**Exhibit 10.23**

 

**[Execution Copy]**

 

GUARANTOR SECURITYAGREEMENT

 

THIS GUARANTOR SECURITY AGREEMENT (this “Agreement”),dated as of March 31, 2006, is made between each Subsidiary named in thesignature pages hereof (each a “Grantor” and, collectively, the “Grantors”) andDURUS LIFE SCIENCES MASTER FUND LTD., a Cayman Islands Exempted Company (the “SecuredParty”).

 

Aksys, Ltd., a Delaware corporation (the “Borrower”),as borrower, and the Secured Party are parties to a Bridge Loan Agreement datedas of even date herewith (as amended, amended and restated, modified, renewedor extended from time to time, the “Loan Agreement”). To guarantee theindebtedness and the other obligations of the Borrower under the LoanAgreement, each Grantor has made a Guaranty dated as of the date hereof (asamended, modified, renewed or extended from time to time, the “Guaranty”) infavor of the Secured Party.

 

Debtor and Secured Party hereby agree as follows:

 

Section 1.   Definitions;Interpretation.

 

## (a)           All capitalized terms used in this Agreement and nototherwise defined herein shall have the meanings assigned to them in the LoanAgreement.

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## (b)           As used in this Agreement, the following terms shallhave the following meanings:

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“Collateral” has the meaning set forth inSection 2.

 

“Event of Default” has the meaning set forth inSection 8.

 

“Guarantor Documents” means the Guaranty andall other certificates, documents, agreements and instruments delivered toLender under or in connection with the Guaranty and the Loan Documents.

 

“Loan Agreement” has the meaning set forth inthe recital.

 

“Obligations” means as to any Grantor theGuarantied Obligations of such Grantor as defined in the Guaranty and theindebtedness, liabilities and other obligations of such Grantor to the SecuredParty under this Agreement and any other Guarantor Document, whether nowexisting or arising, and whether due or to become due, absolute or contingent,liquidated or unliquidated, determined or undetermined, and including interestthat accrues after the commencement by or against Borrower or any Guarantor ofany Insolvency Proceeding naming such Person as the debtor in such proceeding.

 

“Partnership and LLC Collateral” has themeaning set forth in Section 5(r).

 

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“Pledged Collateral” means any Grantor’s (i) investmentproperty and (ii) Partnership and LLC Collateral, including any ownershipinterests in any Subsidiaries of such Grantor.

 

“Pledged Collateral Agreements” means anyshareholders agreement, operating agreement, partnership agreement, votingtrust, proxy agreement or other agreement or understanding with respect to anyPledged Collateral.

 

“UCC” means the Uniform Commercial Code as thesame may, from time to time, be in effect in the State of New York.

 

## (c)           Where applicable and except as otherwise definedherein, terms used in this Agreement shall have the meanings assigned to themin the UCC.

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## (d)           The rules of interpretation set forth inSection 1.02 of the Loan Agreement shall be applicable to this Agreementand are incorporated herein by this reference.

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Section 2.   Security Interest.

 

## (a)           As security for the payment and performance of theObligations, each Grantor hereby grants to Secured Party a security interest inall of such Grantor’s right, title and interest in, to and under the followingassets, wherever located and whether now existing or owned or hereafteracquired or arising: all goods, accounts, chattel paper (whether tangible orelectronic), software, commercial tort claims, deposit accounts, documents,equipment (including all fixtures), general intangibles (including intellectualproperty), payment intangibles, instruments, inventory, investment property,letter-of-credit rights, money, records and all other personal property and allproducts, proceeds and supporting obligations of any and all of the foregoing(collectively, the “Collateral”). Notwithstanding the foregoing, “Collateral”shall not include any rights or interests in any lease, license, contract, oragreement, as such, if under the terms of such lease, license, contract, oragreement, or applicable law with respect thereto, the valid grant of asecurity interest or lien therein to Secured Party is prohibited and suchprohibition has not been or is not waived or the consent of the other party tosuch lease, license, contract, or agreement has not been or is not otherwiseobtained or under applicable law such prohibition cannot be waived; provided,that the foregoing exclusion shall in no way be (i) construed to apply if any suchprohibition would be rendered ineffective under the UCC or other applicable law(including the Bankruptcy Code) or principles of equity, (ii) construed so asto limit, impair or otherwise affect Secured Party’s unconditional continuingsecurity interests in and liens upon any rights or interests of each Grantor inor to the proceeds thereof, including monies due or to become due under anysuch lease, license, contract, or agreement (including any accounts), or (iii)construed to apply at such time as the condition causing such prohibition shallbe remedied and, to the extent severable, “Collateral” shall include anyportion of such lease, license, contract, or agreement that does not result insuch prohibition; and provided, further, that each Grantor shalluse commercially reasonable efforts to obtain consent with respect to leases,licenses, contracts and agreements that are material to such Grantor’s businesspursuant to commercially reasonable terms for the grant of a security interestor lien over such leases, licenses, contracts or agreements.

 

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## (b)           Anything herein to the contrary notwithstanding, (i) each Grantor shall remain liable under any PledgedCollateral Agreements and any other contracts, agreements and other documentsincluded in the Collateral, to the extent set forth therein, to perform all ofits duties and obligations thereunder to the same extent as if this Agreementhad not been executed, (ii) the exercise by SecuredParty of any of the rights hereunder shall not release such Grantor from any ofits duties or obligations under any Pledged Collateral Agreements or other suchcontracts, agreements and other documents, and (iii) SecuredParty shall not have any obligation or liability under any Pledged CollateralAgreements or other such contracts, agreements and other documents by reason ofthis Agreement, nor shall Secured Party be obligated to perform any of theobligations or duties of such Grantor thereunder or to take any action to collector enforce any Pledged Collateral Agreements or other such contract, agreementor other document.

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## (c)           This Agreement shall create a continuing securityinterest in the Collateral which shall remain in effect until terminated inaccordance with Section 19 hereof.

