**Exhibit10.24**

** **

**[ExecutionCopy]**

 

SECURITY AGREEMENT

 

THIS SECURITY AGREEMENT (this “Agreement”), dated asof March 31, 2006, is made between AKSYS, LTD., a Delaware corporation (“Debtor”),and DURUS LIFE SCIENCES MASTER FUND LTD., a Cayman Islands Exempted Company (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.

 

“Loan Agreement” means the Bridge LoanAgreement, dated as the date hereof, between Debtor and Secured Party, asamended, amended and restated, modified, renewed, extended or replaced fromtime to time.

 

“Obligations” means the indebtedness,liabilities and other obligations of Debtor and any Guarantor to Secured Partyunder or in connection with the Loan Agreement, the Note and the other Loan Documents,including, the Loan, all interest accrued thereon, all fees due under the LoanAgreement and all other amounts payable by Debtor to Secured Party thereunderor in connection therewith, whether now or hereafter existing or arising, andwhether due or to become due, absolute or contingent, liquidated orunliquidated, determined or undetermined, and including interest that accruesafter the commencement by or against Debtor or any Guarantor of any Insolvency Proceedingnaming such Person as the debtor in such proceeding.

 

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

 

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

 

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

 

“Specified Default” means any Event of Default exceptthat an Event of Default (as defined in the Loan Agreement) under Section 6.01(c)thereof shall be deemed an Event of

 

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Default for purposes of this definition only if suchEvent of Default occurs as a result of the Company’s failure to perform orobserve (i) any term, covenant or agreement contained in Section 5.01 orclauses (a), (e), (g), (l), (m), (q) or (r) of Section 5.02 of the LoanAgreement, or (ii) any material term, covenant or agreement contained inSection 5.03 of the Loan Agreement or any such term, covenant or agreement involvingan amount in excess of $25,000.

 

“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 the Obligations,Debtor hereby grants to Secured Party a security interest in all of Debtor’sright, title and interest in, to and under the following assets, whereverlocated and whether now existing or owned or hereafter acquired or arising: allgoods, accounts, chattel paper (whether tangible or electronic), software, commercialtort claims, deposit accounts, documents, equipment (including all fixtures),general intangibles (including intellectual property), payment intangibles, instruments,inventory, investment property, letter-of-credit rights, money, records, andall other personal property and all products, proceeds and supportingobligations of any and all of the foregoing (collectively, the “Collateral”). Notwithstandingthe foregoing, “Collateral” shall not include any rights or interests in anylease, license, contract, or agreement, as such, if under the terms of suchlease, license, contract, or agreement, or applicable law with respect thereto,the valid grant of a security interest or lien therein to Secured Party isprohibited and such prohibition has not been or is not waived or the consent ofthe other party to such lease, license, contract, or agreement has not been oris not otherwise obtained or under applicable law such prohibition cannot bewaived; provided, that the foregoing exclusion shall in no way be (i)construed to apply if any such prohibition would be rendered ineffective underthe UCC or other applicable law (including the Bankruptcy Code) or principlesof equity, (ii) construed so as to limit, impair or otherwise affect SecuredParty’s unconditional continuing security interests in and liens upon anyrights or interests of Debtor in or to the proceeds thereof, including moniesdue or to become due under any such lease, license, contract, or agreement(including any accounts), or (iii) construed to apply at such time as thecondition causing such prohibition shall be remedied and, to the extentseverable, “Collateral” shall include any portion of such lease, license,contract, or agreement that does not result in such prohibition; and provided,further, that Debtor shall obtain the consents with respect to leases,licenses, contracts and agreements as set forth in the Loan Agreement.

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## (b)           Anything herein to the contrary notwithstanding, (i) Debtor 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 

 

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## exercise by Secured Party of any of the rights hereundershall not release Debtor from any of its duties or obligations under anyPledged Collateral Agreements or other such contracts, agreements and otherdocuments, and (iii) Secured Party shall not haveany obligation or liability under any Pledged Collateral Agreements or othersuch contracts, agreements and other documents by reason of this Agreement, norshall Secured Party be obligated to perform any of the obligations or duties ofDebtor thereunder or to take any action to collect or enforce any PledgedCollateral Agreements or other such contract, agreement or 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 18 hereof.

