Document:

Exhibit 10.21

 

SECURITIES PURCHASE AGREEMENT

 

This SECURITIES PURCHASE AGREEMENT (the “Agreement”),
dated as of March 31, 2006, is entered into by and between Aksys, Ltd., a
Delaware corporation, with headquarters located at Two Marriott Drive,
Lincolnshire, Illinois 60069 (the “Company”), and Durus Life Sciences Master
Fund Ltd., a Cayman Islands company (“Durus” or the “Investor,” and,
collectively with other investors listed on the Schedule of Investors attached
hereto as Exhibit A, as amended (the “Schedule of Investors”), the “Investors”).

 

RECITALS

 

A.            The Company desires to issue a
series of convertible preferred stock of the Company designated as Series B
Convertible Preferred Stock (the “Preferred Shares”), the terms of which are
set forth in the certificate of designation for such series of preferred stock
in the form attached hereto as Exhibit B (the “Certificate of Designation”). The
Preferred Shares shall be convertible into shares of the Company’s common
stock, par value $0.01 per share (the “Common Stock”), pursuant to the terms of
the Certificate of Designation (such shares of Common Stock into which the
Preferred Shares may be converted hereinafter referred to as the “Conversion
Shares”) and otherwise in accordance with the terms of the Certificate of
Designation.

 

B.            The Company also desires to issue
warrants (the “Warrants”) pursuant to a Warrant Agreement, substantially in the
form attached hereto as Exhibit C (the “Warrant Agreement”), by and between the
Company and the Warrant Agent (as defined in the Warrant Agreement), which
Warrants may be exercised for a period of five (5) years from their original
date of issue to acquire shares of Common Stock (the “Warrant Shares”) at an
initial exercise price of $1.10 per share and otherwise in accordance with the
terms of the Warrant Agreement. The Warrants and the Preferred Shares will be
issued in detachable Units (“Units”), each Unit consisting of (i) one (1)
Preferred Share (which initially may be converted into 1000 Conversion Shares
pursuant to the terms of the Certificate of Designation) and (ii) Warrants to
purchase 1000 Warrant Shares at an initial exercise price of $1.10 per share.

 

C.            The Investor wishes to purchase, and
the Company wishes to sell to the Investor, upon the terms and conditions set
forth in this Agreement, Units consisting of (i) that aggregate number of
Preferred Shares set forth opposite the Investor’s name on the Schedule of
Investors and (ii) Warrants to purchase that number of Warrant Shares equal to
the number of Conversion Shares underlying the Preferred Shares being purchased
and set forth opposite the Investor’s name on the Schedule of Investors.

 

D.            In connection with this Agreement,
the Company and the Investor are entering into a number of other agreements
including: (i) a bridge loan agreement and a loan agreement, substantially in
the forms attached hereto as Exhibits D and E, respectively (the “Bridge Loan”
and the “Loan Agreement”, respectively, and hereinafter sometimes referred to
collectively as the “Loan Agreements”), pursuant to which the Company will be
issuing certain notes (the “New Notes”) evidencing amounts owed by the Company
under the Loan Agreements, and which Loan Agreements and the obligations
thereunder will be secured and guaranteed as contemplated

 

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therein; and (ii) an Investor Rights
Agreement, substantially in the form attached hereto as Exhibit F (the “Investor
Rights Agreement”).

 

E.             The Company has outstanding certain
subordinated notes (the “Outstanding Notes”) issued pursuant to that certain
Note Purchase Agreement, dated as of February 23, 2004, by and among the
Company, Durus and Artal Long Biotech Portfolio LLC (“Artal”) and is willing to
accept the surrender of a portion of the Outstanding Notes in exchange for the
Preferred Shares and the Warrants.

 

F.             The Units, the Preferred Shares,
the Warrants, the New Notes, the Conversion Shares and the Warrant Shares are
sometimes hereinafter referred to collectively as the “Securities”.

 

In consideration
of the premises, the mutual covenants contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Investor hereby agree as follows:

 

1.               PURCHASE
AND SALE OF PREFERRED SHARES AND WARRANTS

 

1.1.                                                      Purchase
and Sale of Preferred Shares and Warrants.

 

1.1.1.            On or prior to the Initial Closing, as hereinafter defined, the
Company shall adopt and file the Certificate of Designation with the Secretary
of State of the State of Delaware and authorize, execute and deliver the
Warrant Agreement.

 

1.1.2.            On or prior to the Initial Closing, the Company shall have
authorized (i) the sale and issuance of the Preferred Shares; (ii) the
issuance of the Conversion Shares; (iii) the sale and issuance of the Warrants;
and (iv) the issuance of the Warrant Shares.

 

1.1.3.            The Preferred Shares shall be issued, and purchased by the
Investors, from time to time in accordance with the terms of this Agreement in
sub series, with the Preferred Shares issued at the Initial Closing, as
hereinafter defined, being designated as the “Series B-1 Preferred Shares” and
the Preferred Shares issued at the first Subsequent Closing, as hereinafter
defined, being designated as the “Series B-2 Preferred Shares” and so on for
each Subsequent Closing as contemplated in Section 1.3. As provided in and
subject to the Certificate of Designation, all Preferred Shares across all sub
series shall have the same rights, preferences, privileges and restrictions,
except as to voting rights as described in the Certificate of Designation. As
used herein, the term “Preferred Share” and “Preferred Shares” refers to a
Preferred Share of any sub series and all Preferred Shares across all sub
series, respectively

 

1.1.4.            Subject to the terms and conditions of this Agreement, at the
Initial Closing, the Company shall issue to the Investor Units consisting of
(i) the number of Series B-1 Preferred Shares as is set forth opposite the
Investor’s name on the Schedule of Investors and (ii) Warrants to acquire that
number of Warrant Shares equal to the number of Conversion Shares underlying
such Preferred Shares and set forth opposite the Investor’s name on the
Schedule of Investors.

