Document:

Exhibit 10.23

 

[Execution Copy]

 

GUARANTOR SECURITY
AGREEMENT

 

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

 

Aksys, Ltd., a Delaware corporation (the “Borrower”),
as borrower, and the Secured Party are parties to a Bridge Loan Agreement dated
as of even date herewith (as amended, amended and restated, modified, renewed
or extended from time to time, the “Loan Agreement”). To guarantee the
indebtedness and the other obligations of the Borrower under the Loan
Agreement, each Grantor has made a Guaranty dated as of the date hereof (as
amended, modified, renewed or extended from time to time, the “Guaranty”) in
favor 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 not
otherwise defined herein shall have the meanings assigned to them in the Loan
Agreement.

 

(b)           As used in this Agreement, the following terms shall
have the following meanings:

 

“Collateral” has the meaning set forth in
Section 2.

 

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

 

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

 

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

 

“Obligations” means as to any Grantor the
Guarantied Obligations of such Grantor as defined in the Guaranty and the
indebtedness, liabilities and other obligations of such Grantor to the Secured
Party under this Agreement and any other Guarantor Document, whether now
existing or arising, and whether due or to become due, absolute or contingent,
liquidated or unliquidated, determined or undetermined, and including interest
that accrues after the commencement by or against Borrower or any Guarantor of
any Insolvency Proceeding naming such Person as the debtor in such proceeding.

 

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

 

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“Pledged Collateral” means any Grantor’s (i) investment
property and (ii) Partnership and LLC Collateral, including any ownership
interests in any Subsidiaries of such Grantor.

 

“Pledged Collateral Agreements” means any
shareholders agreement, operating agreement, partnership agreement, voting
trust, proxy agreement or other agreement or understanding with respect to any
Pledged Collateral.

 

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

 

(c)           Where applicable and except as otherwise defined
herein, terms used in this Agreement shall have the meanings assigned to them
in the UCC.

 

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

 

Section 2.   Security Interest.

 

(a)           As security for the payment and performance of the
Obligations, each Grantor hereby grants to Secured Party a security interest in
all of such Grantor’s right, title and interest in, to and under the following
assets, wherever located and whether now existing or owned or hereafter
acquired or arising: all goods, accounts, chattel paper (whether tangible or
electronic), software, commercial tort 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 and all other personal property and all
products, 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, or
agreement, as such, if under the terms of such lease, license, contract, or
agreement, or applicable law with respect thereto, the valid grant of a
security interest or lien therein to Secured Party is prohibited and such
prohibition has not been or is not waived or the consent of the other party to
such lease, license, contract, or agreement has not been or is not otherwise
obtained 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 such
prohibition would be rendered ineffective under the UCC or other applicable law
(including the Bankruptcy Code) or principles of equity, (ii) construed so as
to limit, impair or otherwise affect Secured Party’s unconditional continuing
security interests in and liens upon any rights or interests of each Grantor in
or to the proceeds thereof, including monies due or to become due under any
such lease, license, contract, or agreement (including any accounts), or (iii)
construed to apply at such time as the condition causing such prohibition shall
be remedied and, to the extent severable, “Collateral” shall include any
portion of such lease, license, contract, or agreement that does not result in
such prohibition; and provided, further, that each Grantor shall
use commercially reasonable efforts to obtain consent with respect to leases,
licenses, contracts and agreements that are material to such Grantor’s business
pursuant to commercially reasonable terms for the grant of a security interest
or 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 Pledged
Collateral Agreements and any other contracts, agreements and other documents
included in the Collateral, to the extent set forth therein, to perform all of
its duties and obligations thereunder to the same extent as if this Agreement
had not been executed, (ii) the exercise by Secured
Party of any of the rights hereunder shall not release such Grantor from any of
its duties or obligations under any Pledged Collateral Agreements or other such
contracts, agreements and other documents, and (iii) Secured
Party shall not have any obligation or liability under any Pledged Collateral
Agreements or other such contracts, agreements and other documents by reason of
this Agreement, nor shall Secured Party be obligated to perform any of the
obligations or duties of such Grantor thereunder or to take any action to collect
or enforce any Pledged Collateral Agreements or other such contract, agreement
or other document.

 

(c)           This Agreement shall create a continuing security
interest in the Collateral which shall remain in effect until terminated in
accordance with Section 19 hereof.

 

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

 

Section 3.   Financing Statements
and Other Action.

 

(a)           Each Grantor hereby authorizes Secured Party to file
at any time and from time to time any financing statements describing the
Collateral, and each Grantor shall execute and deliver to Secured Party, and such
Grantor hereby authorizes Secured Party to file (with or without such Grantor’s
signature), at any time and from time to time, all amendments to financing
statements, assignments, continuation financing statements, termination
statements, security agreements relating to intellectual property Collateral, account
control agreements, collateral access agreements, landlord waivers and other
documents and instruments, in form reasonably satisfactory to Secured Party, and
to take such other action, in each case as Secured Party may reasonably
request, to perfect and continue perfection of, maintain the priority of or
provide notice of the security interest of Secured Party in the Collateral and
to accomplish the purposes of this Agreement. Without limiting the generality
of the foregoing, each Grantor ratifies and authorizes the filing by Secured
Party of (i) any financing statements filed prior to the date hereof, and (ii)
any financing statements describing the Collateral as “all assets” or “all
personal property.”

 

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

 

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

 

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

 

(e)           Upon request of the Secured Party, no Grantor will
create any chattel paper without placing a legend on the chattel paper
acceptable to Secured Party indicating that Secured Party has a security
interest in the chattel paper.

 

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

 

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

 

(b)           Each Grantor’s chief executive office and principal
place of business (as of the date of this Agreement) is located at the address
set forth in Schedule 1; each Grantor’s jurisdiction of
organization 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 this
Agreement; and all other locations where each Grantor conducts business or
Collateral 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 business
operations 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 in
the past:  (i) been known as or used
any 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 any
Person.

 

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

 

(d)           All of each Grantor’s United States and foreign
patents and patent applications, copyrights (registered and material
unregistered), applications for copyright registrations, trademarks, service
marks and trade names (registered and material unregistered), and applications
for registration of such trademarks, service marks and trade names, are set
forth in Schedule 2.

 

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

 

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

 

(g)           The names and addresses of all financial institutions
and other Persons at which any Grantor maintains its deposit and securities
accounts, and the account numbers and account names of such accounts, are set
forth in Schedule 1.

 

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

 

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

 

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

 

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

 

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Section 5.   Covenants. So long
as 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, Secured
Party’s right or interest in, the Collateral, and shall do and perform all
reasonable acts that may be necessary and appropriate to maintain, preserve and
protect the Collateral.

 

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

 

(c)           Each Grantor shall give prompt written notice to Secured
Party (and in any event not later than ten (10) days prior to any change
described below in this subsection) of:  (i) any change in the location of
such 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 which
might make any financing statement filed hereunder incorrect or misleading; and
(v) any change in its jurisdiction of organization; provided that no
Grantor may locate any Collateral outside of the United States nor shall any
Grantor change its jurisdiction of organization to a jurisdiction outside of
the United States.