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## (d)           Anything herein to the contrary notwithstanding, in noevent shall the Collateral include, and no Grantor shall be deemed to havegranted a security interest in, any Grantor’s right, title or interest in anyof the outstanding voting capital stock or other ownership interests of aControlled Foreign Corporation (as defined below) in excess of 65% of thevoting power of all classes of capital stock or other ownership interests ofsuch Controlled Foreign Corporation entitled to vote; provided that (i)immediately upon the amendment of the Internal Revenue Code to allow the pledgeof a greater percentage of the voting power of capital stock or other ownershipinterests in a Controlled Foreign Corporation without adverse tax consequences,the Collateral shall include, and each such Grantor shall be deemed to havegranted a security interest in, such greater percentage of capital stock orother ownership interests of each Controlled Foreign Corporation; and (ii) ifno adverse tax consequences to the Grantor shall arise or exist in connectionwith the pledge of any Controlled Foreign Corporation, the Collateral shallinclude, and each Grantor shall be deemed to have granted a security interestin, such Controlled Foreign Corporation. As used herein, “Controlled ForeignCorporation” shall mean a “controlled foreign corporation” as defined in theInternal Revenue Code.

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Section 3.   Financing Statementsand Other Action.

 

## (a)           Each Grantor hereby authorizes Secured Party to fileat any time and from time to time any financing statements describing theCollateral, and each Grantor shall execute and deliver to Secured Party, and suchGrantor hereby authorizes Secured Party to file (with or without such Grantor’ssignature), at any time and from time to time, all amendments to financingstatements, assignments, continuation financing statements, terminationstatements, security agreements relating to intellectual property Collateral, accountcontrol agreements, collateral access agreements, landlord waivers and otherdocuments and instruments, in form reasonably satisfactory to Secured Party, andto take such other action, in each case as Secured Party may reasonablyrequest, to perfect and continue perfection of, maintain the priority of orprovide notice of the security interest of Secured Party in the Collateral andto accomplish the purposes of this Agreement. Without limiting the generalityof the foregoing, each Grantor ratifies and authorizes the filing by SecuredParty of (i) any financing statements filed prior to the date hereof, and (ii)any financing statements describing the Collateral as “all assets” or “allpersonal property.”

 

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## (b)           Each Grantor will cooperate with Secured Party inobtaining control (as defined in the UCC) of Collateral consisting of depositaccounts, investment property, letter of credit rights and electronic chatterpaper.

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## (c)           Upon request of the Secured Party, any Grantor willjoin with Secured Party in notifying any third party who has possession of anyCollateral of Secured Party’s security interest therein and obtaining anacknowledgment from the third party that it is holding the Collateral for thebenefit of Secured Party; provided, however, this Section 3(c)shall not apply with respect to any Collateral consisting of machines leased byindividuals for the purpose of home healthcare treatments.

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## (d)           Upon request of Secured Party, any Grantor (i) shallcause certificates to be issued in respect of any uncertificated PledgedCollateral, (ii) shall exchange certificated Pledged Collateral forcertificates of larger or smaller denominations, and (iii) shall cause anysecurities intermediaries to show on their books that Secured Party is theentitlement holder with respect to any Pledged Collateral.

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## (e)           Upon request of the Secured Party, no Grantor willcreate any chattel paper without placing a legend on the chattel paperacceptable to Secured Party indicating that Secured Party has a securityinterest in the chattel paper.

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Section 4.   Representations andWarranties. Each Grantor represents and warrants to Secured Party that:

 

## (a)           This Agreement creates a security interest which isenforceable against the Collateral in which each Grantor now has rights, andwill create a security interest which is enforceable against the Collateral inwhich each Grantor hereafter acquires rights at the time such Grantor acquiresany such rights; and (ii) Secured Party has aperfected and first priority security interest in the Collateral, in which eachGrantor now has rights, and will have a perfected and first priority securityinterest in the Collateral in which such Grantor hereafter acquires rights atthe time such Grantor acquires any such rights, in each case securing thepayment and performance of the Obligations; provided, however,that with respect to Pledged Collateral consisting of the stock or otherownership of Persons organized outside of the United States, the securityinterest granted hereunder may not be perfected or enforceable under applicableforeign law, and, unless requested by Secured Party, no Grantor shall be requiredto take any action to cause such security interest to become first priority,perfected security interests in favor of Secured Party under applicable foreignlaw.

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## (b)           Each Grantor’s chief executive office and principalplace of business (as of the date of this Agreement) is located at the addressset forth in Schedule 1; each Grantor’s jurisdiction oforganization and organizational ID number is set forth in Schedule 1;each Grantor’s exact legal name is as set forth in the first paragraph of thisAgreement; and all other locations where each Grantor conducts business orCollateral is kept (as of the date of this Agreement) are set forth in Schedule 1.All trade names and trade styles under which each Grantor conducts its businessoperations as of the date hereof are set forth in Schedule 2, and,except as set forth in Schedule 2, no Grantor has, at any time inthe past:  (i) been known as or usedany other corporate, trade or fictitious name; (ii) changed its name;(iii) been the surviving 

 

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## or resulting corporation in a merger or consolidation; or(iv) acquired through asset purchase or otherwise any business of anyPerson.

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## (c)           Each Grantor has rights in or the power to transferthe Collateral, and each Grantor is the sole and complete owner of theCollateral or has the right to use the Collateral pursuant to a valid andenforceable license, free from any Lien other than Permitted Liens.

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## (d)           All of each Grantor’s United States and foreignpatents and patent applications, copyrights (registered and materialunregistered), applications for copyright registrations, trademarks, servicemarks and trade names (registered and material unregistered), and applicationsfor registration of such trademarks, service marks and trade names, are setforth in Schedule 2.

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## (e)           No control agreements exist with respect to anyCollateral other than control agreements in favor of Secured Party.

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## (f)            No Grantor has or holds any chattel paper,letter-of-credit rights or commercial tort claims except as disclosed inwriting to Secured Party.

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## (g)           The names and addresses of all financial institutionsand other Persons at which any Grantor maintains its deposit and securitiesaccounts, and the account numbers and account names of such accounts, are setforth in Schedule 1.