 

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1.1.5.            The Investors shall have the option, as contemplated in Section
1.3 and subject to the terms and conditions of this Agreement, to purchase at
one or more Subsequent Closings, as hereinafter defined, and the Company agrees
to sell and issue to the Investors upon the exercise of such option, Units
consisting of (i) the number of Preferred Shares as is set forth opposite each
Investor’s name on the Notice of Additional Investment as provided in Section
1.3 and (ii) Warrants to acquire that number of Warrant Shares equal to the
number of Conversion Shares underlying the Preferred Shares being purchased and
set forth opposite the Investor’s name on the Notice of Additional Investment. At
each Subsequent Closing, the Company shall issue and the Investors shall
purchase Preferred Shares in consecutive sub series as described in Section
1.1.3

 

1.2.                         Issuance
of Securities. In consideration of the payment of the purchase price in the
amount and manner contemplated in Section 1.5, the Company shall deliver to an Investor
the Preferred Shares and the Warrants being purchased, each duly executed on
behalf of the Company and registered in the name of the Investor or its
designees.

 

1.3.                         Additional
Investment.

 

1.3.1.            Following the Initial Closing, the Investor shall have the
option, in its sole discretion, to purchase from the Company, Units at a
purchase price of $1,000 per Unit, each Unit consisting of additional Preferred
Shares and Warrants, for an aggregate purchase price of up to $15,000,000. The
Investor may from time to time, in its sole discretion, assign this right, in
whole or in part, to one or more additional investors to be designated by the
Investor. Any such designated investor shall execute and deliver a counterpart
signature page to this Agreement and each of the other Transaction Documents
applicable to a purchaser of Units of Preferred Shares and Warrants under this
Agreement and thereby, without any further action by the Company or any
Investor, become a party to and be deemed to be an Investor under this
Agreement, the Investor Rights Agreement and each of the other Transaction
Documents applicable to a purchaser of Units of Preferred Shares and Warrants
under this Agreement, and all schedules and exhibits hereto and thereto shall
automatically be updated to reflect such Investor as a party hereto and
thereto.

 

1.3.2.            The Investors may exercise the option to make an additional
investment by duly executing and delivering to the Company a notice of
additional investment in the form attached hereto as Exhibit G (the “Notice of
Additional Investment”) setting forth: (i) the names of the Investors; (ii) a
declaration by the Investors desiring to exercise the option to purchase
additional Units of Preferred Shares and Warrants as contemplated in this Section
1.3; (iii) the number of Units of Preferred Shares and Warrants that each
Investor desires to purchase at the Subsequent Closing; and (iv) the Subsequent
Closing Date. This option to purchase additional Units of Preferred Shares and
Warrants shall expire on the one (1) year anniversary of the date that the
Company receives shareholder approval for the issuance of the Conversion Shares
and the Warrant Shares as contemplated in Section 4.13, and thereafter shall be
of no force and effect.

 

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1.4.                         Closings.

 

1.4.1.            The initial closing of the sale and purchase of Units of Series
B-1 Preferred Shares and Warrants under this Agreement (the “Initial Closing”)
shall take place at 10:00 a.m., San Francisco time, on the fifth Business Day
after the satisfaction or waiver of the conditions to the Initial Closing set
forth in Sections 5 and 6.1, or on such other date or time as shall be mutually
agreed to by the Company and the Investor (the “Initial Closing Date”). The
Initial Closing shall occur at the offices of Morrison & Foerster, 425
Market Street, San Francisco, CA 94105.

 

1.4.2.            Following the Initial Closing, there may occur one or more
subsequent closings (each a “Subsequent Closing”) in connection with additional
purchases of Units of Preferred Shares and Warrants as contemplated in Section
1.3. A Subsequent Closing shall take place at the offices of Morrison &
Foerster at such time and on such date as shall be set forth in the Notice of
Additional Investment or such other time and date as may be mutually agreed to
by the Company and the participating Investors (each a “Subsequent Closing Date”).
The Initial Closing and a Subsequent Closing are sometimes hereinafter referred
to without distinction as a “Closing”.

 

1.5.                         Purchase
Price; Manner of Payment.

 

1.5.1.            At the
Initial Closing, the Investor shall exchange five million dollars ($5,000,000)
in principal amount of Outstanding Notes for five thousand (5,000) Units, each
Unit consisting of (i) one (1) Series B-1 Preferred Share (which initially may
be converted into 1000 Conversion Shares pursuant to the terms of the
Certificate of Designation) and (ii) Warrants with a term of five (5) years
from the date of issuance to purchase 1000 Warrant Shares at an initial
exercise price of $1.10 per share.

 

1.5.2.            At one
or more Subsequent Closings, Investors shall have the option to purchase up to
an aggregate of fifteen thousand (15,000) additional Units at a price of one
thousand dollars ($1,000) per Unit, which purchase price shall be paid via wire
transfer of immediately available funds in accordance with wire instructions
provided by the Company. The number of Units to be purchased by each Investor
at a Subsequent Closing shall be as set forth opposite the Investor’s name on
the Notice of Additional Investment.

 

2.               REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.

 

The Company represents and warrants to each Investor that:

 

2.1.                                        Organization
and Qualification. The Company and its Subsidiaries are duly organized, validly
existing and in good standing under the laws of the jurisdictions in

 

