revoked or invalidated, or otherwise cease to be in full force and effect,
or any Guarantor or any other Person shall contest in any manner the validity
or enforceability thereof or deny that it has any further liability or
obligation thereunder.


 


(l)            Collateral
Documents. The Company shall fail to perform or observe any term, covenant
or agreement contained in the Collateral Documents on its part to be performed
or observed and any such failure shall remain unremedied beyond the grace
period, if any, specified therein (unless the Lender determines that such
failure is not capable of remedy), or any “Event of Default” as defined in any
Collateral Document shall have occurred; or any of the Collateral Documents
after delivery thereof shall for any reason be revoked or invalidated, or
otherwise cease to be in full force and effect, or the Company or any other
Person shall contest in any manner the validity or enforceability thereof, or
the Company or any other Person shall deny that it has any further liability or
obligation thereunder; or any of the Collateral Documents for any reason,
except to the extent permitted by the terms thereof, shall cease to create a
valid and perfected first priority Lien subject only to Permitted Liens in any
of the Collateral purported to be covered thereby.


 


(m)          ERISA. There
shall occur one or more ERISA Events which individually or in the aggregate
results in or otherwise is associated with liability of the Company, any
Guarantor or any ERISA Affiliate thereof in excess of $100,000 during the term
of this Agreement; or there exists, an amount of unfunded benefit liabilities
(as defined in Section 4001(a)(18) of ERISA) individually or in the aggregate
under all Pension Plans (excluding for


 


25

















 


purposes of such computation
any Pension Plans with respect to which assets exceed benefit liabilities)
which exceeds $100,000.


 


(n)           Change in Control.
A Change in Control shall have occurred unless consented to in writing by the
Lender.


 


(o)           Subordination.
Any Subordination Agreement (other than with respect to Subordinated Debt owing
to the Lender) shall for any reason be revoked or invalidated, or otherwise
cease to be in full force and effect, any Person (other than the Lender) shall
contest in any manner the validity or enforceability thereof or deny that it
has any further liability or obligation thereunder, or the Indebtedness
hereunder shall for any reason be subordinated or shall not have the priority
contemplated by this Agreement or any Subordination Agreement.


 


(p)           Consents, Etc.
Any law, decree, license, permit, consent, authorization, registration or
approval now or hereafter necessary to enable the Company or any Guarantor to
comply with its obligations incurred in the Loan Documents shall be modified in
any manner that has an adverse effect on the Loan and the Loan Documents,
revoked, withdrawn or withheld or shall cease to remain in full force and
effect.


 


SECTION 6.02       Effect
of Event of Default. If any Event of Default shall occur and be continuing,
the Lender may by notice to the Company, declare the entire unpaid principal
amount of the Loan and the Notes related thereto, all interest accrued and
unpaid thereon and all other Obligations to be forthwith due and payable,
whereupon the Loan and any such Notes, all such accrued interest and all such
other Obligations shall become and be forthwith due and payable; in each case,
without presentment, demand, protest or further notice of any kind, all of
which are hereby expressly waived by the Company, provided that upon the
occurrence of an actual or deemed entry of an order for relief with respect to
the Company under the Bankruptcy Code, the result which would otherwise occur
only upon giving of notice by the Lender to the Company as specified herein
shall occur automatically, without the giving of any such notice. If any Event
of Default shall occur and be continuing, whether or not the actions referred
to above have been taken, the Lender may (A) exercise any or all of the
Lender’s rights and remedies under the Collateral Documents, and (B) proceed
to enforce all other rights and remedies available to the Lender under the Loan
Documents and applicable law.


 


ARTICLE VII        

MISCELLANEOUS


 


SECTION 7.01       Amendments
and Waivers. Except as otherwise provided herein or in any other Loan
Document, no amendment to any provision of this Agreement or any of the other
Loan Documents shall in any event be effective unless the same shall be in
writing and signed by the Company (and/or any Guarantor or other party thereto,
as applicable) and the Lender; and no waiver of any provision of this Agreement
or any other Loan Document, or consent to any departure by the Company, any
Guarantor or other party therefrom, shall in any event be effective unless the
same shall be in writing and signed by the Lender. Any such amendment, waiver
or consent shall be effective only in the specific instance and for the
specific purpose for which given.