 

(d)           Each Grantor shall carry and maintain in full force
and effect, at its own expense and with financially sound and reputable
insurance companies (not Affiliates of any Grantor), insurance with respect to
the Collateral in such amounts, with such deductibles and covering such risks
as is customarily carried in accordance with sound business practice by
companies engaged in the same or similar businesses and owning similar
properties in the localities where any Grantor operates, and in any event in
amount, adequacy and scope satisfactory to the Board of Directors of such Grantor.
Insurance on the Collateral shall name the Secured Party as additional insured
and as loss payee. Upon the request of Secured Party, any Grantor shall furnish
Secured Party from time to time with full information as to the insurance
carried by it and, if so requested, copies of all such insurance policies. Each
Grantor shall also furnish to Secured Party from time to time upon the request
of Secured Party a certificate of such Grantor’s insurance broker or other
insurance specialist stating that all premiums then due on the policies
relating to insurance on the Collateral have been paid and that such policies
are in full force and effect. All insurance policies required under this
subsection (d) shall provide that they shall not be terminated or cancelled
nor shall any such policy be materially changed without at least 30 days’ prior
written notice (or 10 days’ prior written notice in the event of cancellation
for non-payment of premium) to such Grantor and Secured Party. Receipt of
notice of termination or cancellation of any such insurance policies or
reduction of coverages or amounts thereunder shall entitle Secured Party to
renew any such policies, cause the coverages and amounts thereof to be
maintained at levels required pursuant to the first sentence of this
subsection (d) or otherwise to obtain similar insurance in place of such
policies, in each case at the expense of such Grantor. If the Collateral shall
be materially damaged or destroyed, in whole or in part, by fire or other
casualty, the affected Grantor shall give prompt notice thereof to Secured
Party. Additionally, the affected Grantor shall in any event promptly give Secured
Party notice of all reports made to insurance companies in respect of any claim
in excess of $100,000.

 

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

 

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

 

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

 

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

 

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

 

(i)            Each Grantor shall maintain and preserve its legal
existence, its rights to transact business and all other rights, franchises and
privileges necessary or desirable in the normal course of its business and
operations and the ownership of the Collateral, except in connection with any
transactions expressly permitted by the Loan Documents.

 

(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 or
assignment, all documents and instruments, all certificated securities with
respect to any Pledged Collateral, all letters of credit and all accounts and
other rights to payment at any time evidenced by promissory notes, trade
acceptances or other instruments, and (ii) cause certificates to be issued
in respect of any uncertificated Pledged Collateral, (iii) provide such
notice, obtain such acknowledgments and take all such other action, with
respect to any investment property, chattel paper, documents and letter-of
credit rights, as Secured Party shall reasonably specify.

 

(k)           Each Grantor shall:  (i)  with such frequency as Secured
Party may require, furnish to Secured Party such lists of customers and other
information relating to the accounts and other rights to payment as Secured
Party shall reasonably request; (ii) give only
normal discounts, allowances and credits as to accounts and other rights to
payment, in the ordinary course of business, according to normal trade
practices utilized by such Grantor, and enforce all accounts and other rights
to payment strictly in accordance with their terms, except that such Grantor
may grant any extension of the time for payment or enter into any agreement to
make a rebate or otherwise to reduce the amount owing on or with respect to, or
compromise or settle for less than the full amount thereof, any account or
other right to payment, in the ordinary course of business, according to normal
and 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 debtors
and other obligors on the accounts and other rights to payment of the security
interest hereunder, and (B) upon the occurrence and during the 

 

7

 

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

 

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

 

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

 

(n)           If and when Grantor shall obtain rights to any new
patents, trademarks, service marks, trade names or registered or material
unregistered copyrights, otherwise acquire or become entitled to the benefit
of, or apply for registration of, any of the foregoing, such Grantor (i) shall promptly notify Secured Party, as the case
may be, thereof and (ii) hereby authorizes Secured
Party, as the case may be, to modify, amend, or supplement Schedule 2
and from time to time to include any of the foregoing and make all necessary or
appropriate filings with respect thereto. Such Grantor shall promptly execute
and deliver appropriate documents (in form and substance reasonably
satisfactory to Secured Party) with respect to any such current or future
registered copyrights for recording in the U.S. Copyright Office.

 

(o)           Without limiting the generality of subsection (n), no
Grantor shall register with the U.S. Copyright Office any unregistered copyrights
(whether in existence on the date hereof or thereafter acquired, arising, or
developed) unless such Grantor provides Secured Party, as the case may be, with
written notice of its intent to register such copyrights not less than 30 days
prior to the date of the proposed registration.

 

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

 

(q)           Each Grantor shall give Secured Party immediate notice
of the acquisition of any instruments or securities, or the establishment of
any new deposit account or any new securities account with respect to any Pledged
Collateral.

 

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

 

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to provide specifically at all times that: (A) no Partnership
and LLC Collateral shall be a security governed by Article 8 of the applicable 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 or partner of any
transferee that acquires ownership of the Partnership and LLC Collateral as a
result of the exercise by Secured Party of any remedy hereunder or under
applicable law. Additionally, each Grantor agrees that no Partnership and LLC
Collateral (A) shall be dealt in or traded on any securities exchange or in any
securities market, (B) shall constitute an investment company security, or
(C) shall be held by such Grantor in a securities account. (iii) Each
Grantor shall not vote to enable or take any other action to:  (A) amend or terminate, or waive
compliance with any of the terms of, any Pledged Collateral Agreement, certificate
or articles of incorporation, bylaws or other organizational documents in any
way that changes the rights of such Grantor with respect to any Partnership and
LLC Collateral or other Collateral constituting investment property in a manner
adverse to the Secured Party or that adversely affects the validity, perfection
or priority of Secured Party’s security interest therein.

 

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

 

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

 

Section 6.   Rights of Secured Party.

 

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

 

(b)           At the request of Secured Party, upon the occurrence
and during the continuance of any Event of Default, Secured Party shall be
entitled to receive all distributions and payments of any nature with respect
to any Pledged Collateral or instrument Collateral, and all such distributions
or payments received by any Grantor shall be held in trust for Secured Party
and, in accordance with Secured Party’s instructions, remitted to Secured Party
or 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 such
distributions and payments with respect to any Pledged Collateral held in any
securities account shall be held and retained in such securities account, in
each case as part of the Collateral hereunder, and Secured Party shall have the
right, following prior written notice to the such Grantor, to vote and to give
consents, ratifications and waivers with respect to any Pledged Collateral and
instruments, and to exercise all rights of conversion, exchange, subscription
or any other rights, privileges or options pertaining thereto, as if Secured
Party were the absolute owner thereof; provided that Secured Party shall
have no duty to exercise any of the foregoing rights afforded to it or them and
shall not be responsible to such Grantor or any other Person for any failure to
do so or delay in doing so.

 

Section 7.   Authorization; Secured
Party Appointed Attorney-in-Fact. Secured Party
shall have the right to, in the name of any Grantor, or in the name of Secured
Party or otherwise, upon notice to but without the requirement of assent by such
Grantor, and each Grantor hereby constitutes and appoints Secured Party (and
any of Secured Party’s officers, employees or agents designated by Secured
Party) as such Grantor’s true and lawful attorney-in-fact, with full power and
authority to: (i) sign and file any of the financing statements and other
documents and instruments which must be executed or filed to perfect or
continue perfected, maintain the priority of or provide notice of Secured Party’s
security interest in the Collateral (including any notices to or agreements
with 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 to
exercising control over deposit accounts or securities accounts; and
(iv) execute any and all such other documents and instruments, and do any
and all acts and things for and on behalf of such Grantor, which Secured Party
may deem reasonably necessary or advisable to maintain, protect, realize upon
and preserve the Collateral and Secured Party’s security interest therein and
to accomplish the purposes of this Agreement. The foregoing power of attorney
is coupled with an interest and irrevocable so long as the Obligations have not
been paid and performed in full. Secured Party agrees that, except upon and
during the continuance of an Event of Default, the power of attorney, or any
rights granted to Secured Party, pursuant to clauses (ii), (iii) and (iv),
shall not be exercised. Each Grantor hereby ratifies, to the extent permitted
by law, all that Secured Party shall lawfully and in good faith do or cause to
be done by virtue of and in compliance with this Section 7.