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which they are formed and have the requisite
power and authority to own their properties and to carry on their businesses as
now being conducted. The Company and its Subsidiaries are duly qualified as
foreign entities to do business and are in good standing in every jurisdiction
in which the ownership of property or the nature of their businesses conducted
by them makes such qualification necessary and where the failure to qualify
would reasonably be expected to have a Material Adverse Effect. “Subsidiary”
means any corporation, association, partnership, limited liability company,
joint venture or other entity of which more than 50% of the voting stock or
other equity interest is owned directly or indirectly by any Person or one or
more of the other Subsidiaries of such Person or a combination thereof. “Material
Adverse Effect” means any event, matter, condition or circumstance (including
any such event, matter, condition or circumstance which would occur upon notice
or lapse of time or both) which (i) has or would reasonably be expected to have
a material adverse effect on (A) the business, prospects, properties,
assets, operations, results of operations or condition (financial or otherwise)
of the Company and its Subsidiaries, taken as a whole, (B) the
intellectual property of the Company and its Subsidiaries, taken as a whole,
(C) the transactions contemplated in this Agreement or the other
Transaction Documents, as hereinafter defined, or by the agreements and
instruments to be entered into in connection herewith or therewith, or
(D) the authority or ability of the Company to perform its obligations
under this Agreement or the other Transaction Documents, or
(ii) materially adversely affects the legality, validity, binding effect
or enforceability of any of this Agreement or the other Transaction Documents,
the rights and remedies of the Investors hereunder and thereunder, or the validity,
perfection or priority of any lien granted to the Investors under any of the
Transaction Documents.

 

2.2.                                        Authorization;
Enforcement; Validity. The Company has the requisite power and authority to
enter into and perform its obligations under this Agreement, the Securities,
the Certificate of Designation, the Warrants, the New Notes, the Loan
Agreements, the other Loan Documents (as defined in each of the Bridge Loan and
the Loan Agreement), the Investor Rights Agreement and each of the other
agreements and documents entered into by the parties hereto in connection with
the transactions contemplated by this Agreement (this Agreement, the
Securities, the Certificate of Designation, the Warrants, the New Notes, the
Loan Agreements, the other Loan Documents, the Investor Rights Agreement and
such other agreements and documents being hereinafter referred to collectively
as the “Transaction Documents”) and to issue the Securities in accordance with
the terms hereof and thereof. Except as set forth on Schedule 2.2, the
execution and delivery of this Agreement and the other Transaction Documents by
the Company and the consummation by the Company of the transactions
contemplated hereby and thereby, including, without limitation, the issuance of
the Preferred Shares, the reservation for issuance and the issuance of the
Conversion Shares, the issuance of the Warrants, the reservation for issuance
and issuance of the Warrant Shares and the issuance of the New Notes have been
duly authorized by the Company’s board of directors and no further consent or
authorization is required by the Company, its board of directors or its
shareholders. This Agreement and the other Transaction Documents have been, or
when delivered hereunder and thereunder will have been, duly executed and
delivered by the Company and constitute, or when so delivered will constitute,
the legal, valid and

 

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binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
except as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of applicable
creditors’ rights and remedies and except as rights to indemnification and to
contribution may be limited by federal or state securities law.

 

2.3.                                        Issuance
of Securities. The issuance of the Securities is duly authorized, and the
Securities, upon issuance, shall be validly issued, fully paid and
non-assessable and free from all preemptive or similar rights, taxes, liens and
charges with respect to the issue thereof, and, subject to the filing of the
Certificate of Designation, the Preferred Shares shall be entitled to the
rights and preferences set forth in the Certificate of Designation. As of the
Initial Closing, the Company shall have reserved from its duly authorized
capital stock for the purpose of issuance not less than the sum of
(i) 120% of the maximum number of Conversion Shares issuable upon
conversion of the Preferred Shares (assuming for purposes hereof, that the
Preferred Shares are convertible at the initial conversion price and without
taking into account any limitations on the conversion of the Preferred Shares
that may be set forth in the Certificate of Designation) issued at the Initial
Closing and (ii) 120% of the maximum number of Warrant Shares issuable upon
exercise of the Warrants (without taking into account any limitations on the
exercise of the Warrants set forth in the Warrants) issuable at the Initial
Closing. Upon issuance or conversion in accordance with the Certificate of
Designation or exercise in accordance with the Warrants, as the case may be,
the Conversion Shares and the Warrant Shares, respectively, will be validly
issued, fully paid and non-assessable and free from all preemptive or similar
rights, taxes, liens and charges with respect to the issue thereof, with the
holders being entitled to all rights accorded to a holder of Common Stock. Subject
to the representations and warranties of the Investors in this Agreement, the
offer and issuance by the Company of the Securities are exempt from
registration under the Securities Act of 1933, as amended (the “Securities Act”).

 

2.4.                                        No
Conflicts. Except as set forth on Schedule 2.4, subject to the filing of
the Certificate of Designation, the execution, delivery and performance of this
Agreement and the other Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
will not (i) conflict with or result in a violation of the Company’s
Certificate of Incorporation, any capital stock of the Company, the Company’s
Bylaws or the Certificate of Designation or (ii) violate, conflict with, result
in a breach of or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give rise to any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture, patent, license or other instrument to which the Company or any of
its Subsidiaries is a party or by which any property or asset of the Company or
any of its Subsidiaries is bound or affected or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree or the like
(including federal and state securities laws and regulations and the rules and
regulations of any self-regulatory organizations to which the Company or its
securities are subject) applicable to the Company or any of its Subsidiaries or
by

 

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which any property or asset of the Company or
any of its Subsidiaries is bound or affected, or (iv) except as
contemplated by the Transaction Documents, result in, or require, the creation,
or imposition of any lien upon or with respect to any of the properties or
assets of the Company or any of its Subsidiaries.

 

2.5.                                        Consents.
Except as set forth on Schedule 2.5, the Company is not required to obtain any
approval, consent, license, exemption, authorization or order of, or make any
filing or registration with, any court, governmental agency or authority or any
regulatory or self-regulatory agency or any other Person in connection with the
execution, delivery or performance of its obligations under or contemplated by
this Agreement and the other Transaction Documents. Except as set forth on
Schedule 2.5, all approvals, consents, licenses, exemptions, authorizations,
orders, filings and registrations which the Company is required to make or
obtain pursuant to the preceding sentence will be made, obtained or effected on
or prior to the Initial Closing Date, and the Company and its Subsidiaries are
unaware of any facts or circumstances which might prevent the Company from
making, obtaining or effecting any of the registrations, applications or
filings pursuant to the preceding sentence. Except as set forth on Schedule
2.5, the Company is not in violation of the requirements of the NASDAQ Capital
Market and has no knowledge of any facts which would reasonably be expected to
lead to delisting or suspension of the Common Stock in the foreseeable future.