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## (h)           Schedule 3 lists each Grantor’s ownership interests in each ofits Subsidiaries as of the date hereof.

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## (i)            Each Grantor is and will be the legal record andbeneficial owner of all Pledged Collateral, and has and will have good andmarketable title thereto.

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## (j)            Except as disclosed in writing to Secured Party, thereare no Pledged Collateral Agreements which affect or relate to the voting orgiving of written consents with respect to any of the Pledged Collateral. EachPledged Collateral Agreement contains the entire agreement between the partiesthereto with respect to the subject matter thereof, has not been amended ormodified, and is in full force and effect in accordance with its terms. To thebest knowledge of each Grantor, there exists no violation or default under anyPledged Collateral Agreement by such Grantor or the other parties thereto. EachGrantor has not knowingly waived or released any of its rights under orotherwise consented to a departure from the terms and provisions of any PledgedCollateral Agreement.

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## (k)           No Grantor is or will become a lessee under any realproperty lease or party to any other agreement governing the location ofCollateral at the premises of another Person pursuant to which the lessor orsuch other Person may obtain any rights in any of the Collateral except asdisclosed in writing to Secured Party, and no such lease or other suchagreement now prohibits, restrains, impairs or will prohibit, restrain orimpair any Grantor’s right to remove any Collateral from the premises at whichsuch Collateral is situated, except for the usual and customary restrictionscontained in such leases of real property, and such other agreements.

 

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Section 5.   Covenants. So longas any of the Obligations remain unsatisfied, each Grantor agrees that:

 

## (a)           Each Grantor shall appear in and defend any action,suit or proceeding which may affect its title to, or right or interest in, SecuredParty’s right or interest in, the Collateral, and shall do and perform allreasonable acts that may be necessary and appropriate to maintain, preserve andprotect the Collateral.

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## (b)           Each Grantor shall comply with all laws, regulationsand ordinances, and all policies of insurance, relating to the possession,operation, maintenance and control of the Collateral.

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## (c)           Each Grantor shall give prompt written notice to SecuredParty (and in any event not later than ten (10) days prior to any changedescribed below in this subsection) of:  (i) any change in the location ofsuch Grantor’s chief executive office or principal place of business; (ii) any change in the locations set forth in Schedule 1; (iii) any change in its name;(iv) any changes in its identity or structure in any manner whichmight make any financing statement filed hereunder incorrect or misleading; and(v) any change in its jurisdiction of organization; provided that noGrantor may locate any Collateral outside of the United States nor shall anyGrantor change its jurisdiction of organization to a jurisdiction outside ofthe United States.

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## (d)           Each Grantor shall carry and maintain in full forceand effect, at its own expense and with financially sound and reputableinsurance companies (not Affiliates of any Grantor), insurance with respect tothe Collateral in such amounts, with such deductibles and covering such risksas is customarily carried in accordance with sound business practice bycompanies engaged in the same or similar businesses and owning similarproperties in the localities where any Grantor operates, and in any event inamount, adequacy and scope satisfactory to the Board of Directors of such Grantor.Insurance on the Collateral shall name the Secured Party as additional insuredand as loss payee. Upon the request of Secured Party, any Grantor shall furnishSecured Party from time to time with full information as to the insurancecarried by it and, if so requested, copies of all such insurance policies. EachGrantor shall also furnish to Secured Party from time to time upon the requestof Secured Party a certificate of such Grantor’s insurance broker or otherinsurance specialist stating that all premiums then due on the policiesrelating to insurance on the Collateral have been paid and that such policiesare in full force and effect. All insurance policies required under thissubsection (d) shall provide that they shall not be terminated or cancellednor shall any such policy be materially changed without at least 30 days’ priorwritten notice (or 10 days’ prior written notice in the event of cancellationfor non-payment of premium) to such Grantor and Secured Party. Receipt ofnotice of termination or cancellation of any such insurance policies orreduction of coverages or amounts thereunder shall entitle Secured Party torenew any such policies, cause the coverages and amounts thereof to bemaintained at levels required pursuant to the first sentence of thissubsection (d) or otherwise to obtain similar insurance in place of suchpolicies, in each case at the expense of such Grantor. If the Collateral shallbe materially damaged or destroyed, in whole or in part, by fire or othercasualty, the affected Grantor shall give prompt notice thereof to SecuredParty. Additionally, the affected Grantor shall in any event promptly give SecuredParty notice of all reports made to insurance companies in respect of any claimin excess of $100,000.

 

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## No settlement on account of any loss covered by insuranceshall be made for less than insured value without the consent of Secured Party.

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## (e)           Each Grantor shall keep accurate and complete booksand records with respect to the Collateral, disclosing Secured Party’s securityinterest hereunder.

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## (f)            No Grantor shall surrender or lose possession of(other than to Secured Party), sell, lease, or otherwise dispose of or transferany of the Collateral or any right or interest therein, except as expressly permittedby the Loan Documents.

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## (g)           Each Grantor shall keep the Collateral free of allLiens except Permitted Liens.

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## (h)           Each Grantor shall pay and discharge all taxes, fees,assessments and governmental charges or levies imposed upon it with respect tothe Collateral prior to the date on which penalties attach thereto, except tothe extent such taxes, fees, assessments or governmental charges or levies arebeing contested in good faith by appropriate proceedings and are adequatelyreserved against in accordance with GAAP.

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## (i)            Each Grantor shall maintain and preserve its legalexistence, its rights to transact business and all other rights, franchises andprivileges necessary or desirable in the normal course of its business andoperations and the ownership of the Collateral, except in connection with anytransactions expressly permitted by the Loan Documents.

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## (j)            Upon the request of Secured Party, each Grantor shall(i) immediately deliver to Secured Party, or its designated agent,appropriately endorsed or accompanied by appropriate instruments of transfer orassignment, all documents and instruments, all certificated securities withrespect to any Pledged Collateral, all letters of credit and all accounts andother rights to payment at any time evidenced by promissory notes, tradeacceptances or other instruments, and (ii) cause certificates to be issuedin respect of any uncertificated Pledged Collateral, (iii) provide suchnotice, obtain such acknowledgments and take all such other action, withrespect to any investment property, chattel paper, documents and letter-ofcredit rights, as Secured Party shall reasonably specify.