 

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

 

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

 

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

 

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

 

(d)           Any loss, theft or substantial damage to, or
destruction of, any material portion of the Collateral (unless within 10 days
after the occurrence of any such event, the 

 

10

 

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

 

Section 9.   Remedies.

 

(a)           Upon the occurrence and during the continuance of any
Event of Default, Secured Party shall have, in addition to all other rights and
remedies 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 applicable
laws. Without limiting the generality of the foregoing, (i) Secured Party
may peaceably and without notice enter any premises of any Grantor, take
possession of any the Collateral, remove or dispose of all or part of the
Collateral on any premises of such Grantor or elsewhere, or, in the case of
equipment, render it nonfunctional, and otherwise collect, receive, appropriate
and realize upon all or any part of the Collateral, and demand, give receipt
for, settle, renew, extend, exchange, compromise, adjust, or sue for all or any
part of the Collateral, as Secured Party may determine; (ii) Secured Party
may require any Grantor to assemble all or any part of the Collateral and make
it 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 other
Collateral from any deposit accounts or securities accounts; (iii) Secured
Party may use or transfer any of any Grantor’s rights and interests in any
intellectual property Collateral, by license, by sublicense (to the extent
permitted by an applicable license) or otherwise, on such conditions and in
such manner as Secured Party may determine (iv) Secured Party may secure
the appointment of a receiver of the Collateral or any part thereof (to the
extent and in the manner provided by applicable law); and (v) Secured
Party may sell, resell, lease, use, assign, license, sublicense, transfer or
otherwise dispose of any or all of the Collateral in its then condition or
following any commercially reasonable preparation or processing (utilizing in
connection therewith any of any Grantor’s assets, without charge or liability
to 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, or
for future delivery without assumption of any credit risk, all as Secured Party
deems advisable; provided, however, that Grantors shall be
credited with the net proceeds of sale only when such proceeds are finally
collected by Secured Party. Each Grantor recognizes that Secured Party may be
unable to make a public sale of any or all of the Pledged Collateral, by reason
of prohibitions contained in applicable securities laws or otherwise, and
expressly agrees that a private sale to a restricted group of purchasers for
investment and not with a view to any distribution thereof shall be considered
a commercially reasonable sale. Secured Party shall have the right upon any
such public sale, and, to the extent permitted by law, upon any such 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 redemption each Grantor
hereby releases, to the extent permitted by law. Secured Party shall give each
Grantor such notice of any private or public sales as may be required by the
UCC or other applicable law.

 

(b)           For the purpose of enabling Secured Party to exercise its
rights and remedies under this Section 9 or otherwise in connection with
this Agreement, effective upon the occurrence and continuance of an Event of
Default, each Grantor hereby grants to Secured Party an irrevocable,
non-exclusive and assignable license (exercisable without payment or royalty or
other compensation to such Grantor) to use, license or sublicense any
intellectual property 

 

11

 

Collateral to the extent such grant is not prohibited with
respect to such intellectual property Collateral.

 

(c)           Secured Party shall not have any obligation to clean
up or otherwise prepare the Collateral for sale. Secured Party shall not have
any obligation to attempt to satisfy the Obligations by collecting them from
any other Person liable for them, and Secured Party may release, modify or
waive any Collateral provided by any other Person to secure any of the Obligations,
all without affecting Secured Party’s rights against any Grantor. Each Grantor
waives any right it may have to require Secured Party to pursue any third
Person for any of the Obligations. Secured Party may comply with any applicable
state or federal law requirements in connection with a disposition of the
Collateral and compliance will not be considered adversely to affect the
commercial reasonableness of any sale of the Collateral. Secured Party may sell
the Collateral without giving any warranties as to the Collateral. Secured
Party may specifically disclaim any warranties of title or the like. This
procedure will not be considered adversely to affect the commercial
reasonableness of any sale of the Collateral. If Secured Party sells any of the
Collateral upon credit, the Grantors will be credited only with payments
actually made by the purchaser, received by Secured Party and applied to the
indebtedness of the purchaser. In the event the purchaser fails to pay for the
Collateral, Secured Party may resell the Collateral, and the Grantors shall be
credited with the proceeds of the sale.

 

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

 

(e)           The cash proceeds actually received from the sale or
other disposition or collection of Collateral, and any other amounts received
in respect of the Collateral the application of which is not otherwise provided
for herein, shall be applied first, to the payment of the fees, costs
and expenses of Secured Party in exercising or enforcing its rights hereunder
and in collecting or attempting to collect any of the Collateral, and to the
payment of all other amounts payable to Secured Party with respect to the Loan
Documents (other than principal and interest); and second, to the
payment of the Obligations. Any surplus thereof which exists after payment and
performance in full of the Obligations shall be promptly paid over to the
Grantors or otherwise disposed of in accordance with the UCC or other
applicable law. Each Grantor shall remain liable to Secured Party for any
deficiency which exists after any sale or other disposition or collection of
Collateral.

 

Section 10.   Certain Waivers. Each
Grantor waives, to the fullest extent permitted by law,
(i) any right of redemption with respect to the Collateral, whether
before or after sale hereunder, and all rights, if any, of marshalling of the
Collateral or other collateral or security for the Obligations; (ii) any right to require Secured Party (A) to
proceed against any Person, (B) to exhaust any other collateral or
security for any of the Obligations, (C) to pursue any remedy in Secured
Party’s power, or (D) to make or give any presentments, demands for
performance, notices of nonperformance, protests, notices of protests or
notices of dishonor in connection with any of the 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.

 

12

 

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

 

Section 12.   No Waiver; Cumulative
Remedies. No failure on the part of Secured
Party to exercise, and no delay in exercising, any right, remedy, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, remedy, power or privilege preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights and remedies under this Agreement are cumulative
and not exclusive of any rights, remedies, powers and privileges that may
otherwise be available to Secured Party.

 

Section 13.   Binding Effect. This
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the Grantors, Secured Party and their respective successors and assigns. No
Grantor may assign, transfer, hypothecate or otherwise convey its rights,
benefits, obligations or duties hereunder without the prior express written
consent of Secured Party. Any such purported assignment, transfer,
hypothecation or other conveyance by any Grantor without the prior express
written consent of Secured Party shall be void. Each Grantor acknowledges and
agrees that in connection with an assignment of, or grant of a participation
in, the Obligations, Secured Party may assign, or grant participations in, all
or a portion of its rights and obligations hereunder. Upon any assignment of Secured
Party’s rights hereunder, such assignee or assignees shall have, to the extent
of such assignment, all rights of Secured Party hereunder. Each Grantor agrees
that, upon any such assignment, such assignee may enforce directly, without
joinder of Secured Party, the rights of Secured Party set forth in this
Agreement. Any such assignee shall be entitled to enforce Secured Party’s
rights and remedies under this Agreement to the same extent as if it were an
original secured party named herein.

 

Section 14.   Governing Law; Waiver
of Jury Trial; Submission to Jurisdiction.