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## (d)           Anything herein to the contrary notwithstanding, in noevent shall the Collateral include, and Debtor shall not be deemed to havegranted a security interest in, any of Debtor’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 Debtor shall be deemed to have granted asecurity interest in, such greater percentage of capital stock or otherownership interests of each Controlled Foreign Corporation; and (ii) if noadverse tax consequences to Debtor shall arise or exist in connection with thepledge of any Controlled Foreign Corporation, the Collateral shall include, andDebtor shall be deemed to have granted a security interest in, such ControlledForeign Corporation. As used herein, “Controlled Foreign Corporation” shallmean a “controlled foreign corporation” as defined in the Internal RevenueCode.

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## (e)           Secured Party agrees that, notwithstanding anything tothe contrary herein, the security interest granted herein to Secured Party inand to restrictedaccount No. 1610630624 held at JPMorgan Chase Bank, NA and the cash andcash equivalents held therein (collectively, the “Restricted Account”) shall besubject, subordinate and junior in all respects to the liens and securityinterests granted to JPMorgan Chase Bank, NA in the Restricted Account tosecure Debtor’s reimbursement obligation as of the date hereof with respect toa letter of credit issued by JPMorgan Chase Bank, NA, for the benefit of TwoLincolnshire Office Venture, LLC in connection with the Company’s lease of thepremises at Two Marriott Drive, Lincolnshire, Illinois.. Thesubordinations and priorities specified hereinabove with respect to any suchCollateral are expressly conditioned upon the nonavoidability and perfection ofthe lien or security interest of JPMorgan Chase Bank, NA and, ifsuch lien or security interest is not perfected or is avoidable, for anyreason, then the subordinations and relative priority agreements provided forherein shall not be effective as to the Restricted Account. Debtor agrees that immediately uponany event or circumstance resulting in the release of the Restricted Account byJPMorgan Chase Bank, NA. (A) to cause such Person to take all actionnecessary to evidence such release immediately upon the occurrence of suchevent or circumstance, (B) to furnish to Secured Party at least ten (10)days prior written notice of any anticipated event or circumstance that wouldresult in the release of the Restricted Account, and (iii) to cooperatewith Secured Party in obtaining control (as defined in the UCC) of theRestricted Account.

 

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Section 3.   Financing Statementsand Other Action.

 

## (a)           Debtor hereby authorizes Secured Party to file at anytime and from time to time any financing statements describing the Collateral,and Debtor shall execute and deliver to Secured Party, and Debtor herebyauthorizes Secured Party to file (with or without Debtor’s signature), at anytime and from time to time, all amendments to financing statements,assignments, continuation financing statements, termination statements, securityagreements relating to intellectual property Collateral, account controlagreements, collateral access agreements, landlord waivers and other documentsand instruments, in form reasonably satisfactory to Secured Party, and to takesuch other action, in each case as Secured Party may reasonably request, toperfect and continue perfection of, maintain the priority of or provide noticeof the security interest of Secured Party in the Collateral and to accomplishthe purposes of this Agreement. Without limiting the generality of theforegoing, Debtor ratifies and authorizes the filing by Secured Party of (i) anyfinancing statements filed prior to the date hereof, and (ii) any financingstatements describing the Collateral as “all assets” or “all personal property.”

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## (b)           Debtor will cooperate with Secured Party in obtainingcontrol (as defined in the UCC) of Collateral consisting of deposit accounts,investment property, letter of credit rights and electronic chatter paper.

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## (c)           Upon request of the Secured Party, Debtor will joinwith 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 Collateral consisting of machines used byindividuals for the purpose of home healthcare treatments.

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## (d)           Upon request of Secured Party, Debtor (i) shall causecertificates to be issued in respect of any uncertificated Pledged Collateral,(ii) shall exchange certificated Pledged Collateral for certificates of largeror smaller denominations, and (iii) shall cause any securities intermediariesto show on their books that Secured Party is the entitlement holder withrespect to any Pledged Collateral.

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## (e)           Upon request of the Secured Party, Debtor will notcreate 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. Debtor represents and warrants to Secured Party that:

 

## (a)           This Agreement creates a security interest which isenforceable against the Collateral in which Debtor now has rights, and willcreate a security interest which is enforceable against the Collateral in whichDebtor hereafter acquires rights at the time Debtor acquires any such rights;and (ii) Secured Party has a perfected andfirst priority security interest in the Collateral, in which Debtor now hasrights, and will have a perfected and first priority security

 

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## interest in the Collateral in which Debtor hereafter acquiresrights at the time Debtor acquires any such rights, in each case securing thepayment and performance of the Obligations.