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## (k)           Each Grantor shall:  (i)  with such frequency as SecuredParty may require, furnish to Secured Party such lists of customers and otherinformation relating to the accounts and other rights to payment as SecuredParty shall reasonably request; (ii) give onlynormal discounts, allowances and credits as to accounts and other rights topayment, in the ordinary course of business, according to normal tradepractices utilized by such Grantor, and enforce all accounts and other rightsto payment strictly in accordance with their terms, except that such Grantormay grant any extension of the time for payment or enter into any agreement tomake a rebate or otherwise to reduce the amount owing on or with respect to, orcompromise or settle for less than the full amount thereof, any account orother right to payment, in the ordinary course of business, according to normaland prudent trade practices utilized by such Grantor; and(iii) such Grantor shall upon the request of Secured Party(A) at any time, notify all or any designated portion of the account debtorsand other obligors on the accounts and other rights to payment of the securityinterest hereunder, and (B) upon the occurrence and during the 

 

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## continuance of an Event of Default, notify the account debtorsand other obligors on the accounts and other rights to payment or anydesignated portion thereof that payment shall be made directly to Secured Partyor to such other Persons or locations as Secured Party shall specify.

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## (l)            Each Grantor shall, at such times as Secured Partyshall reasonably request, prepare and deliver to Secured Party a report of allinventory, in form and substance satisfactory to Secured Party.

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## (m)          Each Grantor shall (i) notifySecured Party of any material claim made or asserted against the Collateral byany Person and of any change in the composition of the Collateral or otherevent which could materially adversely affect the value of the Collateral or SecuredParty’s Lien thereon; (ii) furnish to SecuredParty such statements and schedules further identifying and describing the Collateraland such other reports and other information in connection with the Collateralas Secured Party may reasonably request, all in reasonable detail; and (iii) upon reasonable request of Secured Party makesuch demands and requests for information and reports as such Grantor isentitled to make in respect of the Collateral.

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## (n)           If and when Grantor shall obtain rights to any newpatents, trademarks, service marks, trade names or registered or materialunregistered copyrights, otherwise acquire or become entitled to the benefitof, or apply for registration of, any of the foregoing, such Grantor (i) shall promptly notify Secured Party, as the casemay be, thereof and (ii) hereby authorizes SecuredParty, as the case may be, to modify, amend, or supplement Schedule 2and from time to time to include any of the foregoing and make all necessary orappropriate filings with respect thereto. Such Grantor shall promptly executeand deliver appropriate documents (in form and substance reasonablysatisfactory to Secured Party) with respect to any such current or futureregistered copyrights for recording in the U.S. Copyright Office.

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## (o)           Without limiting the generality of subsection (n), noGrantor shall register with the U.S. Copyright Office any unregistered copyrights(whether in existence on the date hereof or thereafter acquired, arising, ordeveloped) unless such Grantor provides Secured Party, as the case may be, withwritten notice of its intent to register such copyrights not less than 30 daysprior to the date of the proposed registration.

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## (p)           At the request of Secured Party, each Grantor willobtain from each Person from whom such Grantor leases any premises at which anyCollateral is at any time present such collateral access, subordination,waiver, consent and estoppel agreements, as Secured Party may require, in formand substance satisfactory to Secured Party.

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## (q)           Each Grantor shall give Secured Party immediate noticeof the acquisition of any instruments or securities, or the establishment ofany new deposit account or any new securities account with respect to any PledgedCollateral.

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## (r)            (i) Each Grantor shall comply with all of itsobligations under any Pledged Collateral Agreements to which it is a party andshall enforce all of its rights thereunder. (ii) Each Grantor will takeall actions necessary to cause each Pledged Collateral Agreement relating toCollateral consisting of any and all limited liability and general partnershipinterests and limited liability company interests of any type or nature (“Partnershipand LLC Collateral”) 

 

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## to provide specifically at all times that: (A) no Partnershipand LLC Collateral shall be a security governed by Article 8 of the applicable UniformCommercial Code; and (B) no consent of any member, manager, partner or otherPerson shall be a condition to the admission as a member or partner of anytransferee that acquires ownership of the Partnership and LLC Collateral as aresult of the exercise by Secured Party of any remedy hereunder or underapplicable law. Additionally, each Grantor agrees that no Partnership and LLCCollateral (A) shall be dealt in or traded on any securities exchange or in anysecurities market, (B) shall constitute an investment company security, or(C) shall be held by such Grantor in a securities account. (iii) EachGrantor shall not vote to enable or take any other action to:  (A) amend or terminate, or waivecompliance with any of the terms of, any Pledged Collateral Agreement, certificateor articles of incorporation, bylaws or other organizational documents in anyway that changes the rights of such Grantor with respect to any Partnership andLLC Collateral or other Collateral constituting investment property in a manneradverse to the Secured Party or that adversely affects the validity, perfectionor priority of Secured Party’s security interest therein.

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## (s)           Each Grantor shall immediately notify Secured Party ifsuch Grantor holds or acquires (i) any commercial tort claims,(ii) any chattel paper, including any interest in any electronic chattelpaper, other than chattel paper arising in the ordinary course of such Grantor’sbusiness in connection with leases by such Grantor to its customers ofinventory, or (iii) any letter-of-credit rights.

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## (t)            In the event that any Grantor acquires rights in any Subsidiaryafter the date hereof, it shall deliver to Secured Party a completed supplementto Schedule 3, reflecting such new Subsidiary and such Grantor shallcomply with the Section 5.02(m) of the Loan Agreement. Notwithstanding theforegoing, it is understood and agreed that the security interest of SecuredParty shall attach to any such Subsidiary immediately upon such Grantor’sacquisition of rights therein and shall not be affected by the failure of suchGrantor to deliver any such supplement to Schedule 3 or to comply withSection 5.02(m) of the Loan Agreement.