 

(a)           This Agreement shall be construed in accordance with
and governed by the internal laws of the State of New York (as permitted by
Section 5-1401 of the New York General Obligations Law (or any similar
successor provision)) without giving effect to any choice of law rule that
would cause the application of the laws of any jurisdiction other than the
internal laws of the State of New York to the rights and duties of the parties,
except as required by mandatory provisions of law and to the extent the
validity or perfection of the security interests hereunder, or the remedies
hereunder, in respect of any Collateral are governed by the law of a
jurisdiction other than New York.

 

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

 

13

 

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

 

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

 

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

 

Section 15.   Entire Agreement;
Amendment. This Agreement and the other Loan Documents contain the entire
agreement of the parties with respect to the subject matter hereof and
supersede any prior agreements, commitments, drafts, communication, discussions
and understandings, oral or written, with respect thereto. No amendment to this
Agreement, or any waiver of any provision hereof, shall be effective unless it
is in writing and signed by the Secured Party and (in the case of any
amendment) the Grantors. Any such amendment, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.

 

Section 16.   Severability. If
any provision of this Agreement shall be prohibited by or invalid under any
applicable law or regulation in any jurisdiction, it shall, as to such
jurisdiction, be deemed modified to conform to the minimum requirements of such
law or regulation, or, if for any reason it is not deemed so modified, it shall
be ineffective and invalid only to the extent of such prohibition or invalidity
without affecting the remaining provisions of this Agreement, or the validity
or effectiveness of such provision in any other jurisdiction.

 

Section 17.   Counterparts. This
Agreement may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so executed shall
be deemed to be an original and all of which taken together shall constitute
but one and the same agreement.

 

14

 

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

 

Section 19.   Termination. Upon
payment and performance in full of all Obligations (other than inchoate
indemnity obligations and any other obligations which by their terms are to
survive the termination of the Loan Documents), the security interest created
under this Agreement shall terminate and Secured Party shall promptly execute
and deliver to any Grantor such documents and instruments reasonably requested
by such Grantor as shall be necessary to evidence termination of all security
interests given by the Grantors to Secured Party hereunder.

 

[Signature Pages
Following]

 

15

 

IN WITNESS WHEREOF, the parties hereto have duly
executed 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

 

	
   

  	
  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

 

SCHEDULE
1

to the Security Agreement

 

1.             Jurisdiction
of Organization

 

2.             Organizational
ID Number

 

3.             Chief
Executive Office and Principal Place of Business

 

4.             Other
locations where any Grantor conducts business or Collateral is kept

 

5.             Deposit
Accounts and Security Accounts

 

1

 

SCHEDULE
2

to the Security Agreement

 

1.             Patents
and Patent Applications.

 

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

 

3.             Trademarks,
Service Marks and Trade Names and Trademark, Service Mark and Trade Name
Applications.

 

1

 

SCHEDULE 3

to the Security Agreement

 

PLEDGED
SUBSIDIARIES

 

1.             Pledged
Collateral consisting of interests in each limited liability company that is a
subsidiary of any Grantor as follows:

 

	
  Grantor

  	
   

  	
  Subsidiary

  	
   

  	
  Number of Units

  	
   

  	
  Date of Issuance of

  Units

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

2.             Pledged
Collateral consisting of interests in each general partnership, limited
partnership, limited liability partnership or other partnership that is a
subsidiary 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.             Pledged
Collateral consisting of capital stock of each corporate subsidiary of any Grantor
being represented by stock certificates as follows:

 

	
  Grantor

  	
   

  	
  Subsidiary

  	
   

  	
  Certificate No.

  	
   

  	
  Certificate Date

  	
   

  	
  No. and

  Class 

  of Shares

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

1

 

ANNEX 1

to the Security Agreement

 

FORM OF
ACCESSION AGREEMENT

 

	
  To:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Re:

  	
   

  	
   

  	
   

  

 

Ladies and Gentlemen:

 

This Accession Agreement is made and delivered
pursuant to Section 18 of that certain Guarantor Security Agreement dated as of
March 31, 2006 (as amended, modified, renewed or extended from time to time,
the “Security Agreement”), made between each Grantor named in the signature
pages thereof (each a “Grantor” and collectively, the “Grantors”), and Durus
Life Sciences Master Fund Ltd., a Cayman Islands Exempted Company (the “Secured
Party”). All capitalized terms used in this Accession Agreement and not
otherwise defined herein shall have the meanings assigned to them in either the
Security Agreement or the Loan Agreement.

 

The undersigned,                                
[insert name of acceding Grantor], a                                  
[corporation, partnership, limited liability
company, etc.], hereby acknowledges for the benefit of the Secured Party
that it shall be a “Grantor” for all purposes of the Security Agreement
effective from the date hereof. The undersigned confirms that the
representations and warranties set forth in Section 4 of the Security Agreement
are true and correct as to the undersigned as of the date hereof.

 

Without limiting the foregoing, the undersigned hereby
agrees to perform all of the obligations of a Grantor under, and to be bound in
all respects by the terms of, the Security Agreement, including Section 5
thereof, to the same extent and with the same force and effect as if the
undersigned were an original signatory thereto. The undersigned hereby grants
to 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 the
payment and performance of the Obligations.

 

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

 

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

 

This Accession Agreement
shall be construed in accordance with and governed by the internal laws of the
State of New York (as permitted by Section 5-1401 of the New York General
Obligations Law (or any similar successor provision)) without giving effect to
any choice of law rule that would cause the application of the laws of any
jurisdiction other than the internal laws of the State of New York to the
rights and duties of the parties.

 

1

 

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

 

	
   

  	
  [GRANTOR]

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
  Title

  	
   

  

 

2Exhibit
10.24

 

[Execution
Copy]

 

SECURITY AGREEMENT

 

THIS SECURITY AGREEMENT (this “Agreement”), dated as
of 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 not
otherwise defined herein shall have the meanings assigned to them in the Loan
Agreement.

 

(b)           As used in this Agreement, the following terms shall
have the following meanings:

 

“Collateral” has the meaning set forth in
Section 2.

 

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

 

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

 

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

 

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

 

“Pledged Collateral” means Debtor’s (i) investment
property and (ii) Partnership and LLC Collateral, including any ownership
interests in any Subsidiaries of Debtor.

 

“Pledged Collateral Agreements” means any
shareholders agreement, operating agreement, partnership agreement, voting
trust, proxy agreement or other agreement or understanding with respect to any
Pledged Collateral.

 

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

 

1

 

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

 

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

 

(c)           Where applicable and except as otherwise defined
herein, terms used in this Agreement shall have the meanings assigned to them
in the UCC.

 

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

 

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’s
right, title and interest in, to and under the following assets, wherever
located and whether now existing or owned or hereafter acquired or arising: all
goods, accounts, chattel paper (whether tangible or electronic), software, commercial
tort 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, and
all other personal property and all products, 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, or agreement, as such, if under the terms of such
lease, license, contract, or agreement, or applicable law with respect thereto,
the valid grant of a security interest or lien therein to Secured Party is
prohibited and such prohibition has not been or is not waived or the consent of
the other party to such lease, license, contract, or agreement has not been or
is not otherwise obtained 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 such prohibition would be rendered ineffective under
the UCC or other applicable law (including the Bankruptcy Code) or principles
of equity, (ii) construed so as to limit, impair or otherwise affect Secured
Party’s unconditional continuing security interests in and liens upon any
rights or interests of Debtor in or to the proceeds thereof, including monies
due or to become due under any such lease, license, contract, or agreement
(including any accounts), or (iii) construed to apply at such time as the
condition causing such prohibition shall be remedied and, to the extent
severable, “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.