 


26

















 


SECTION 7.02       Notices.
All notices and other communications required or permitted hereunder or under
the other Loan Documents shall be in writing and shall be deemed effectively
given: (i) upon personal delivery to the party to be notified;
(ii) when sent by confirmed telex or facsimile if sent during normal
business hours of the recipient, if not, then on the next business day;
(iii) five (5) days after having been sent by registered or certified
mail, return receipt requested, postage prepaid; or (iv) two (2) days
after deposit with a nationally recognized overnight courier, specifying next
day delivery, with written verification of receipt. All communications shall be
sent to the parties hereto at their respective addresses or facsimile numbers
set forth below their names on the signature pages hereof, or as notified by
such party from time to time at least ten (10) days prior to the effectiveness
of such notice.


 


SECTION 7.03       No
Waiver; Cumulative Remedies. No failure on the part of the Lender to
exercise, and no delay in exercising, any right, remedy, power or privilege
under any Loan Document shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right, remedy, power or privilege preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights and remedies under the Loan Documents are
cumulative and not exclusive of any rights, remedies, powers and privileges
that may otherwise be available to the Lender.


 


SECTION 7.04     Costs and Expenses; Indemnity.


 


(a)           Costs and
Expenses. The Company agrees to pay on demand: (i) the reasonable
out-of-pocket costs and expenses of the Lender and any of its Affiliates, and
the reasonable fees and disbursements of counsel to the Lender in connection
with the negotiation, preparation, execution, delivery and administration of
the Loan Documents, and any amendments, modifications or waivers of the terms
thereof, and the custody of the Collateral; (ii) all audit, consulting,
appraisal, search, recording, filing and similar costs, fees and expenses
incurred or sustained by the Lender or any of its Affiliates in connection with
the Loan Documents or the Collateral; and (iii) all costs and expenses of
the Lender and its Affiliates, and fees and disbursements of counsel, in
connection with (A) any Default, (B) the enforcement or attempted enforcement
of, and preservation of any rights or interests under, the Loan Documents, (C)
any out-of-court workout or other refinancing or restructuring or any
bankruptcy or insolvency case or proceeding, and (D) the preservation,
protection, sale or collection of, or other realization upon, any of the
Collateral, including all expenses of taking, collecting, holding, sorting,
handling, preparing for sale, selling, or the like, and other such expenses of
sales and collections of Collateral.


 


(b)           Other Charges.
The Company also agrees to indemnify the Lender against and hold it harmless
from any and all present and future stamp, transfer, documentary and other such
taxes, levies, fees, assessments and other charges made by any jurisdiction by
reason of the execution, delivery, performance and enforcement of the Loan
Documents.


 


(c)           Indemnification.
Whether or not the transactions contemplated hereby shall be consummated, the
Company hereby agrees to indemnify the Lender, any Affiliate thereof and their
respective directors, officers, employees, agents, counsel and other advisors
(each an “Indemnified Person”) against, and hold each of them harmless from,
any and all liabilities, obligations, losses, claims, damages, penalties,
actions, judgments, suits, costs,


 


27

















 


expenses or disbursements of
any kind or nature whatsoever, including the reasonable fees and disbursements
of counsel to an Indemnified Person, which may be imposed on or incurred by any
Indemnified Person, or asserted against any Indemnified Person by any third
party or by the Company or any Guarantor, in any way relating to or arising out
of, in connection with, or as a result of (i) the execution or delivery of
this Agreement, any other Loan Document or any agreement or instrument
contemplated hereby or thereby, the performance by the parties hereto of their
respective obligations hereunder or thereunder or the consummation of the transactions
contemplated hereby or thereby or the Collateral, (ii) the Loan or the use
or intended use of the proceeds thereof, or (iii) any actual or prospective
claim, litigation, investigation or proceeding relating to any of the
foregoing, whether based on contract, tort or any other theory, whether brought
by a third party or by the Company or any Guarantor (the “Indemnified
Liabilities”); provided that the Company shall not be liable to any
Indemnified Person for any portion of such Indemnified Liabilities to the
extent they resulted from such Indemnified Person’s gross negligence or willful
misconduct. If and to the extent that the foregoing indemnification is for any
reason held unenforceable, the Company agrees to make the maximum contribution
to the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law