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Section 6.   Rights of Secured Party.

 

## (a)           Until Secured Party exercises its rights hereunder tocollect the accounts and other rights to payment, each Grantor shall endeavorin the first instance diligently to collect all amounts due or to become due onor with respect to the accounts and other rights to payment. At the request of SecuredParty, upon the occurrence and during the continuance of any Event of Default,all remittances received by any Grantor shall be held in trust for SecuredParty and, in accordance with Secured Party’s instructions, remitted to SecuredParty or deposited to an account of Secured Party in the form received (withany necessary endorsements or instruments of assignment or transfer).

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## (b)           At the request of Secured Party, upon the occurrenceand during the continuance of any Event of Default, Secured Party shall beentitled to receive all distributions and payments of any nature with respectto any Pledged Collateral or instrument Collateral, and all such distributionsor payments received by any Grantor shall be held in trust for Secured Partyand, in accordance with Secured Party’s instructions, remitted to Secured Partyor deposited to an account designated by Secured Party in the form received(with any necessary endorsements or instruments of assignment or transfer). Further,upon the occurrence and during 

 

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## the continuance of any Event of Default any suchdistributions and payments with respect to any Pledged Collateral held in anysecurities account shall be held and retained in such securities account, ineach case as part of the Collateral hereunder, and Secured Party shall have theright, following prior written notice to the such Grantor, to vote and to giveconsents, ratifications and waivers with respect to any Pledged Collateral andinstruments, and to exercise all rights of conversion, exchange, subscriptionor any other rights, privileges or options pertaining thereto, as if SecuredParty were the absolute owner thereof; provided that Secured Party shallhave no duty to exercise any of the foregoing rights afforded to it or them andshall not be responsible to such Grantor or any other Person for any failure todo so or delay in doing so.

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Section 7.   Authorization; SecuredParty Appointed Attorney-in-Fact**.**Secured Partyshall have the right to, in the name of any Grantor, or in the name of SecuredParty or otherwise, upon notice to but without the requirement of assent by suchGrantor, and each Grantor hereby constitutes and appoints Secured Party (andany of Secured Party’s officers, employees or agents designated by SecuredParty) as such Grantor’s true and lawful attorney-in-fact, with full power andauthority to: (i) sign and file any of the financing statements and otherdocuments and instruments which must be executed or filed to perfect orcontinue perfected, maintain the priority of or provide notice of Secured Party’ssecurity interest in the Collateral (including any notices to or agreementswith any securities intermediary); (ii) assert, adjust, sue for,compromise or release any claims under any policies of insurance;(iii) give notices of control, default or exclusivity (or similar notices)under any account control agreement or similar agreement with respect toexercising control over deposit accounts or securities accounts; and(iv) execute any and all such other documents and instruments, and do anyand all acts and things for and on behalf of such Grantor, which Secured Partymay deem reasonably necessary or advisable to maintain, protect, realize uponand preserve the Collateral and Secured Party’s security interest therein andto accomplish the purposes of this Agreement. The foregoing power of attorneyis coupled with an interest and irrevocable so long as the Obligations have notbeen paid and performed in full. Secured Party agrees that, except upon andduring the continuance of an Event of Default, the power of attorney, or anyrights granted to Secured Party, pursuant to clauses (ii), (iii) and (iv),shall not be exercised. Each Grantor hereby ratifies, to the extent permittedby law, all that Secured Party shall lawfully and in good faith do or cause tobe done by virtue of and in compliance with this Section 7.

 

Section 8.   Events of Default. Anyof the following events which shall occur and be continuing shall constitute an“Event of Default”:

 

## (a)           Any “Event of Default” as defined in the LoanAgreement or in any other Loan Document shall have occurred and be continuing;

 

## (b)           Any material impairment in the value of the Collateralor any impairment of the priority of Secured Party’s Lien hereunder.

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## (c)           Any levy upon, seizure or attachment of any of theCollateral, the aggregate value of which exceeds $100,000, which shall not havebeen rescinded or withdrawn.

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## (d)           Any loss, theft or substantial damage to, ordestruction of, any material portion of the Collateral (unless within 10 daysafter the occurrence of any such event, the 

 

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## affected Grantor furnishes to Secured Party evidencesatisfactory to Secured Party that the amount of any such loss, theft, damageto or destruction of the Collateral is fully insured under policies naming SecuredParty as an additional named insured or loss payee).

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Section 9.   Remedies.

 

## (a)           Upon the occurrence and during the continuance of anyEvent of Default, Secured Party shall have, in addition to all other rights andremedies granted to it in this Agreement, the Guaranty or any other Loan Document,all rights and remedies of a secured party under the UCC and other applicablelaws. Without limiting the generality of the foregoing, (i) Secured Partymay peaceably and without notice enter any premises of any Grantor, takepossession of any the Collateral, remove or dispose of all or part of theCollateral on any premises of such Grantor or elsewhere, or, in the case ofequipment, render it nonfunctional, and otherwise collect, receive, appropriateand realize upon all or any part of the Collateral, and demand, give receiptfor, settle, renew, extend, exchange, compromise, adjust, or sue for all or anypart of the Collateral, as Secured Party may determine; (ii) Secured Partymay require any Grantor to assemble all or any part of the Collateral and makeit available to Secured Party at any place and time designated by Secured Party,and may withdraw (or cause to be withdrawn) any and all funds and otherCollateral from any deposit accounts or securities accounts; (iii) SecuredParty may use or transfer any of any Grantor’s rights and interests in anyintellectual property Collateral, by license, by sublicense (to the extentpermitted by an applicable license) or otherwise, on such conditions and insuch manner as Secured Party may determine (iv) Secured Party may securethe appointment of a receiver of the Collateral or any part thereof (to theextent and in the manner provided by applicable law); and (v) SecuredParty may sell, resell, lease, use, assign, license, sublicense, transfer orotherwise dispose of any or all of the Collateral in its then condition orfollowing any commercially reasonable preparation or processing (utilizing inconnection therewith any of any Grantor’s assets, without charge or liabilityto Secured Party therefor) at public or private sale, by one or more contracts,in one or more parcels, at the same or different times, for cash or credit, orfor future delivery without assumption of any credit risk, all as Secured Partydeems advisable; provided, however, that Grantors shall becredited with the net proceeds of sale only when such proceeds are finallycollected by Secured Party. Each Grantor recognizes that Secured Party may beunable to make a public sale of any or all of the Pledged Collateral, by reasonof prohibitions contained in applicable securities laws or otherwise, andexpressly agrees that a private sale to a restricted group of purchasers forinvestment and not with a view to any distribution thereof shall be considereda commercially reasonable sale. Secured Party shall have the right upon anysuch public sale, and, to the extent permitted by law, upon any such privatesale, to purchase the whole or any part of the Collateral so sold, free of anyright or equity of redemption, which right or equity of redemption each Grantorhereby releases, to the extent permitted by law. Secured Party shall give eachGrantor such notice of any private or public sales as may be required by theUCC or other applicable law.