 

(b)           Anything herein to the contrary notwithstanding, (i) Debtor shall remain liable under any Pledged
Collateral Agreements and any other contracts, agreements and other documents
included in the Collateral, to the extent set forth therein, to perform all of
its duties and obligations thereunder to the same extent as if this Agreement
had not been executed, (ii) the 

 

2

 

exercise by Secured Party of any of the rights hereunder
shall not release Debtor from any of its duties or obligations under any
Pledged Collateral Agreements or other such contracts, agreements and other
documents, and (iii) Secured Party shall not have
any obligation or liability under any Pledged Collateral Agreements or other
such contracts, agreements and other documents by reason of this Agreement, nor
shall Secured Party be obligated to perform any of the obligations or duties of
Debtor thereunder or to take any action to collect or enforce any Pledged
Collateral Agreements or other such contract, agreement or other document.

 

(c)           This Agreement shall create a continuing security
interest in the Collateral which shall remain in effect until terminated in
accordance with Section 18 hereof.

 

(d)           Anything herein to the contrary notwithstanding, in no
event shall the Collateral include, and Debtor shall not be deemed to have
granted a security interest in, any of Debtor’s right, title or interest in any
of the outstanding voting capital stock or other ownership interests of a
Controlled Foreign Corporation (as defined below) in excess of 65% of the
voting power of all classes of capital stock or other ownership interests of
such Controlled Foreign Corporation entitled to vote; provided that (i)
immediately upon the amendment of the Internal Revenue Code to allow the pledge
of a greater percentage of the voting power of capital stock or other ownership
interests in a Controlled Foreign Corporation without adverse tax consequences,
the Collateral shall include, and Debtor shall be deemed to have granted a
security interest in, such greater percentage of capital stock or other
ownership interests of each Controlled Foreign Corporation; and (ii) if no
adverse tax consequences to Debtor shall arise or exist in connection with the
pledge of any Controlled Foreign Corporation, the Collateral shall include, and
Debtor shall be deemed to have granted a security interest in, such Controlled
Foreign Corporation. As used herein, “Controlled Foreign Corporation” shall
mean a “controlled foreign corporation” as defined in the Internal Revenue
Code.

 

(e)           Secured Party agrees that, notwithstanding anything to
the contrary herein, the security interest granted herein to Secured Party in
and to restricted
account No. 1610630624 held at JPMorgan Chase Bank, NA and the cash and
cash equivalents held therein (collectively, the “Restricted Account”) shall be
subject, subordinate and junior in all respects to the liens and security
interests granted to JPMorgan Chase Bank, NA in the Restricted Account to
secure Debtor’s reimbursement obligation as of the date hereof with respect to
a letter of credit issued by JPMorgan Chase Bank, NA, for the benefit of Two
Lincolnshire Office Venture, LLC in connection with the Company’s lease of the
premises at Two Marriott Drive, Lincolnshire, Illinois.. The
subordinations and priorities specified hereinabove with respect to any such
Collateral are expressly conditioned upon the nonavoidability and perfection of
the lien or security interest of JPMorgan Chase Bank, NA and, if
such lien or security interest is not perfected or is avoidable, for any
reason, then the subordinations and relative priority agreements provided for
herein shall not be effective as to the Restricted Account. Debtor agrees that immediately upon
any event or circumstance resulting in the release of the Restricted Account by
JPMorgan Chase Bank, NA. (A) to cause such Person to take all action
necessary to evidence such release immediately upon the occurrence of such
event or circumstance, (B) to furnish to Secured Party at least ten (10)
days prior written notice of any anticipated event or circumstance that would
result in the release of the Restricted Account, and (iii) to cooperate
with Secured Party in obtaining control (as defined in the UCC) of the
Restricted Account.

 

3

 

Section 3.   Financing Statements
and Other Action.

 

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

 

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

 

(c)           Upon request of the Secured Party, Debtor will join
with Secured Party in notifying any third party who has possession of any
Collateral of Secured Party’s security interest therein and obtaining an
acknowledgment from the third party that it is holding the Collateral for the
benefit of Secured Party; provided, however, this Section 3(c)
shall not apply with respect to Collateral consisting of machines used by
individuals for the purpose of home healthcare treatments.

 

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

 

(e)           Upon request of the Secured Party, Debtor will not
create any chattel paper without placing a legend on the chattel paper
acceptable to Secured Party indicating that Secured Party has a security
interest in the chattel paper.

 

Section 4.   Representations and
Warranties. Debtor represents and warrants to Secured Party that:

 

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

 

4

 

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

 

(b)           Debtor’s chief executive office and principal place of
business (as of the date of this Agreement) is located at the address set forth
in Schedule 1; Debtor’s jurisdiction of organization and
organizational ID number is set forth in Schedule 1; Debtor’s exact
legal name is as set forth in the first paragraph of this Agreement; and all
other locations where Debtor conducts business or Collateral is kept (as of the
date of this Agreement) are set forth in Schedule 1. All trade
names and trade styles under which Debtor conducts its business operations as
of the date hereof are set forth in Schedule 2, and, except as set
forth in Schedule 2, Debtor has not, at any time in the past:  (i) been known as or used any other
corporate, trade or fictitious name; (ii) changed its name;
(iii) been the surviving or resulting corporation in a merger or
consolidation; or (iv) acquired through asset purchase or otherwise any business
of any Person.

 

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

 

(d)           All of Debtor’s United States and foreign patents and
patent applications, copyrights (registered and material unregistered),
applications for copyright registrations, trademarks, service marks and trade
names (registered and material unregistered), and applications for registration
of such trademarks, service marks and trade names, are set forth in Schedule
2.

 

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

 

(f)            Debtor does not have or hold any chattel paper,
letter-of-credit rights or commercial tort claims except as disclosed in
writing to Secured Party.

 

(g)           The names and addresses of all financial institutions
and other Persons at which Debtor maintains its deposit and securities
accounts, and the account numbers and account names of such accounts, are set
forth in Schedule 1.

 

(h)           Schedule 3 lists Debtor’s ownership interests in each of its Subsidiaries
as of the date hereof.

 

(i)            Debtor is and will be the legal record and beneficial
owner of all Pledged Collateral, and has and will have good and marketable
title thereto.

 

(j)            Except as disclosed in writing to Secured Party, there
are no Pledged Collateral Agreements which affect or relate to the voting or
giving of written consents with respect to any of the Pledged Collateral. Each
Pledged Collateral Agreement contains the entire agreement between the parties
thereto with respect to the subject matter thereof, has not been amended or
modified, and is in full force and effect in accordance with its terms. To the
best knowledge of Debtor, there exists no violation or default under any
Pledged Collateral Agreement by Debtor or the other parties thereto. Debtor has
not knowingly waived or released

 

5

 

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

 

(k)           Debtor is not and will not become a lessee under any
real property lease or party to any other agreement governing the location of
Collateral at the premises of another Person pursuant to which the lessor or
such other Person may obtain any rights in any of the Collateral except as
disclosed in writing to Secured Party, and no such lease or other such agreement
now prohibits, restrains, impairs or will prohibit, restrain or impair Debtor’s
right to remove any Collateral from the premises at which such Collateral is
situated, except for the usual and customary restrictions contained in such
leases of real property, and such other agreements.