 

2.6.                                        No
General Solicitation; Placement Agent’s Fees. Neither the Company, nor any
of its Subsidiaries or Affiliates, nor any Person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
in connection with the offer or sale of the Securities. The Company shall be
responsible for the payment of any placement agent’s fees, financial advisory
fees, or brokers’ commissions (other than for Persons engaged by the Investors)
relating to or arising out of the transactions contemplated hereby or by the
other Transaction Documents. The Company shall pay, and hold the Investors
harmless against, any liability, loss or expense (including, without
limitation, attorney’s fees and out-of-pocket expenses) arising in connection
with any such claim. “Affiliate” means any Person which, directly or
indirectly, controls, is controlled by or is under common control with another
Person. For purposes of the foregoing, “control,” “controlled by” and “under
common control with” with respect to any Person shall mean the possession,
directly or indirectly, of the power (i) to vote ten percent (10%) or more
of the securities having ordinary voting power of the election of directors of
such Person, or (ii) to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities
or by contract or otherwise.

 

2.7.                                        No
Integrated Offering. Except as set forth on Schedule 2.7, none of the
Company, its Subsidiaries, any of their Affiliates, nor any Person acting on
its or their behalf has, directly or indirectly, made any offers or sales of
any security or solicited any offers to buy any security, under circumstances
that would require registration of any of the Securities under the Securities
Act or cause this offering of the Securities to be integrated with prior
offerings by the Company for purposes of the Securities Act or any applicable
shareholder approval provisions, including, without limitation, under the rules

 

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and regulations of any exchange or automated
quotation system on which any of the securities of the Company are listed or
designated.

 

2.8.                                        Application
of Takeover Protections; Termination of Rights Agreement and Standstill
Restrictions.

 

2.8.1.  The Company and its board of
directors have taken any and all actions necessary in order to render
inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under the Certificate of Incorporation or the
laws of the jurisdiction of its incorporation which is or could become
applicable to the Investors as a result of the transactions contemplated by
this Agreement and the other Transaction Documents, including, without
limitation, the Company’s issuance of the Securities and the Investors’
ownership of the Securities.

 

2.8.2.  The Company and its board of
directors have taken any and all actions necessary in order to render the
Rights Agreement, as hereinafter defined, inapplicable to the Investors as a
result of the transactions contemplated by this Agreement and the other
Transaction Documents, including, without limitation, the Company’s issuance of
the Securities and the Investors’ ownership of the Securities, and in
furtherance of the foregoing, the Company and its board of directors have duly
authorized, executed and delivered an amendment to its Rights Agreement, dated
as of October 28, 1996 and amended as of February 23, 2004 (the “Rights
Agreement”), between the Company and Computershare Investor Services Inc.
(formerly EquiServe Trust Company, N.A.), as successor Rights Agent to First
Chicago Trust Company of New York, substantially in the form attached hereto as
Exhibit H, effective immediately prior to the execution and delivery of this
Agreement. In furtherance of the foregoing, the Company and its board of
directors have also taken any and all actions necessary under the Rights Agreement
to redeem all outstanding Rights under the Rights Agreement so as terminate the
right of the holders thereof to exercise such Rights, with their only remaining
right being the right to receive the Redemption Price, as provided in the
Rights Agreement, and to render the Rights Agreement of no further force and
effect, to be effective immediately prior to the execution and delivery of this
Agreement. Simultaneously with the execution and delivery of this Agreement,
the Company has delivered to the Investor a certificate, executed by the
Secretary of the Company and dated as of the date hereof, certifying as to the
adoption of resolutions of the Company’s board of directors consistent with the
foregoing, which resolutions are in a form acceptable to the Investor, and as
to the incumbency, authority and signature(s) of the officer(s) of the Company
authorized to execute and deliver the amendment to the Rights Agreement.

 

2.8.3.  The Company has duly authorized,
executed and delivered an amendment to the Settlement Agreement and Mutual
Release, dated as of February 23, 2004, among the Company, Durus, Artal and
other parties thereto, substantially in the form attached hereto as Exhibit I
and dated as of the date hereof, pursuant to which amendment the Company has
terminated and rendered inapplicable as of the date

 

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hereof all standstill, control and other
restrictions on Durus and Artal that may be implicated by the transactions
contemplated by this Agreement and the other Transaction Documents, including,
without limitation, the Company’s issuance of the Securities and the Investor’s
ownership of the Securities. Simultaneously with the execution and delivery of
this Agreement, the Company has delivered to the Investors a certificate,
executed by the Secretary of the Company and dated as of the date hereof,
certifying as to the adoption of resolutions of the Company’s board of
directors consistent with the foregoing, which resolutions are in a form
acceptable to the Investors, and as to the incumbency, authority and
signature(s) of the officer(s) of the Company authorized to execute and deliver
the amendment to the Settlement Agreement and Mutual Release.

 

2.9.                                        SEC
Documents; Financial Statements. The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it
with the Securities and Exchange Commission (the “SEC”) pursuant to the
reporting requirements of the Securities Exchange Act of 1934 (the “Exchange
Act”) (all of the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements, notes and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as
the “SEC Documents”). The Company has delivered to the Investors or their
representatives true, correct and complete copies of each of the SEC Documents
not available on the EDGAR system. As of their respective dates, the SEC
Documents complied with the requirements of the Exchange Act or the Securities
Act, as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to the SEC Documents, and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The financial statements of the Company included in the
SEC Documents complied as to form with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto as in
effect as of the time of filing. Such financial statements have been prepared
in accordance with generally accepted accounting principles, consistently
applied, during the periods involved (except (i) as may be otherwise indicated
in such financial statements or the notes thereto, or (ii) in the case of
unaudited interim financial statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present the
financial position of the Company and its Subsidiaries as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). The Company’s budget for fiscal year 2006 attached hereto as
Exhibit J (the “Budget”) is a true and correct copy of the most recent
operating budget for the Company and its Subsidiaries approved by the Company’s
board of directors. All financial projections and forecasts delivered to the
Investors, including the Budget, represent the Company’s best estimates and
assumptions as to future performance, which the Company believes to be fair and
reasonable in light of current and reasonably foreseeable business conditions. No
information provided by or on behalf of the Company to the Investors contains
any untrue statement of a material fact or omits to

 

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state any material fact necessary in order to
make the statements therein not misleading, in light of the circumstance under
which they are or were made.