##  

## (b)           For the purpose of enabling Secured Party to exercise itsrights and remedies under this Section 9 or otherwise in connection withthis Agreement, effective upon the occurrence and continuance of an Event ofDefault, each Grantor hereby grants to Secured Party an irrevocable,non-exclusive and assignable license (exercisable without payment or royalty orother compensation to such Grantor) to use, license or sublicense anyintellectual property 

 

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## Collateral to the extent such grant is not prohibited withrespect to such intellectual property Collateral.

##  

## (c)           Secured Party shall not have any obligation to cleanup or otherwise prepare the Collateral for sale. Secured Party shall not haveany obligation to attempt to satisfy the Obligations by collecting them fromany other Person liable for them, and Secured Party may release, modify orwaive any Collateral provided by any other Person to secure any of the Obligations,all without affecting Secured Party’s rights against any Grantor. Each Grantorwaives any right it may have to require Secured Party to pursue any thirdPerson for any of the Obligations. Secured Party may comply with any applicablestate or federal law requirements in connection with a disposition of theCollateral and compliance will not be considered adversely to affect thecommercial reasonableness of any sale of the Collateral. Secured Party may sellthe Collateral without giving any warranties as to the Collateral. SecuredParty may specifically disclaim any warranties of title or the like. Thisprocedure will not be considered adversely to affect the commercialreasonableness of any sale of the Collateral. If Secured Party sells any of theCollateral upon credit, the Grantors will be credited only with paymentsactually made by the purchaser, received by Secured Party and applied to theindebtedness of the purchaser. In the event the purchaser fails to pay for theCollateral, Secured Party may resell the Collateral, and the Grantors shall becredited with the proceeds of the sale.

##  

## (d)           To the extent any Grantor uses the proceeds of any ofthe Obligations to purchase Collateral, such Grantor’s repayment of theObligations shall apply on a “first-in, first-out” basis so that the portion ofthe Obligations used to purchase a particular item of Collateral shall be paidin the chronological order the Grantors purchased the Collateral.

##  

## (e)           The cash proceeds actually received from the sale orother disposition or collection of Collateral, and any other amounts receivedin respect of the Collateral the application of which is not otherwise providedfor herein, shall be applied first, to the payment of the fees, costsand expenses of Secured Party in exercising or enforcing its rights hereunderand in collecting or attempting to collect any of the Collateral, and to thepayment of all other amounts payable to Secured Party with respect to the LoanDocuments (other than principal and interest); and second, to thepayment of the Obligations. Any surplus thereof which exists after payment andperformance in full of the Obligations shall be promptly paid over to theGrantors or otherwise disposed of in accordance with the UCC or otherapplicable law. Each Grantor shall remain liable to Secured Party for anydeficiency which exists after any sale or other disposition or collection ofCollateral.

##  

Section 10.   Certain Waivers. EachGrantor waives, to the fullest extent permitted by law,(i) any right of redemption with respect to the Collateral, whetherbefore or after sale hereunder, and all rights, if any, of marshalling of theCollateral or other collateral or security for the Obligations; (ii) any right to require Secured Party (A) toproceed against any Person, (B) to exhaust any other collateral orsecurity for any of the Obligations, (C) to pursue any remedy in SecuredParty’s power, or (D) to make or give any presentments, demands forperformance, notices of nonperformance, protests, notices of protests ornotices of dishonor in connection with any of the Collateral; and (iii) all claims, damages, and demands against SecuredParty arising out of the repossession, retention, sale or application of theproceeds of any sale of the Collateral.

 

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Section 11.   Notices. Allnotices and other communications required or permitted hereunder shall be inwriting and shall be deemed effectively given: (i) upon personal deliveryto the party to be notified; (ii) when sent by confirmed telex orfacsimile if sent during normal business hours of the recipient, if not, thenon the next business day; (iii) five (5) days after having been sentby registered or certified mail, return receipt requested, postage prepaid; or(iv) two (2) days after deposit with a nationally recognizedovernight courier, specifying next day delivery, with written verification ofreceipt. All communications shall be sent to the parties hereto at theirrespective addresses or facsimile numbers set forth below their names on thesignature pages hereof, or, in all cases, as notified by such party from timeto time at least ten (10) days prior to the effectiveness of such notice.

 

Section 12.   No Waiver; CumulativeRemedies**.**No failure on the part of SecuredParty to exercise, and no delay in exercising, any right, remedy, power orprivilege hereunder shall operate as a waiver thereof, nor shall any single orpartial exercise of any such right, remedy, power or privilege preclude anyother or further exercise thereof or the exercise of any other right, remedy,power or privilege. The rights and remedies under this Agreement are cumulativeand not exclusive of any rights, remedies, powers and privileges that mayotherwise be available to Secured Party.