 

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

 

(a)           Debtor shall appear in and defend any action, suit or
proceeding which may affect its title to, or right or interest in, Secured
Party’s right or interest in, the Collateral, and shall do and perform all
reasonable acts that may be necessary and appropriate to maintain, preserve and
protect the Collateral.

 

(b)           Debtor shall comply with all laws, regulations and
ordinances, and all policies of insurance, relating to the possession,
operation, maintenance and control of the Collateral.

 

(c)           Debtor shall give prompt written notice to Secured
Party (and in any event not later than ten (10) days prior to any change
described below in this subsection) of:  (i) any change in the location of
Debtor’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 which
might make any financing statement filed hereunder incorrect or misleading; and
(v) any change in its jurisdiction of organization; provided that
Debtor shall not locate any Collateral outside of the United States nor shall
Debtor change its jurisdiction of organization to a jurisdiction outside of the
United States.

 

(d)           Debtor shall carry and maintain in full force and
effect, at its own expense and with financially sound and reputable insurance
companies (not Affiliates of Debtor), insurance with respect to the Collateral
in such amounts, with such deductibles and covering such risks as is
customarily carried in accordance with sound business practice by companies
engaged in the same or similar businesses and owning similar properties in the
localities where Debtor operates, and in any event in amount, adequacy and
scope satisfactory to the Board of Directors of Debtor. Insurance on the
Collateral shall name the Secured Party as additional insured and as loss payee.
Upon the request of Secured Party, Debtor shall furnish Secured Party from time
to time with full information as to the insurance carried by it and, if so
requested, copies of all such insurance policies. Debtor shall also furnish to Secured
Party from time to time upon the request of Secured Party a certificate of
Debtor’s insurance broker or other insurance specialist stating that all
premiums then due on the policies relating to insurance on the Collateral have
been paid and that such policies are in full force and effect. All insurance
policies required under this subsection (d) shall provide that they shall
not be terminated or cancelled nor shall any such policy be materially changed
without at least 30 days’ prior written

 

6

 

notice (or 10 days’ prior written notice in the event of
cancellation for non-payment of premium) to Debtor and Secured Party. Receipt
of notice of termination or cancellation of any such insurance policies or
reduction of coverages or amounts thereunder shall entitle Secured Party to
renew any such policies, cause the coverages and amounts thereof to be
maintained at levels required pursuant to the first sentence of this
subsection (d) or otherwise to obtain similar insurance in place of such
policies, in each case at the expense of Debtor. If the Collateral shall be
materially damaged or destroyed, in whole or in part, by fire or other
casualty, Debtor shall give prompt notice thereof to Secured Party. Additionally,
Debtor shall in any event promptly give Secured Party notice of all reports
made to insurance companies in respect of any claim in excess of $100,000. No
settlement on account of any loss covered by insurance shall be made for less
than insured value without the consent of Secured Party.

 

(e)           Debtor shall keep accurate and complete books and
records with respect to the Collateral, disclosing Secured Party’s security
interest hereunder.

 

(f)            Debtor shall not surrender or lose possession of
(other than to Secured Party), sell, lease, or otherwise dispose of or transfer
any of the Collateral or any right or interest therein, except as expressly permitted
by the Loan Documents.

 

(g)           Debtor shall keep the Collateral free of all Liens
except Permitted Liens.

 

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

 

(i)            Debtor shall maintain and preserve its legal
existence, its rights to transact business and all other rights, franchises and
privileges necessary or desirable in the normal course of its business and
operations and the ownership of the Collateral, except in connection with any
transactions expressly permitted by the Loan Agreement.

 

(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 or
assignment, all documents and instruments, all certificated securities with
respect to any Pledged Collateral, all letters of credit and all accounts and
other rights to payment at any time evidenced by promissory notes, trade
acceptances or other instruments, and (ii) cause certificates to be issued
in respect of any uncertificated Pledged Collateral, (iii) provide such
notice, obtain such acknowledgments and take all such other action, with
respect to any investment property, chattel paper, documents and letter-of
credit rights, as Secured Party shall reasonably specify.

 

(k)           Debtor shall:  (i)  with such frequency as Secured
Party may require, furnish to Secured Party such lists of customers and other
information relating to the accounts and other rights to payment as Secured
Party shall reasonably request; (ii) give only
normal discounts, allowances and credits as to accounts and other rights to
payment, in the ordinary course of business, according to normal trade
practices utilized by Debtor, and enforce all

 

7

 

accounts and other rights to payment strictly in accordance
with their terms, except that Debtor may grant any extension of the time for
payment or enter into any agreement to make a rebate or otherwise to reduce the
amount owing on or with respect to, or compromise or settle for less than the
full amount thereof, any account or other right to payment, in the ordinary
course of business, according to normal and prudent trade practices utilized by
Debtor; and (iii) Debtor shall upon the request
of Secured Party (A) at any time, notify all or any designated portion of
the account debtors and other obligors on the accounts and other rights to
payment of the security interest hereunder, and (B) upon the occurrence
and during the continuance of an Event of Default, notify the account debtors
and other obligors on the accounts and other rights to payment or any
designated portion thereof that payment shall be made directly to Secured Party
or to such other Persons or locations as Secured Party shall specify.

 

(l)            Debtor shall, at such times as Secured Party shall
reasonably request, prepare and deliver to Secured Party a report of all
inventory, in form and substance satisfactory to Secured Party.

 

(m)          Debtor shall (i) notify
Secured Party of any material claim made or asserted against the Collateral by
any Person and of any change in the composition of the Collateral or other
event which could materially adversely affect the value of the Collateral or Secured
Party’s Lien thereon; (ii) furnish to Secured
Party such statements and schedules further identifying and describing the
Collateral and such other reports and other information in connection with the
Collateral as Secured Party may reasonably request, all in reasonable detail;
and (iii) upon reasonable request of Secured
Party make such demands and requests for information and reports as Debtor is
entitled to make in respect of the Collateral.

 

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

 

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

 

(p)           At the request of Secured Party, Debtor will obtain
from each Person from whom Debtor leases any premises at which any Collateral
is at any time present such collateral access, subordination, waiver, consent
and estoppel agreements, as Secured Party may require, in form and substance
satisfactory to Secured Party.

 

8

 

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

 

(r)            (i) Debtor shall comply with all of its
obligations under any Pledged Collateral Agreements to which it is a party and
shall enforce all of its rights thereunder. (ii) Debtor will take all
actions necessary to cause each Pledged Collateral Agreement relating to
Collateral consisting of any and all limited liability and general partnership
interests and limited liability company interests of any type or nature (“Partnership
and LLC Collateral”) to provide specifically at all times that: (A) no
Partnership and LLC Collateral shall be a security governed by Article 8 of the
applicable 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 or
partner of any transferee that acquires ownership of the Partnership and LLC
Collateral as a result of the exercise by Secured Party of any remedy hereunder
or under applicable law. Additionally, Debtor agrees that no Partnership and
LLC Collateral (A) shall be dealt in or traded on any securities exchange or in
any securities market, (B) shall constitute an investment company security, or
(C) shall be held by Debtor in a securities account. (iii) Debtor
shall not vote to enable or take any other action to:  (A) amend or terminate, or waive
compliance with any of the terms of, any Pledged Collateral Agreement,
certificate or articles of incorporation, bylaws or other organizational
documents in any way that changes the rights of Debtor with respect to any
Partnership and LLC Collateral or other Collateral constituting investment
property in a manner adverse to the Secured Party or that adversely affects the
validity, perfection or priority of Secured Party’s security interest therein.