 

2.10.                                  Absence
of Certain Changes. Except as set forth on Schedule 2.10, since the Company’s
most recently filed audited financial statements contained in a Form 10-K,
there has been no material adverse change and no material adverse development
in the business, assets, properties, operations, condition (financial or
otherwise), results of operations or prospects of the Company and its
Subsidiaries. Except as set forth on Schedule 2.10, since the Company’s most
recently filed audited financials statements contained in a Form 10-K, neither
the Company nor any of its Subsidiaries has (i) declared or paid any
dividends or made any distributions on its outstanding capital stock (except
dividends paid directly to the Company by its Subsidiaries), (ii) issued any
shares of capital stock; (iii) sold any assets outside of the ordinary
course of business; (iv) had capital expenditures, individually or in the
aggregate, in excess of $50,000; (v) incurred any Indebtedness individually or
in the aggregate in excess of $25,000; (vi) conducted its business and
operations other than in the ordinary course of business and consistent with
past practices or (vii) increased the compensation of any existing employee,
officer, director or consultant, or paid or awarded any bonus, incentive
compensation, service award or other like benefit to any employee, officer,
director or consultant, or made any severance or termination payments, or
entered into or amended any severance agreement or the like with, any employee,
officer or director, or entered into any new employment, consulting, retention,
incentive compensation, non-competition, retirement, parachute or
indemnification agreement with any officer, director, employee or agent, or
modify any such existing agreement. Except as set forth on Schedule 2.10,
neither the Company nor any of its Subsidiaries has taken any steps to seek
protection pursuant to any bankruptcy law nor does the Company have any
knowledge or reason to believe that its creditors intend, or may have a
reasonable basis upon which, to initiate involuntary bankruptcy proceedings. Except
as set forth on Schedule 2.10, the Company and its Subsidiaries, individually
and on a consolidated basis, after giving effect to the transactions
contemplated by this Agreement and the other Transaction Documents to occur at
the Initial Closing, will not be, Insolvent (as hereinafter defined). For
purposes hereof, “Insolvent” means, with respect to any Person (i) the
present fair saleable value of such Person’s assets is less than the amount
required to pay such Person’s total Indebtedness (as defined in
Section 2.16), (ii) such Person is unable to pay its debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured, (iii) such Person intends to
incur or believes that it will incur debts that would be beyond its ability to
pay as such debts mature or (iv) such Person has unreasonably small
capital with which to conduct the business in which it is engaged as such
business is now conducted and is proposed to be conducted.

 

2.11.                                  Conduct
of Business; Regulatory Permits. Neither the Company nor any of its Subsidiaries
is in violation of any term of or in default under the Certificate of
Incorporation, the Certificate of Designation, any other certificate of
designation, the preferences or rights of any other outstanding series of
preferred stock of the Company, the Bylaws or any Subsidiaries’ organizational
charter or articles of incorporation or

 

10

 

bylaws (or equivalent organizational
documents). Except as set forth on Schedule 2.11, neither the Company nor any
of its Subsidiaries is in violation of any judgment, decree or order or any
statute, ordinance, rule or regulation applicable to the Company or its
Subsidiaries or by which it or its properties may be bound, and neither the
Company nor any of its Subsidiaries will conduct its business in violation of
any of the foregoing. Without limiting the generality of the foregoing, except
as set forth on Schedule 2.11, the Company is not in violation of any of the
rules, regulations or requirements of the NASDAQ Capital Market and has no
knowledge of any facts or circumstances that would reasonably be expected to
lead to delisting or suspension of the Common Stock by the NASDAQ Capital
Market in the foreseeable future. Except as set forth on Schedule 2.11, during
the two years prior to the date hereof, (i) the Common Stock has been
designated for quotation on the NASDAQ National Market or the NASDAQ Capital
Market, (ii) trading in the Common Stock has not been suspended by the
SEC, the NASDAQ National Market or the NASDAQ Capital Market and (iii) the
Company has received no communication, written or oral, from the SEC, the
NASDAQ National Market or the NASDAQ Capital Market regarding the suspension or
delisting of the Common Stock. Except as set forth on Schedule 2.11, the
Company and its Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate regulatory authorities necessary to conduct
their respective businesses, and neither the Company nor any such Subsidiary
has received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit.

 

2.12.                                  Corrupt
Practices. Neither the Company nor any of its Subsidiaries nor any
director, officer, agent, employee or other Person acting on behalf of the
Company or any of its Subsidiaries has, in the course of its, his or her
actions for, or on behalf of, the Company or any of its Subsidiaries
(i) used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expenses relating to political activity;
(ii) made any direct or indirect unlawful payment to any foreign or
domestic government official or employee using corporate funds;
(iii) violated or is in violation of any provision of the U.S. Foreign
Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful
bribe, rebate, payoff, influence payment, kickback or other unlawful payment to
any foreign or domestic government official or employee.

 

2.13.                                  Sarbanes-Oxley
Act. The Company is in compliance with any and all applicable requirements
of the Sarbanes-Oxley Act of 2002 and any and all applicable rules and
regulations promulgated by the SEC thereunder.