 


SECTION 7.05       Survival.
All covenants, agreements, representations and warranties made in any Loan
Documents shall, except to the extent otherwise provided therein, survive the
execution and delivery of this Agreement, the making of the Loan and the
execution and delivery of any Notes, and shall continue in full force and
effect so long as the Loan shall remain outstanding or any other Obligations remain
unpaid or any obligation to perform any other act hereunder or under any other
Loan Document remains unsatisfied. Without limiting the generality of the
foregoing, the obligations of the Company under Section 7.04, and all similar
obligations under the other Loan Documents (including all obligations to pay
costs and expenses and all indemnity obligations), shall survive the repayment
of the Loan.


 


SECTION 7.06       Benefits
of Agreement. The Loan Documents are entered into for the sole protection
and benefit of the parties hereto and their successors and assigns, and no
other Person other than any Indemnified persons referred to in
Section 7.04(c) shall be a direct or indirect beneficiary of, or shall
have any direct or indirect cause of action or claim in connection with, any
Loan Document.


 


SECTION 7.07     Binding Effect; Assignment.


 


(a)           Binding Effect.
This Agreement shall become effective when it shall have been executed by the
Company and the Lender and thereafter shall be binding upon, inure to the
benefit of and be enforceable by the Company, the Lender and their respective
successors and assigns.


 


(b)           Assignment. The
Company shall not have the right to assign its rights and obligations hereunder
or under the other Loan Documents or any interest herein or therein without the
prior written consent of the Lender. The Lender may sell, assign, transfer or
grant participations in all or any portion of the Lender’s rights and
obligations hereunder and under the other Loan Documents to any other Person. In
connection with any partial assignment, upon the request of the assigning
Lender or the assignee, the Company shall execute and deliver substitute


 


28

















 


Notes to the assigning Lender
or the assignee, dated the effective date of such assignment, setting forth the
principal amount of the Loan held by such assigning Lender and assignee (after
giving effect to the assignment), and containing other appropriate insertions,
and the assigning Lender shall thereupon return the Note previously held by it


 


SECTION 7.08       Governing
Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE INTERNAL LAWS OF THE STATE OF NEW YORK (AS PERMITTED BY SECTION 5-1401
OF THE NEW YORK GENERAL OBLIGATIONS LAW (OR ANY SIMILAR SUCCESSOR PROVISION))
WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW RULE THAT WOULD CAUSE THE
APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE INTERNAL LAWS OF THE
STATE OF NEW YORK TO THE RIGHTS AND DUTIES OF THE PARTIES.


 


SECTION 7.09       Waiver
of Jury Trial. THE COMPANY AND THE LENDER  HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVES THE RIGHT TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS, THIS WAIVER BEING A MATERIAL INDUCEMENT FOR EACH
SUCH PARTY TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.


 


SECTION 7.10     Submission to Jurisdiction.


 


(a)           For
purposes of any suit, action or other legal proceeding relating to the Loan
Documents or the enforcement of any provision of the Loan Documents, each party
hereto hereby expressly and irrevocably submits and consents to the exclusive
jurisdiction (unless waived by the Lender) of the courts of the State of New
York sitting in the borough of Manhattan and the United States District Court
for the Southern District of New York for the purposes of any such suit, action
or legal proceeding, including to enforce any settlement, order or award; and
agrees that such state and federal courts shall be deemed to be a convenient
forum; and waives and agrees not to assert (by way of motion, as a defense or
otherwise), in any such legal proceeding commenced in such court any claim that
such party is not subject personally to the jurisdiction of such court, that
such legal proceeding has been brought in an inconvenient forum, that the venue
of such proceeding is improper or that the Loan Documents or the subject matter
thereof may not be enforced in or by such court.


 


(b)           Each
party hereto agrees to the entry of an order to enforce any resolution,
settlement, order or award made pursuant to this Section by the courts of the
State of New York sitting in the borough of Manhattan or the United States
District Court for the Southern District of New York and in connection therewith
hereby waives, and agrees not to assert by way of motion, as a defense, or
otherwise, any claim that such resolution, settlement, order or award is
inconsistent with or violative of the laws or public policy of the laws of the
State of New York or any other jurisdiction.