 

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

 

(t)            In the event that Debtor acquires rights in any Subsidiary
after the date hereof, it shall deliver to Secured Party a completed supplement
to Schedule 3, reflecting such new Subsidiary and Debtor shall comply
with the Section 5.02(m) of the Loan Agreement. Notwithstanding the
foregoing, it is understood and agreed that the security interest of Secured
Party shall attach to any such Subsidiary immediately upon Debtor’s acquisition
of rights therein and shall not be affected by the failure of Debtor to deliver
any such supplement to Schedule 3 or to comply with Section 5.02(m)
of the Loan Agreement.

 

Section 6.   Rights of Secured Party.

 

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

 

9

 

(b)           At the request of Secured Party, upon the occurrence
and during the continuance of any Event of Default, Secured Party shall be
entitled to receive all distributions and payments of any nature with respect
to any Pledged Collateral or instrument Collateral, and all such distributions
or payments received by the Debtor shall be held in trust for Secured Party
and, in accordance with Secured Party’s instructions, remitted to Secured Party
or 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 such
distributions and payments with respect to any Pledged Collateral held in any
securities account shall be held and retained in such securities account, in
each case as part of the Collateral hereunder, and Secured Party shall have the
right, following prior written notice to the Debtor, to vote and to give
consents, ratifications and waivers with respect to any Pledged Collateral and
instruments, and to exercise all rights of conversion, exchange, subscription
or any other rights, privileges or options pertaining thereto, as if Secured
Party were the absolute owner thereof; provided that Secured Party shall
have no duty to exercise any of the foregoing rights afforded to it or them and
shall not be responsible to the Debtor or any other Person for any failure to
do so or delay in doing so.

 

Section 7.   Authorization; Secured
Party Appointed Attorney-in-Fact. Secured Party
shall have the right to, in the name of Debtor, or in the name of Secured Party
or otherwise, upon notice to but without the requirement of assent by Debtor,
and Debtor hereby constitutes and appoints Secured Party (and any of Secured
Party’s officers, employees or agents designated by Secured Party) as Debtor’s
true and lawful attorney-in-fact, with full power and authority to:
(i) sign and file any of the financing statements and other documents and
instruments which must be executed or filed to perfect or continue perfected,
maintain the priority of or provide notice of Secured Party’s security interest
in the Collateral (including any notices to or agreements with 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 to exercising control over deposit accounts
or securities accounts; and (iv) execute any and all such other documents
and instruments, and do any and all acts and things for and on behalf of
Debtor, which Secured Party may deem reasonably necessary or advisable to
maintain, protect, realize upon and preserve the Collateral and Secured Party’s
security interest therein and to accomplish the purposes of this Agreement. The
foregoing power of attorney is coupled with an interest and irrevocable so long
as the Obligations have not been paid and performed in full. Secured Party
agrees that, except upon and during the continuance of an Event of Default, the
power of attorney, or any rights granted to Secured Party, pursuant to
clauses (ii), (iii) and (iv), shall not be exercised. Debtor hereby
ratifies, to the extent permitted by law, all that Secured Party shall lawfully
and in good faith do or cause to be done by virtue of and in compliance with
this Section 7.

 

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

 

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

 

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

 

10

 

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

 

(d)           Any loss, theft or substantial damage to, or
destruction of, any material portion of the Collateral (unless within 10 days
after the occurrence of any such event, Debtor furnishes to Secured Party
evidence satisfactory to Secured Party that the amount of any such loss, theft,
damage to or destruction of the Collateral is fully insured under policies
naming Secured Party as an additional named insured or loss payee).

 

Section 9.   Remedies.

 

(a)           Upon the occurrence and during the continuance of any
Event of Default (or with respect to clause (vi) below, any Specified
Default), Secured Party shall have, in addition to all other rights and
remedies granted to it in this Agreement, the Loan Agreement, the Note or any
other Loan Document, all rights and remedies of a secured party under the UCC
and other applicable laws. Without limiting the generality of the foregoing,
(i) Secured Party may peaceably and without notice enter any premises of
Debtor, take possession of any the Collateral, remove or dispose of all or part
of the Collateral on any premises of Debtor or elsewhere, or, in the case of
equipment, render it nonfunctional, and otherwise collect, receive, appropriate
and realize upon all or any part of the Collateral, and demand, give receipt
for, settle, renew, extend, exchange, compromise, adjust, or sue for all or any
part of the Collateral, as Secured Party may determine; (ii) Secured Party
may require Debtor to assemble all or any part of the Collateral and make it
available to Secured Party at any place and time designated by Secured Party; (iii) Secured
Party may use or transfer any of Debtor’s rights and interests in any
intellectual property Collateral, by license, by sublicense (to the extent
permitted by an applicable license) or otherwise, on such conditions and in
such manner as Secured Party may determine (iv) Secured Party may secure
the appointment of a receiver of the Collateral or any part thereof (to the
extent and in the manner provided by applicable law); (v) Secured Party may
sell, resell, lease, use, assign, license, sublicense, transfer or otherwise
dispose of any or all of the Collateral in its then condition or following any
commercially reasonable preparation or processing (utilizing in connection
therewith any of Debtor’s assets, without charge or liability to 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, or for future
delivery without assumption of any credit risk, all as Secured Party deems
advisable, and (vi) Secured Party may deliver a notice to any depository
bank or securities intermediary to cause a shift of control to Secured Party of
any or all of Debtor’s deposit accounts or securities accounts at such bank or
securities intermediary and subject to a control agreement in Secured Party’s
favor and may withdraw (or cause to be withdrawn) any and all funds and other
Collateral from such deposit accounts or securities accounts; provided, however,
that Debtor shall be credited with the net proceeds of sale only when such
proceeds are finally collected by Secured Party. Debtor recognizes that Secured
Party may be unable to make a public sale of any or all of the Pledged
Collateral, by reason of prohibitions contained in applicable securities laws
or otherwise, and expressly agrees that a private sale to a restricted group of
purchasers for investment and not with a view to any distribution thereof shall
be considered a commercially reasonable sale. Secured Party shall have the
right upon any such public sale, and, to the extent permitted by law, upon any
such 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 redemption
Debtor hereby releases, to the extent permitted

 

11

 

by law. Secured Party shall give Debtor such notice of any
private or public sales as may be required by the UCC or other applicable law.

 

(b)           For the purpose of enabling Secured Party to exercise its
rights and remedies under this Section 9 or otherwise in connection with
this Agreement, effective upon the occurrence and continuance of an Event of
Default, Debtor hereby grants to Secured Party an irrevocable, non-exclusive
and assignable license (exercisable without payment or royalty or other
compensation to Debtor) to use, license or sublicense any intellectual property
Collateral to the extent such grant is not prohibited with respect to such
intellectual property Collateral.