 

Section 13.   Binding Effect. ThisAgreement shall be binding upon, inure to the benefit of and be enforceable bythe Grantors, Secured Party and their respective successors and assigns. NoGrantor may assign, transfer, hypothecate or otherwise convey its rights,benefits, obligations or duties hereunder without the prior express writtenconsent of Secured Party. Any such purported assignment, transfer,hypothecation or other conveyance by any Grantor without the prior expresswritten consent of Secured Party shall be void. Each Grantor acknowledges andagrees that in connection with an assignment of, or grant of a participationin, the Obligations, Secured Party may assign, or grant participations in, allor a portion of its rights and obligations hereunder. Upon any assignment of SecuredParty’s rights hereunder, such assignee or assignees shall have, to the extentof such assignment, all rights of Secured Party hereunder. Each Grantor agreesthat, upon any such assignment, such assignee may enforce directly, withoutjoinder of Secured Party, the rights of Secured Party set forth in thisAgreement. Any such assignee shall be entitled to enforce Secured Party’srights and remedies under this Agreement to the same extent as if it were anoriginal secured party named herein.

 

Section 14.   Governing Law; Waiverof Jury Trial; Submission to Jurisdiction.

 

## (a)           This Agreement shall be construed in accordance withand governed by the internal laws of the State of New York (as permitted bySection 5-1401 of the New York General Obligations Law (or any similarsuccessor provision)) without giving effect to any choice of law rule thatwould cause the application of the laws of any jurisdiction other than theinternal laws of the State of New York to the rights and duties of the parties,except as required by mandatory provisions of law and to the extent thevalidity or perfection of the security interests hereunder, or the remedieshereunder, in respect of any Collateral are governed by the law of ajurisdiction other than New York.

 

## (b)           THE PARTIES HERETO HEREBY KNOWINGLY, VOLUNTARILY, ANDINTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF 

 

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## ANY LITIGATION ARISING OUT OF, UNDER OR IN CONNECTION WITHTHIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, THIS WAIVER BEING A MATERIALINDUCEMENT FOR EACH SUCH PARTY TO ENTER INTO THIS AGREEMENT AND THE OTHER LOANDOCUMENTS.

##  

## (c)           For purposes of any suit, action or other legalproceeding relating to this Agreement or the other Loan Documents or theenforcement of any provision of this Agreement or the Loan Documents, eachparty hereto hereby expressly and irrevocably submits and consents to theexclusive jurisdiction of the courts of the State of New York sitting in theborough of Manhattan and the United States District Court for the SouthernDistrict of New York for the purposes of any such suit, action or legalproceeding, including to enforce any settlement, order or award; and agreesthat 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 orotherwise), in any such legal proceeding commenced in such court any claim thatsuch party is not subject personally to the jurisdiction of such court, thatsuch legal proceeding has been brought in an inconvenient forum, that the venueof such proceeding is improper or that the Loan Documents or the subject matterthereof may not be enforced in or by such court.

##  

## (d)           Each party hereto agrees to the entry of an order toenforce any resolution, settlement, order or award made pursuant to thisSection by the courts of the State of New York sitting in the borough ofManhattan or the United States District Court for the Southern District of NewYork and in connection therewith hereby waives, and agrees not to assert by wayof motion, as a defense, or otherwise, any claim that such resolution,settlement, order or award is inconsistent with or violative of the laws orpublic policy of the laws of the State of New York or any other jurisdiction.

##  

Section 15.   Entire Agreement;Amendment. This Agreement and the other Loan Documents contain the entireagreement of the parties with respect to the subject matter hereof andsupersede any prior agreements, commitments, drafts, communication, discussionsand understandings, oral or written, with respect thereto. No amendment to thisAgreement, or any waiver of any provision hereof, shall be effective unless itis in writing and signed by the Secured Party and (in the case of anyamendment) the Grantors. Any such amendment, waiver or consent shall beeffective only in the specific instance and for the specific purpose for whichgiven.

 

Section 16.   Severability. Ifany provision of this Agreement shall be prohibited by or invalid under anyapplicable law or regulation in any jurisdiction, it shall, as to suchjurisdiction, be deemed modified to conform to the minimum requirements of suchlaw or regulation, or, if for any reason it is not deemed so modified, it shallbe ineffective and invalid only to the extent of such prohibition or invaliditywithout affecting the remaining provisions of this Agreement, or the validityor effectiveness of such provision in any other jurisdiction.

 

Section 17.   Counterparts. ThisAgreement may be executed in any number of counterparts and by differentparties hereto in separate counterparts, each of which when so executed shallbe deemed to be an original and all of which taken together shall constitutebut one and the same agreement.

 

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Section 18.   Future Guarantors.At such time following the date hereof as any Subsidiary of the Borrower (an “AccedingGrantor”) is required to accede to the Guaranty and accede hereto pursuant tothe terms of Section 5.02(m) of the Loan Agreement, such Acceding Grantor shallexecute and deliver to the Agent an accession agreement substantially in theform of Annex 1 (the “Accession Agreement’), signifying its agreement to bebound by the provisions of this Agreement as a Grantor to the same extent as ifsuch Acceding Grantor had originally executed this Agreement as of the datehereof.

 

Section 19.   Termination. Uponpayment and performance in full of all Obligations (other than inchoateindemnity obligations and any other obligations which by their terms are tosurvive the termination of the Loan Documents), the security interest createdunder this Agreement shall terminate and Secured Party shall promptly executeand deliver to any Grantor such documents and instruments reasonably requestedby such Grantor as shall be necessary to evidence termination of all securityinterests given by the Grantors to Secured Party hereunder.