 


SECTION 7.11       Entire
Agreement. The Loan Documents reflect the entire agreement between the
Company and the Lender with respect to the matters set forth herein and


 


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therein and supersede any prior
agreements, commitments, drafts, communication, discussions and understandings,
oral or written, with respect thereto.


 


SECTION 7.12       Payments
Set Aside. To the extent that any payment by or on behalf of the Company is
made to the Lender, or the Lender exercises its right of set-off, and such
payment or the proceeds of such set-off or any part thereof is subsequently
invalidated, declared to be fraudulent or preferential, set aside or required
(including pursuant to any settlement entered into by such Lender in its
discretion) to be repaid to a trustee, receiver or any other party, in
connection with any proceeding under the Bankruptcy Code or other U.S. Federal,
state or foreign liquidation, conservatorship, bankruptcy, assignment for the
benefit of creditors, moratorium, rearrangement, receivership, insolvency,
reorganization, or similar debtor relief laws, or otherwise, then to the extent
of such recovery, the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such set-off had not occurred.


 


SECTION 7.13       Severability.
If any provision of any of the Loan Documents shall be prohibited by or invalid
under any applicable law or regulation in any jurisdiction, it shall, as to
such jurisdiction, be deemed modified to conform to the minimum requirements of
such law or regulation, or, if for any reason it is not deemed so modified, it
shall be ineffective and invalid only to the extent of such prohibition or
invalidity without affecting the remaining provisions of such Loan Document, or
the validity or effectiveness of such provision in any other jurisdiction.


 


SECTION 7.14       Counterparts.
This Agreement may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so executed shall
be deemed to be an original and all of which taken together shall constitute
but one and the same agreement.


 


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


 


	
   

  	
  THE COMPANY

  	
   

  
	
   

  	
   

  
	
   

  	
  AKSYS, LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   /s/ Laurence P. Birch

  	
   

  
	
   

  	
   

  	
   Title: CEO

  
	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
   

  
	
   

  	
  Two Marriott Drive

  
	
   

  	
  Lincolnshire, Illinois 60069

  
	
   

  	
   

  
	
   

  	
  Attn.:

  	
   

  	
   

  
	
   

  	
  Fax No. 847-229-2080

  
	
   

  	
   

  
	
   

  	
  With a copy to:

  
	
   

  	
   

  
	
   

  	
  Keith S. Crow P.C.

  
	
   

  	
  Kirkland & Ellis LLP

  
	
   

  	
  200 East Randolph Drive

  
	
   

  	
  Chicago, Illinois 60601

  
	
   

  	
  Fax: 312-861-2200

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  THE LENDER

  	
   

  
	
   

  	
   

  
	
   

  	
  DURUS LIFE SCIENCES
  MASTER

  FUND LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   /s/ Leslie Lake

  	
   

  
	
   

  	
   

  	
   Title: Director

  
	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
   

  
	
   

  	
  Durus Life Sciences Master Fund Ltd.

  
	
   

  	
  c/o International Fund Services
  (Ireland) Ltd.

  
	
   

  	
  3rd Floor, Bishops Square

  
	
   

  	
  Redmonds Hill

  
	
   

  	
  Dublin 2, Ireland

  
	
   

  	
  Attention: Susan Byrne

  
	
   

  	
  Fax: (011) 35-31-707-5013

  
						



 


31

















 


	
   

  	
  With a copy to:

  
	
   

  	
   

  
	
   

  	
  Gavin Grover, Esq.

  
	
   

  	
  Morrison & Foerster LLP

  
	
   

  	
  425 Market Street

  
	
   

  	
  San Francisco, California 94105

  
	
   

  	
  Fax: 415-269-7522

  
	
   

  	
   

  
	
   

  	
  And with a copy to:

  
	
   

  	
   

  
	
   

  	
  Paul N. Roth, Esq.

  
	
   

  	
  Schulte, Roth & Zabel

  
	
   

  	
  919 Third Avenue

  
	
   

  	
  New York, New York 10022

  
	
   

  	
  Fax: 212-593-5955

  



 


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