 

2.14.                                  Transactions
with Affiliates. Except as set forth on Schedule 2.14, none of the
officers, directors or employees of the Company or any of its Subsidiaries is
presently a party to any transaction with the Company or any of its
Subsidiaries (other than for ordinary course services as employees, officers or
directors), including, but not limited to, any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any such officer, director or employee or Subsidiaries or any corporation,
partnership, trust or other entity in which any such officer, director, or
employee has a substantial interest or is an officer, director, trustee or
partner.

 

11

 

2.15.                                  Equity
Capitalization. As of the date hereof, the authorized capital stock of the
Company consists of 50,000,000 shares of Common Stock and 1,000,000 shares of
preferred stock, par value $0.01 per share, of which as of the date hereof,
32,177,574 shares of Common Stock are issued and outstanding, 4,442,286 shares
of Common Stock are reserved for issuance pursuant to securities (other than
the Preferred Shares and the Warrants) exercisable or exchangeable for, or
convertible into, shares of Common Stock, and no shares of preferred stock
(other than the Preferred Shares) are issued and outstanding or reserved for
issuance. All of such outstanding or reserved shares have been, or upon
issuance will be, validly issued, fully paid and non-assessable. Except as set
forth on Schedule 2.15, (i) none of the Company’s share capital is subject to
preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company and (ii) there are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities. Except as set forth on Schedule
2.15, (i) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, or exercisable or exchangeable for, any
share capital of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional share capital of the
Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, or exercisable or exchangeable for, any
share capital of the Company or any of its Subsidiaries; (ii) there are no
agreements or arrangements under which the Company or any of its Subsidiaries
is obligated to register the sale of any of their securities under the
Securities Act; (iii) there are no outstanding securities or instruments
of the Company or any of its Subsidiaries which contain any redemption or
similar provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem a security of the Company or any of its Subsidiaries;
(iv) the Company does not have any stock appreciation rights or “phantom
stock” plans or agreements or any similar plans or agreements; and (v) the
Company and its Subsidiaries have no liabilities or obligations required to be
disclosed in the SEC Documents and not disclosed in the SEC Documents. The
Company has furnished to the Investors true, correct and complete copies of the
Company’s Amended and Restated Certificate of Incorporation (the “Certificate
of Incorporation”), and the Company’s Bylaws (the “Bylaws”), and the terms of
all securities convertible into, or exercisable or exchangeable for, shares of
Common Stock and the material rights of the holders thereof in respect thereto.

 

The name, capital structure and ownership of each Subsidiary of the
Company on the date of this Agreement are as set forth in Schedule 2.15. All of
the outstanding capital stock of, or other interest in, each such Subsidiary has
been validly issued, and is fully paid and nonassessable. Except for the
Subsidiaries set forth on Schedule 2.15, on the date of this Agreement, the
Company has no equity interest in any Person.

 

12

 

2.16.                                  Indebtedness
and Other Contracts. Schedule 2.16 contains a complete and accurate list of
all contracts, agreements, indentures, licenses or instruments material to the
conduct of the Company’s business as currently conducted or as presently
contemplated to be conducted or involving a monetary amount in excess of
$25,000. Except as set forth on Schedule 2.16, neither the Company nor any of
its Subsidiaries (i) has outstanding any debt securities, notes, credit
agreements, credit facilities or other agreements, documents or instruments
evidencing Indebtedness (as defined below) of the Company or any of its
Subsidiaries or by which the Company or any of its Subsidiaries is or may
become bound; (ii) is a party to any financing statements securing obligations
in any amounts filed in connection with the Company or any of its Subsidiaries;
(iii) is a party to any contract, agreement, indenture, license or
instrument, the violation of which, or default under which, by the other
party(ies) to such contract, agreement, indenture, license or instrument could
reasonably be expected to result in a Material Adverse Effect; (iv) is in
default (and no event has occurred which with notice or lapse of time or both
could place the Company in default) under any contract, agreement, indenture,
license or other instrument (including any such contract, agreement, indenture,
license or other instrument relating to Indebtedness) to which the Company or
any of its Subsidiaries is a party or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected; (v) is a party to
any contract, agreement, indenture, license or instrument, the performance of
which has or may reasonably be expected to have a Material Adverse Effect or
(vi) has any other material liabilities, fixed or contingent, that are not
reflected in the financial statements referred to in Section 2.9 or in the
notes thereto. For purposes of this Agreement: (x) ”Indebtedness” of any
Person means, without duplication (A) all indebtedness for borrowed money,
(B) all obligations issued, undertaken or assumed as the deferred purchase
price of property or services, (C) all reimbursement or payment
obligations with respect to letters of credit, surety bonds and other similar
instruments, (D) all obligations evidenced by notes, bonds, debentures or
similar instruments, including obligations so evidenced incurred in connection
with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other title
retention agreement or incurred as financing, in either case with respect to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in
the event of default are limited to repossession or sale of such property),
(F) all monetary obligations under any leasing or similar arrangement
which, in connection with generally accepted accounting principles,
consistently applied for the periods covered thereby, is classified as a
capital lease, (G) all indebtedness referred to in clauses
(A) through (F) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any mortgage, lien, pledge, charge, security interest or other encumbrance upon
or in any property or assets (including accounts and contract rights) owned by
any Person, even though the Person which owns such assets or property has not
assumed or become liable for the payment of such indebtedness, and (H) all
Contingent Obligations in respect of indebtedness or obligations of others of
the kinds referred to in clauses (A) through (G) above; and (y) ”Contingent
Obligations” means, as to any Person, any direct or indirect liability,
contingent or otherwise, of that Person with respect to any indebtedness,
lease, dividend or other obligation of another Person if the

 

13

 

primary purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to provide
assurance to the obligee of such liability that such liability will be paid or
discharged, or that any agreements relating thereto will be complied with, or
that the holders of such liability will be protected (in whole or in part)
against loss with respect thereto.