 

[Signature PagesFollowing]

 

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

 
| ** ** | **GRANTOR:**              |
|------------|---------------------------|
| ** ** | ** **                |
|       | AKSYS INTERNATIONAL, INC. |
| ** ** | ** **                |
| ** ** | ** **                |
|       | By                        | /s/ Laurence P. Birch |
|       |                      | Name: Laurence P. Birch |
|       |                      | Title: CEO |
| ** ** | ** **                |
|       | Address:                  |
| ** ** | ** **                |
|       | Two Marriot Drive         |
|       | Lincolnshire, IL 60069    |
|       | Attn:                     |   |
|       | Fax:                      | 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         |

 

S-1

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| ** ** | **SECURED PARTY:**                             |
|------------|------------------------------------------------|
| ** ** | ** **                                     |
|       | DURUS LIFE SCIENCES MASTER                     |
| ** ** | FUND LTD.                                      |
| ** ** |                                           |
|       | By                                             | /s/ Leslie Lake |
|       |                                           | Name: 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                      |
|       |                                           |
|       |                                           |
| * *   | *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                              |

 

S-2

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**SCHEDULE1**to the Security Agreement

 

1.             Jurisdictionof Organization

 

2.             OrganizationalID Number

 

3.             ChiefExecutive Office and Principal Place of Business

 

4.             Otherlocations where any Grantor conducts business or Collateral is kept

 

5.             DepositAccounts and Security Accounts

 

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**SCHEDULE2**to the Security Agreement

 

**1.**             Patentsand Patent Applications.

 

**2.**             Copyrights(Registered and Unregistered) and Copyright Applications.

 

**3.**             Trademarks,Service Marks and Trade Names and Trademark, Service Mark and Trade NameApplications.

 

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**SCHEDULE 3**to the Security Agreement

 

**PLEDGEDSUBSIDIARIES**

 

1.             PledgedCollateral consisting of interests in each limited liability company that is asubsidiary of any Grantor as follows:

 
| **Grantor** | ** ** | **Subsidiary** | ** ** | **Number of Units** | ** ** | **Date of Issuance of  Units** |
|-------------|------------|----------------|------------|---------------------|------------|--------------------------------|
| ** **  | ** ** | ** **     | ** ** | ** **          | ** ** | ** **                     |
| ** **  | ** ** | ** **     | ** ** | ** **          | ** ** | ** **                     |
| ** **  | ** ** | ** **     | ** ** | ** **          | ** ** | ** **                     |

 

2.             PledgedCollateral consisting of interests in each general partnership, limitedpartnership, limited liability partnership or other partnership that is asubsidiary of any Grantor as follows:

 
| **Grantor** | ** ** | **Subsidiary** | ** ** | **Type of  Partnership  Interest (e.g.,  general, limited)** | ** ** | **Date of  Issuance   or Formation** | ** ** | **Number of  Units or  Other  Ownership  Interests** |
|-------------|------------|----------------|------------|--------------------------------------------------------------|------------|--------------------------------------|------------|------------------------------------------------------|
| ** **  | ** ** | ** **     | ** ** | ** **                                                   | ** ** | ** **                           | ** ** | ** **                                           |
| ** **  | ** ** | ** **     | ** ** | ** **                                                   | ** ** | ** **                           | ** ** | ** **                                           |
| ** **  | ** ** | ** **     | ** ** | ** **                                                   | ** ** | ** **                           | ** ** | ** **                                           |

 

3.             PledgedCollateral consisting of capital stock of each corporate subsidiary of any Grantorbeing represented by stock certificates as follows:

 
| **Grantor** | ** ** | **Subsidiary** | ** ** | **Certificate No.** | ** ** | **Certificate Date** | ** ** | **No. and  Class   of Shares** |
|-------------|------------|----------------|------------|---------------------|------------|----------------------|------------|--------------------------------|
| ** **  | ** ** | ** **     | ** ** | ** **          | ** ** | ** **           | ** ** | ** **                     |
| ** **  | ** ** | ** **     | ** ** | ** **          | ** ** | ** **           | ** ** | ** **                     |
| ** **  | ** ** | ** **     | ** ** | ** **          | ** ** | ** **           | ** ** | ** **                     |

 

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ANNEX 1to the Security Agreement

 

**FORM OFACCESSION AGREEMENT**

 
| To:    |   |   |   |
|--------|--------|--------|--------|
|   |   |   |
| Re:    |   |   |   |

 

Ladies and Gentlemen:

 

This Accession Agreement is made and deliveredpursuant to Section 18 of that certain Guarantor Security Agreement dated as ofMarch 31, 2006 (as amended, modified, renewed or extended from time to time,the “Security Agreement”), made between each Grantor named in the signaturepages thereof (each a “Grantor” and collectively, the “Grantors”), and DurusLife Sciences Master Fund Ltd., a Cayman Islands Exempted Company (the “SecuredParty”). All capitalized terms used in this Accession Agreement and nototherwise defined herein shall have the meanings assigned to them in either theSecurity Agreement or the Loan Agreement.

 

The undersigned,                                *[insert name of acceding Grantor]*, a                                  *[corporation, partnership, limited liabilitycompany, etc.]*, hereby acknowledges for the benefit of the Secured Partythat it shall be a “Grantor” for all purposes of the Security Agreementeffective from the date hereof. The undersigned confirms that therepresentations and warranties set forth in Section 4 of the Security Agreementare true and correct as to the undersigned as of the date hereof.

 

Without limiting the foregoing, the undersigned herebyagrees to perform all of the obligations of a Grantor under, and to be bound inall respects by the terms of, the Security Agreement, including Section 5thereof, to the same extent and with the same force and effect as if theundersigned were an original signatory thereto. The undersigned hereby grantsto the Secured Party a security interest in all of the undersigned’s right,title and interest in, to and under all the Collateral, as security for thepayment and performance of the Obligations.

 

Schedules 1, 2 and 3 to the Security Agreement ishereby amended by adding Schedule 1, 2, and 3 attached hereto to the SecurityAgreement. *[Attach hereto completed Schedules 1, 2 and 3  in the form of Schedules 1, 2 and 3 attachedto the Security Agreement.]*

 

This Accession Agreement shall constitute a LoanDocument under the Loan Agreement.

 

This Accession Agreementshall be construed in accordance with and governed by the internal laws of theState of New York (as permitted by Section 5-1401 of the New York GeneralObligations Law (or any similar successor provision)) without giving effect toany choice of law rule that would cause the application of the laws of anyjurisdiction other than the internal laws of the State of New York to therights and duties of the parties.

 

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IN WITNESS WHEREOF, the undersigned has executed thisAccession Agreement, as of the date first above written.

 
|   | [GRANTOR] |
|--------|-----------|
|   |      |
|   | By        |   |
|   | Title     |   |

 

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