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## (b)           Debtor’s chief executive office and principal place ofbusiness (as of the date of this Agreement) is located at the address set forthin Schedule 1; Debtor’s jurisdiction of organization andorganizational ID number is set forth in Schedule 1; Debtor’s exactlegal name is as set forth in the first paragraph of this Agreement; and allother locations where Debtor conducts business or Collateral is kept (as of thedate of this Agreement) are set forth in Schedule 1. All tradenames and trade styles under which Debtor conducts its business operations asof the date hereof are set forth in Schedule 2, and, except as setforth in Schedule 2, Debtor has not, at any time in the past:  (i) been known as or used any othercorporate, trade or fictitious name; (ii) changed its name;(iii) been the surviving or resulting corporation in a merger orconsolidation; or (iv) acquired through asset purchase or otherwise any businessof any Person.

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## (c)           Debtor has rights in or the power to transfer theCollateral, and Debtor is the sole and complete owner of the Collateral or hasthe right to use the Collateral pursuant to a valid and enforceable license,free from any Lien other than Permitted Liens.

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## (d)           All of Debtor’s United States and foreign patents andpatent applications, copyrights (registered and material unregistered),applications for copyright registrations, trademarks, service marks and tradenames (registered and material unregistered), and applications for registrationof such trademarks, service marks and trade names, are set forth in Schedule2.

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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)            Debtor does not have or hold 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 Debtor 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 Debtor’s ownership interests in each of its Subsidiariesas of the date hereof.

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## (i)            Debtor is and will be the legal record and beneficialowner of all Pledged Collateral, and has and will have good and marketabletitle 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 Debtor, there exists no violation or default under anyPledged Collateral Agreement by Debtor or the other parties thereto. Debtor hasnot knowingly waived or released

 

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## any of its rights under or otherwise consented to a departurefrom the terms and provisions of any Pledged Collateral Agreement.

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## (k)           Debtor is not and will not become a lessee under anyreal property 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 such agreementnow prohibits, restrains, impairs or will prohibit, restrain or impair Debtor’sright to remove any Collateral from the premises at which such Collateral issituated, except for the usual and customary restrictions contained in suchleases of real property, and such other agreements.

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

 

## (a)           Debtor shall appear in and defend any action, suit orproceeding 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)           Debtor shall comply with all laws, regulations andordinances, and all policies of insurance, relating to the possession,operation, maintenance and control of the Collateral.

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## (c)           Debtor 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 ofDebtor’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 thatDebtor shall not locate any Collateral outside of the United States nor shallDebtor change its jurisdiction of organization to a jurisdiction outside of theUnited States.

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## (d)           Debtor shall carry and maintain in full force andeffect, at its own expense and with financially sound and reputable insurancecompanies (not Affiliates of Debtor), insurance with respect to the Collateralin such amounts, with such deductibles and covering such risks as iscustomarily carried in accordance with sound business practice by companiesengaged in the same or similar businesses and owning similar properties in thelocalities where Debtor operates, and in any event in amount, adequacy andscope satisfactory to the Board of Directors of Debtor. Insurance on theCollateral shall name the Secured Party as additional insured and as loss payee.Upon the request of Secured Party, Debtor shall furnish Secured Party from timeto time with full information as to the insurance carried by it and, if sorequested, copies of all such insurance policies. Debtor shall also furnish to SecuredParty from time to time upon the request of Secured Party a certificate ofDebtor’s insurance broker or other insurance specialist stating that allpremiums then due on the policies relating to insurance on the Collateral havebeen paid and that such policies are in full force and effect. All insurancepolicies required under this subsection (d) shall provide that they shallnot be terminated or cancelled nor shall any such policy be materially changedwithout at least 30 days’ prior written

 

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## notice (or 10 days’ prior written notice in the event ofcancellation for non-payment of premium) to Debtor and Secured Party. Receiptof notice 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 Debtor. If the Collateral shall bematerially damaged or destroyed, in whole or in part, by fire or othercasualty, Debtor shall give prompt notice thereof to Secured Party. Additionally,Debtor shall in any event promptly give Secured Party notice of all reportsmade to insurance companies in respect of any claim in excess of $100,000. Nosettlement on account of any loss covered by insurance shall be made for lessthan insured value without the consent of Secured Party.

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## (e)           Debtor shall keep accurate and complete books andrecords with respect to the Collateral, disclosing Secured Party’s securityinterest hereunder.

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## (f)            Debtor shall not 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)           Debtor shall keep the Collateral free of all Liensexcept Permitted Liens.