 

2.17.                                  Absence
of Litigation. Except as set forth in Schedule 2.17, there is no action,
suit, notice of violation, claim, proceeding, inquiry or, to the Company’s
knowledge, any investigation before or by any court, public board, government
agency or authority, arbitrator, self-regulatory organization or body pending
or, to the knowledge of the Company, threatened against or affecting the
Company or any of its Subsidiaries, any of their respective properties, the Common
Stock or any outstanding stock of the Company’s Subsidiaries, or any of the
Company’s or its Subsidiaries’ officers or directors.

 

2.18.                                  Insurance.
The properties of the Company and its Subsidiaries are insured, with
financially sound and reputable insurance companies (not Affiliates of the
Company), in such amounts, with such deductibles and covering such risks as is
customarily carried in accordance with sound business practice by companies
engaged in similar businesses and owning similar properties in the localities
where the Company or such Subsidiaries operate. Neither the Company nor any
such Subsidiary has been refused any insurance coverage sought or applied for,
and neither the Company nor any such Subsidiary has any reason to believe that
it will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost comparable to the current cost for
such coverage.

 

2.19.                                  Employee
Relations. Except as set forth on Schedule 2.19, neither the Company nor
any of its Subsidiaries is a party to any collective bargaining agreement or
employs any member of a union. The Company and its Subsidiaries believe that
their relations with their employees are good. No employee of the Company or
any of its Subsidiaries is, or is expected to be, in violation of any material
term of any employment contract, confidentiality, disclosure or proprietary
information agreement, non-competition agreement, or any other contract or
agreement or any restrictive covenant, and the continued employment of each
such employee does not subject the Company or any of its Subsidiaries to any
liability with respect to any of the foregoing matters. Except as set forth on
Schedule 2.19, the Company and its Subsidiaries are in compliance in all
material respects with all federal, state, local and foreign laws and
regulations respecting labor, employment and employment practices and benefits,
terms and conditions of employment and wages and hours. There are no strikes,
lockouts or other labor disputes against the Company or any of its
Subsidiaries, or, to the best of the Company’s knowledge, threatened against or
affecting the Company or any of its Subsidiaries.

 

2.20.                                  Title.
Except as set forth in Schedule 2.20, the Company and its Subsidiaries have
good and marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them which is material to
the business of the Company

 

14

 

and its Subsidiaries, in each case free and
clear of all liens, encumbrances and defects except such as do not materially
affect the value of such property and do not interfere with the use made and proposed
to be made of such property by the Company and any of its Subsidiaries. Any
real property and facilities held under lease by the Company or any of its
Subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
Subsidiaries.

 

2.21.                                  Intellectual
Property Rights. Except as set forth in Schedule 2.21, the Company and its
Subsidiaries own or possess all rights or licenses to use all trademarks, trade
names, service marks, service mark registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and other intellectual property rights (“Intellectual
Property Rights”), free from burdensome restrictions, necessary to conduct
their respective businesses as presently conducted and as presently
contemplated to be conducted in the future. Except as set forth in Schedule
2.21, none of the Company’s or its Subsidiaries’ Intellectual Property Rights
have expired, terminated or been abandoned, or are expected to expire,
terminate or be abandoned. Neither the Company nor any Subsidiary has any
knowledge of any infringement by the Company or any of its Subsidiaries of the
Intellectual Property Rights of others. There is no claim, action or proceeding
being made or brought, or to the best knowledge of the Company, being
threatened, against the Company or any of its Subsidiaries regarding
Intellectual Property Rights. The Company is unaware of any facts or
circumstances which might reasonably be expected to give rise to any of the
foregoing infringements or claims, actions or proceedings. No third party
possesses rights to the Intellectual Property Rights of the Company or any of
its Subsidiaries which, if exercised, could enable such third party to develop
products competitive to those of the Company or any of its Subsidiaries or
could have an adverse effect on the ability of the Company or any of its
Subsidiaries to conduct its business as presently conducted or as presently
contemplated to be conducted. The Company and its Subsidiaries have taken all
reasonable security measures to protect the secrecy, confidentiality and value
of all of their Intellectual Property Rights.

 

2.22.                                  Environmental
Laws. Each of the Company and its Subsidiaries is in compliance in all
material respects with all Environmental Laws, and there are no actions, suits,
claims, notices of violation, hearings, investigations or proceedings pending
or, to the best of the Company’s knowledge, threatened against or affecting the
Company or any of its Subsidiaries, or with respect to the ownership, use,
maintenance and operation of the Company’s and its Subsidiaries’ properties,
relating to any Environmental Laws. The term “Environmental Laws” means all
federal, state or local laws, statutes, common law duties, rules, regulations,
ordinances and codes, together with all administrative orders, directives, requests,
licenses, authorizations and permits of, and agreements with (including consent
decrees), any governmental agencies or authorities, in each case relating to or
imposing liability or standards of conduct concerning public health, safety and
environmental protection matters.

 

15

 

2.23.                                       Subsidiary
Rights. The Company and each of its Subsidiaries has the unrestricted right
to vote, and (subject to limitations imposed by applicable law) to receive
dividends and distributions on, all capital securities of its Subsidiaries as
owned by the Company or such Subsidiary.

 

2.24.                                       Tax
Status. Except set forth on Schedule 2.24, the Company and each of its
Subsidiaries (i) has made or filed all foreign, federal and state income
and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject, (ii) has paid all taxes and other
governmental assessments and charges shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and (iii) has set aside on its books provision reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes claimed to be
due by the taxing authority of any jurisdiction, and, to the Company’s
knowledge, there is no basis for any such claim.