 

(c)           Secured Party shall not have any obligation to clean
up or otherwise prepare the Collateral for sale. Secured Party shall not have
any obligation to attempt to satisfy the Obligations by collecting them from
any other Person liable for them, and Secured Party may release, modify or
waive any Collateral provided by any other Person to secure any of the
Obligations, all without affecting Secured Party’s rights against Debtor. Debtor
waives any right it may have to require Secured Party to pursue any third
Person for any of the Obligations. Secured Party may comply with any applicable
state or federal law requirements in connection with a disposition of the
Collateral and compliance will not be considered adversely to affect the
commercial reasonableness of any sale of the Collateral. Secured Party may sell
the Collateral without giving any warranties as to the Collateral. Secured
Party may specifically disclaim any warranties of title or the like. This
procedure will not be considered adversely to affect the commercial
reasonableness of any sale of the Collateral. If Secured Party sells any of the
Collateral upon credit, Debtor will be credited only with payments actually
made by the purchaser, received by Secured Party and applied to the
indebtedness of the purchaser. In the event the purchaser fails to pay for the
Collateral, Secured Party may resell the Collateral, and Debtor shall be
credited with the proceeds of the sale.

 

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

 

(e)           The cash proceeds actually received from the sale or
other disposition or collection of Collateral, and any other amounts received
in respect of the Collateral the application of which is not otherwise provided
for herein, shall be applied first, to the payment of the fees, costs
and expenses of Secured Party in exercising or enforcing its rights hereunder
and in collecting or attempting to collect any of the Collateral, and to the
payment of all other amounts payable to Secured Party with respect to the Loan
Documents (other than principal and interest); and second, to the
payment of the Obligations. Any surplus thereof which exists after payment and
performance in full of the Obligations shall be promptly paid over to Debtor or
otherwise disposed of in accordance with the UCC or other applicable law. Debtor
shall remain liable to Secured Party for any deficiency which exists after any
sale or other disposition or collection of Collateral.

 

Section 10.   Certain Waivers. Debtor
waives, to the fullest extent permitted by law, (i) any
right of redemption with respect to the Collateral, whether before or after
sale hereunder, and all rights, if any, of marshalling of the Collateral or
other collateral or security for

 

12

 

the Obligations; (ii) any right to
require Secured Party (A) to proceed against any Person, (B) to
exhaust any other collateral or security for any of the Obligations,
(C) to pursue any remedy in Secured Party’s power, or (D) to make or
give any presentments, demands for performance, notices of nonperformance,
protests, notices of protests or notices of dishonor in connection with any of
the 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. All
notices and other communications required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery
to the party to be notified; (ii) when sent by confirmed telex or
facsimile if sent during normal business hours of the recipient, if not, then
on the next business day; (iii) five (5) days after having been sent
by registered or certified mail, return receipt requested, postage prepaid; or
(iv) two (2) days after deposit with a nationally recognized
overnight courier, specifying next day delivery, with written verification of
receipt. All communications shall be sent to the parties hereto at their
respective addresses or facsimile numbers set forth below their names on the
signature pages hereof, or, in all cases, as notified by such party from time
to time at least ten (10) days prior to the effectiveness of such notice.

 

Section 12.   No Waiver; Cumulative
Remedies. No failure on the part of Secured
Party to exercise, and no delay in exercising, any right, remedy, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, remedy, power or privilege preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights and remedies under this Agreement are cumulative
and not exclusive of any rights, remedies, powers and privileges that may
otherwise be available to Secured Party.

 

Section 13.   Binding Effect. This
Agreement shall be binding upon, inure to the benefit of and be enforceable by
Debtor, Secured Party and their respective successors and assigns. Debtor may
not assign, transfer, hypothecate or otherwise convey its rights, benefits,
obligations or duties hereunder without the prior express written consent of Secured
Party. Any such purported assignment, transfer, hypothecation or other
conveyance by Debtor without the prior express written consent of Secured Party
shall be void. Debtor acknowledges and agrees that in connection with an
assignment of, or grant of a participation in, the Obligations, Secured Party
may assign, or grant participations in, all or a portion of its rights and
obligations hereunder. Upon any assignment of Secured Party’s rights hereunder,
such assignee or assignees shall have, to the extent of such assignment, all
rights of Secured Party hereunder. Debtor agrees that, upon any such
assignment, such assignee may enforce directly, without joinder of Secured
Party, the rights of Secured Party set forth in this Agreement. Any such
assignee shall be entitled to enforce Secured Party’s rights and remedies under
this Agreement to the same extent as if it were an original secured party named
herein.

 

Section 14.   Governing Law; Waiver
of Jury Trial; Submission to Jurisdiction.

 

(a)           This
Agreement shall be construed in accordance with and governed by the internal
laws of the State of New York (as permitted by Section 5-1401 of the New
York General Obligations Law (or any similar successor provision)) without
giving effect to any choice of law rule that would cause the application of the
laws of any jurisdiction other than the

 

13

 

internal 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 the validity or perfection of the security interests hereunder, or
the remedies hereunder, in respect of any Collateral are governed by the law of
a jurisdiction other than New York.

 

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

 

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

 

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

 

Section 15.   Entire Agreement;
Amendment. This Agreement and the other Loan Documents contain the entire
agreement of the parties with respect to the subject matter hereof and
supersede any prior agreements, commitments, drafts, communication, discussions
and understandings, oral or written, with respect thereto. No amendment to this
Agreement, or any waiver of any provision hereof, shall be effective unless it is
in 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 in
the specific instance and for the specific purpose for which given.

 

Section 16.   Severability. If
any provision of this Agreement shall be prohibited by or invalid under any
applicable law or regulation in any jurisdiction, it shall, as to such
jurisdiction, be deemed modified to conform to the minimum requirements of such
law or regulation, or, if for any reason it is not deemed so modified, it shall
be ineffective and invalid

 

14

 

only to the extent of such prohibition or invalidity without affecting
the remaining provisions of this Agreement, or the validity or effectiveness of
such provision in any other jurisdiction.

 

Section 17.   Counterparts. This
Agreement may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute but
one and the same agreement.

 

Section 18.   Termination. Upon
payment and performance in full of all Obligations (other than inchoate
indemnity obligations and any other obligations which by their terms are to
survive the termination of the Loan Documents), the security interest created
under this Agreement shall terminate and Secured Party shall promptly execute
and deliver to Debtor such documents and instruments reasonably requested by
Debtor as shall be necessary to evidence termination of all security interests
given by Debtor to Secured Party hereunder.

 

 

[Signature Pages
Following]

 

15

 

IN WITNESS WHEREOF, the parties hereto have duly
executed 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

 

	
   

  	
  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

 

SCHEDULE
1

to the Security Agreement

 

1.             Jurisdiction
of Organization

 

 

2.             Organizational
ID Number

 

 

3.             Chief
Executive Office and Principal Place of Business

 

 

4.             Other
locations where Debtor conducts business or Collateral is kept

 

 

5.             Deposit
Accounts and Security Accounts

 

1

 

SCHEDULE
2

to the Security Agreement

 

1.             Patents
and Patent Applications.

 

 

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

 

 

3.             Trademarks,
Service Marks and Trade Names and Trademark, Service Mark and Trade Name
Applications.

 

2

 

SCHEDULE 3

to the Security Agreement

 

PLEDGED
SUBSIDIARIES

 

1.             Pledged
Collateral consisting of interests in each limited liability company that is a
subsidiary of Debtor as follows:

 

	
  Subsidiary

  	
   

  	
  Number of Units

  	
   

  	
  Date of Issuance of Units

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

2.             Pledged
Collateral consisting of interests in each general partnership, limited
partnership, limited liability partnership or other partnership that is a
subsidiary 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.             Pledged
Collateral consisting of capital stock of each corporate subsidiary of Debtor
being represented by stock certificates as follows:

 

	
  Subsidiary

  	
   

  	
  Certificate No.

  	
   

  	
  Certificate Date

  	
   

  	
  No. and Class

  of Shares

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

3

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