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## (h)           Debtor 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 are beingcontested in good faith by appropriate proceedings and are adequately reservedagainst in accordance with GAAP.

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## (i)            Debtor 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 Agreement.

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## (j)            Upon the request of Secured Party, Debtor 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)           Debtor 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 Debtor, and enforce all

 

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## accounts and other rights to payment strictly in accordancewith their terms, except that Debtor may grant any extension of the time forpayment or enter into any agreement to make a rebate or otherwise to reduce theamount owing on or with respect to, or compromise or settle for less than thefull amount thereof, any account or other right to payment, in the ordinarycourse of business, according to normal and prudent trade practices utilized byDebtor; and (iii) Debtor shall upon the requestof Secured Party (A) at any time, notify all or any designated portion ofthe account debtors and other obligors on the accounts and other rights topayment of the security interest hereunder, and (B) upon the occurrenceand during the 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)            Debtor shall, at such times as Secured Party shallreasonably request, prepare and deliver to Secured Party a report of allinventory, in form and substance satisfactory to Secured Party.

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## (m)          Debtor 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 theCollateral and such other reports and other information in connection with theCollateral as Secured Party may reasonably request, all in reasonable detail;and (iii) upon reasonable request of SecuredParty make such demands and requests for information and reports as Debtor isentitled to make in respect of the Collateral.

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## (n)           If and when Debtor shall obtain rights to any newpatents, trademarks, service marks, trade names or registered or material unregisteredcopyrights, or otherwise acquire or become entitled to the benefit of, or applyfor registration of, any of the foregoing, Debtor (i) shallpromptly notify Secured Party, as the case may be, thereof and (ii) hereby authorizes Secured Party, as the casemay be, to modify, amend, or supplement Schedule 2 and from time to timeto include any of the foregoing and make all necessary or appropriate filingswith respect thereto. Debtor shall promptly execute and deliver appropriatedocuments (in form and substance reasonably satisfactory to Secured Party) withrespect to any such current or future registered copyrights for recording inthe U.S. Copyright Office.

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## (o)           Without limiting the generality of subsection (n),Debtor shall not register with the U.S. Copyright Office any unregisteredcopyrights (whether in existence on the date hereof or thereafter acquired,arising, or developed) unless Debtor provides Secured Party, as the case maybe, with written notice of its intent to register such copyrights not less than30 days prior to the date of the proposed registration.

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## (p)           At the request of Secured Party, Debtor will obtainfrom each Person from whom Debtor leases any premises at which any Collateralis at any time present such collateral access, subordination, waiver, consentand estoppel agreements, as Secured Party may require, in form and substancesatisfactory to Secured Party.

 

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## (q)           Debtor shall give Secured Party immediate notice ofthe acquisition of any instruments or securities, or the establishment of anynew deposit account or any new securities account with respect to any PledgedCollateral.

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## (r)            (i) Debtor 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) Debtor will take allactions 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”) to provide specifically at all times that: (A) noPartnership and LLC Collateral shall be a security governed by Article 8 of theapplicable Uniform Commercial Code; and (B) no consent of any member, manager,partner or other Person shall be a condition to the admission as a member orpartner of any transferee that acquires ownership of the Partnership and LLCCollateral as a result of the exercise by Secured Party of any remedy hereunderor under applicable law. Additionally, Debtor agrees that no Partnership andLLC Collateral (A) shall be dealt in or traded on any securities exchange or inany securities market, (B) shall constitute an investment company security, or(C) shall be held by Debtor in a securities account. (iii) Debtorshall 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,certificate or articles of incorporation, bylaws or other organizationaldocuments in any way that changes the rights of Debtor with respect to anyPartnership and LLC Collateral or other Collateral constituting investmentproperty in a manner adverse to the Secured Party or that adversely affects thevalidity, perfection or priority of Secured Party’s security interest therein.

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## (s)           Debtor shall immediately notify Secured Party ifDebtor holds or acquires (i) any commercial tort claims, (ii) anychattel paper, including any interest in any electronic chattel paper, other thanchattel paper arising in the ordinary course of Debtor’s business in connectionwith leases by Debtor to its customers of inventory, or (iii) anyletter-of-credit rights.

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## (t)            In the event that Debtor acquires rights in any Subsidiaryafter the date hereof, it shall deliver to Secured Party a completed supplementto Schedule 3, reflecting such new Subsidiary and Debtor shall complywith 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 Debtor’s acquisitionof rights therein and shall not be affected by the failure of Debtor to deliverany such supplement to Schedule 3 or to comply with Section 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, Debtor shall endeavor in thefirst instance diligently to collect all amounts due or to become due on orwith 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 Debtor shall be held in trust for Secured Partyand, in accordance with Secured Party’s instructions, remitted to Secured Partyor deposited to an account of Secured Party in the form received (with anynecessary 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 the Debtor 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 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 Debtor, 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 the Debtor 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 Debtor, or in the name of Secured Partyor otherwise, upon notice to but without the requirement of assent by Debtor,and Debtor hereby constitutes and appoints Secured Party (and any of SecuredParty’s officers, employees or agents designated by Secured Party) as Debtor’strue and lawful attorney-in-fact, with full power and authority to:(i) sign and file any of the financing statements and other documents andinstruments which must be executed or filed to perfect or continue perfected,maintain the priority of or provide notice of Secured Party’s security interestin the Collateral (including any notices to or agreements with any securitiesintermediary); (ii) assert, adjust, sue for, compromise or release anyclaims under any policies of insurance; (iii) give notices of control,default or exclusivity (or similar notices) under any account control agreementor similar agreement with respect to exercising control over deposit accountsor securities accounts; and (iv) execute any and all such other documentsand instruments, and do any and all acts and things for and on behalf ofDebtor, which Secured Party may deem reasonably necessary or advisable tomaintain, protect, realize upon and preserve the Collateral and Secured Party’ssecurity interest therein and to accomplish the purposes of this Agreement. Theforegoing power of attorney is coupled with an interest and irrevocable so longas the Obligations have not been paid and performed in full. Secured Partyagrees that, except upon and during the continuance of an Event of Default, thepower of attorney, or any rights granted to Secured Party, pursuant toclauses (ii), (iii) and (iv), shall not be exercised. Debtor herebyratifies, to the extent permitted by law, all that Secured Party shall lawfullyand in good faith do or cause to be done by virtue of and in compliance withthis 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;

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## (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, Debtor furnishes to Secured Partyevidence satisfactory to Secured Party that the amount of any such loss, theft,damage to or destruction of the Collateral is fully insured under policiesnaming Secured Party 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 (or with respect to clause (vi) below, any SpecifiedDefault), Secured Party shall have, in addition to all other rights andremedies granted to it in this Agreement, the Loan Agreement, the Note or anyother Loan Document, all rights and remedies of a secured party under the UCCand other applicable laws. Without limiting the generality of the foregoing,(i) Secured Party may peaceably and without notice enter any premises ofDebtor, take possession of any the Collateral, remove or dispose of all or partof the Collateral on any premises of Debtor 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 Debtor to assemble all or any part of the Collateral and make itavailable to Secured Party at any place and time designated by Secured Party; (iii) SecuredParty may use or transfer any of Debtor’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); (v) Secured Party maysell, resell, lease, use, assign, license, sublicense, transfer or otherwisedispose of any or all of the Collateral in its then condition or following anycommercially reasonable preparation or processing (utilizing in connectiontherewith any of Debtor’s assets, without charge or liability to Secured Partytherefor) at public or private sale, by one or more contracts, in one or moreparcels, at the same or different times, for cash or credit, or for futuredelivery without assumption of any credit risk, all as Secured Party deemsadvisable, and (vi) Secured Party may deliver a notice to any depositorybank or securities intermediary to cause a shift of control to Secured Party ofany or all of Debtor’s deposit accounts or securities accounts at such bank orsecurities intermediary and subject to a control agreement in Secured Party’sfavor and may withdraw (or cause to be withdrawn) any and all funds and otherCollateral from such deposit accounts or securities accounts; provided, however,that Debtor shall be credited with the net proceeds of sale only when suchproceeds are finally collected by Secured Party. Debtor recognizes that SecuredParty may be unable to make a public sale of any or all of the PledgedCollateral, by reason of prohibitions contained in applicable securities lawsor otherwise, and expressly agrees that a private sale to a restricted group ofpurchasers for investment and not with a view to any distribution thereof shallbe considered a commercially reasonable sale. Secured Party shall have theright upon any such public sale, and, to the extent permitted by law, upon anysuch private sale, to purchase the whole or any part of the Collateral so sold,free of any right or equity of redemption, which right or equity of redemptionDebtor hereby releases, to the extent permitted

 

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## by law. Secured Party shall give Debtor such notice of anyprivate or public sales as may be required by the UCC 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, Debtor hereby grants to Secured Party an irrevocable, non-exclusiveand assignable license (exercisable without payment or royalty or othercompensation to Debtor) to use, license or sublicense any intellectual propertyCollateral to the extent such grant is not prohibited with respect to suchintellectual 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 theObligations, all without affecting Secured Party’s rights against Debtor. Debtorwaives 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, Debtor will be credited only with payments actuallymade 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 Debtor shall becredited with the proceeds of the sale.

##  

## (d)           To the extent Debtor uses the proceeds of any of theObligations to purchase Collateral, Debtor’s repayment of the Obligations shallapply on a “first-in, first-out” basis so that the portion of the Obligationsused to purchase a particular item of Collateral shall be paid in thechronological order the Debtor 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 Debtor orotherwise disposed of in accordance with the UCC or other applicable law. Debtorshall remain liable to Secured Party for any deficiency which exists after anysale or other disposition or collection of Collateral.

##  

Section 10.   Certain Waivers. Debtorwaives, to the fullest extent permitted by law, (i) anyright of redemption with respect to the Collateral, whether before or aftersale hereunder, and all rights, if any, of marshalling of the Collateral orother collateral or security for

 

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the Obligations; (ii) any right torequire Secured Party (A) to proceed against any Person, (B) toexhaust any other collateral or security for any of the Obligations,(C) to pursue any remedy in Secured Party’s power, or (D) to make orgive any presentments, demands for performance, notices of nonperformance,protests, notices of protests or notices of dishonor in connection with any ofthe Collateral; and (iii) all claims, damages,and demands against Secured Party arising out of the repossession, retention,sale or application of the proceeds of any sale of the Collateral.

 

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 byDebtor, Secured Party and their respective successors and assigns. Debtor maynot assign, transfer, hypothecate or otherwise convey its rights, benefits,obligations or duties hereunder without the prior express written consent of SecuredParty. Any such purported assignment, transfer, hypothecation or otherconveyance by Debtor without the prior express written consent of Secured Partyshall be void. Debtor acknowledges and agrees that in connection with anassignment of, or grant of a participation in, the Obligations, Secured Partymay assign, or grant participations in, all or a portion of its rights andobligations hereunder. Upon any assignment of Secured Party’s rights hereunder,such assignee or assignees shall have, to the extent of such assignment, allrights of Secured Party hereunder. Debtor agrees that, upon any suchassignment, such assignee may enforce directly, without joinder of SecuredParty, the rights of Secured Party set forth in this Agreement. Any suchassignee shall be entitled to enforce Secured Party’s rights and remedies underthis Agreement to the same extent as if it were an original secured party namedherein.

 

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

 

(a)           ThisAgreement shall be construed in accordance with and governed by the internallaws of the State of New York (as permitted by Section 5-1401 of the NewYork General Obligations Law (or any similar successor provision)) withoutgiving effect to any choice of law rule that would cause the application of thelaws of any jurisdiction other than the

 

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## internal laws of the State of New York to the rights andduties of the parties, except as required by mandatory provisions of law and tothe extent the validity or perfection of the security interests hereunder, orthe remedies hereunder, in respect of any Collateral are governed by the law ofa jurisdiction other than New York.

##  

## (b)           THE PARTIES HERETO HEREBY KNOWINGLY, VOLUNTARILY, ANDINTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATIONARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOANDOCUMENTS, THIS WAIVER BEING A MATERIAL INDUCEMENT FOR EACH SUCH PARTY TO ENTERINTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.

##  

## (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 it isin writing and signed by the Secured Party and (in the case of any amendment)the Debtor. Any such amendment, waiver or consent shall be effective only inthe specific instance and for the specific purpose for which given.

 

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

 

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only to the extent of such prohibition or invalidity without affectingthe remaining provisions of this Agreement, or the validity or effectiveness ofsuch 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 shall bedeemed to be an original and all of which taken together shall constitute butone and the same agreement.

 

Section 18.   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 Debtor such documents and instruments reasonably requested byDebtor as shall be necessary to evidence termination of all security interestsgiven by Debtor 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.

 
| ** ** | **DEBTOR:**                |
|------------|----------------------------|
| ** ** | ** **                 |
| ** ** | **AKSYS, LTD.**            |
| ** ** | ** **                 |
| ** ** | ** **                 |
| ** ** | **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 Debtor 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 Debtor as follows:

 
| **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 Debtor as follows:

 
| **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 Debtorbeing represented by stock certificates as follows:

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

 

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