 

2.25.                                       Internal
Accounting and Disclosure Controls. The Company and each of its
Subsidiaries maintains a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in
accordance with management’s general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain asset and liability accountability,
(iii) access to assets or incurrence of liabilities is permitted only in
accordance with management’s general or specific authorization and (iv) the
recorded accountability for assets and liabilities is compared with the
existing assets and liabilities at reasonable intervals and appropriate action
is taken with respect to any difference. The Company is not an “accelerated
filer” as defined in Rule 12b-2 under the Exchange Act for its fiscal year
ending December 31, 2005 and, accordingly, has not complied with
Section 404 of the Sarbanes-Oxley Act of 2002. The Company maintains
disclosure controls and procedures that are effective in ensuring that
information required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the rules and forms of the SEC,
including, without limitation, controls and procedures designed to ensure that
information required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is accumulated and communicated to the
Company’s management, including its principal executive officer or officers and
its principal financial officer or officers, as appropriate, to allow timely
decisions regarding required disclosure. During the twelve (12) months
immediately preceding the date hereof neither the Company nor any of its
Subsidiaries have received any notice or correspondence from any accountant
relating to any potential material weakness in any part of the system of
internal accounting controls of the Company or any of its Subsidiaries.

 

2.26.                                       Investment
Company Status. The Company is not, and upon consummation of the sale of
the Securities will not be, an “investment company,” a company controlled by an
“investment company” or an “affiliated person” of, or “promoter” or “principal

 

16

 

underwriter” for, an “investment company” as
such terms are defined in the Investment Company Act of 1940, as amended.

 

2.27.                                       Transfer
Taxes. On the applicable Closing Date, all stock transfer or other taxes
(other than income or similar taxes) which are required to be paid in
connection with the sale and transfer of the Securities to be sold to the
Investors hereunder will be, or will have been, fully paid or provided for by
the Company, and all laws imposing such taxes will be or will have been
complied with.

 

2.28.                                       Disclosure.
All reports, financial and other statements, certificates and other information
and disclosure provided to the Investors regarding the Company and its
Subsidiaries, their businesses and the transactions contemplated hereby and by
the other Transaction Documents, including the Schedules to this Agreement or
any other Transaction Document, furnished by or on behalf of the Company are
true and correct and do not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. Each press release issued by the Company or its Subsidiaries during
the twenty four (24) months preceding the date of this Agreement did not
at the time of release contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
are made, not misleading. Except as set forth on Schedule 2.28, no event or
circumstance has occurred or information exists with respect to the Company or
any of its Subsidiaries or its or their businesses, properties, prospects, operations
or financial conditions, which, under applicable law, rule or regulation,
requires public disclosure or announcement by the Company but which has not
been publicly announced or disclosed.

 

2.29.                                       ERISA.
Schedule 2.29 contains a complete and accurate list of all Plans maintained or
sponsored by the Company or any ERISA Affiliate or to which the Company or any
ERISA Affiliate contributes. The Company and its ERISA Affiliates are in
compliance in all material respects with all applicable provisions and
requirements of ERISA with respect to each Plan, and have performed all their
obligations under each Plan; and no ERISA Event has occurred or is reasonably
expected to occur.

 

2.30.                                       No
Stabilization. The Company has not taken, directly or indirectly, any action
designed to or that could cause or result in any stabilization or manipulation
of the price of the Common Stock.

 

2.31.                                       FDA
and Related Matters.

 

2.31.1.      Schedule 2.31 sets forth a
complete and accurate list, referencing relevant records and documents, for the
last five (5) years, of (i) all regulatory or warning letters, notices of
adverse findings and similar letters or notices issued to the Company or any
Subsidiary by the Food and Drug Administration (the “FDA”) or any other
governmental entity that is concerned with the safety, efficacy, reliability or
manufacturing of the medical devices developed, manufactured or sold by the
Company or any Subsidiary (hereinafter for purposes of this Section 2.31, “Medical

 

17

 

Device Regulatory Agency”); (ii) all reports, filings or communications
made by the Company or any of its Subsidiaries to or with a Medical Device
Regulatory Agency regarding the medical devices developed, manufactured or sold
by the Company or any Subsidiary (but excluding any reports, filings or
communications in connection with applications seeking approval from any such
Medical Device Regulatory Agency for the marketing and sale of such medical
devices); (iii) all product recalls and safety alerts conducted by or issued to
the Company or any Subsidiary and any requests from the FDA or any Medical
Device Regulatory Agency requesting the Company or any Subsidiary to cease to
investigate, test, manufacture, market or sell any product; (iv) any civil
penalty actions begun by the FDA or any Medical Device Regulatory Agency
against the Company or any Subsidiary and all consent decrees issued with
respect to the Company or any Subsidiary; and (v) any other communications
between the Company or any Subsidiary on the one hand and the FDA or any
Medical Device Regulatory Agency on the other hand. The Company has delivered
to the Investors copies of all documents referred to in Schedule 2.31.

 

2.31.2.      The Company and its
Subsidiaries have obtained all consents, approvals, certifications,
authorizations and permits of, and have made all filings with, or notifications
to, all Medical Device Regulatory Agencies pursuant to applicable requirements
of all federal laws, rules and regulations, and all corresponding state and
foreign laws, rules and regulations applicable to the Company or any Subsidiary
and relating to its business. The Company and its Subsidiaries are in
compliance with all applicable federal laws, rules and regulations and all
corresponding applicable state and foreign laws, rules and regulations relating
to medical device manufacturers. The Company has no reason to believe that any
of the consents, approvals, authorizations, registrations, certifications,
permits, filings or notifications that it or any of its Subsidiaries has
received or made to operate their respective businesses have been or are being
questioned, challenged or revoked. There are no investigations or inquiries by
the FDA or any Medical Device Regulatory Agency pending or threatened relating
to the operation of the Company’s or the Company’s Subsidiaries’ businesses or
the Company’s or any Subsidiary’s compliance with applicable laws, rules or
regulations relating to medical device manufacturers.

 

2.32.                                  Ranking
of Preferred Shares. No issued or outstanding equity securities of the
Company or any Subsidiary will be senior to or pari passu with the Preferred
Shares, when issued, as to dividend rights or upon the liquidation, winding up
or dissolution of the Company.

 

2.33.                                  Bridge
Loan. The Company has duly authorized, executed and delivered the Bridge
Loan, dated as of the date hereof, and has performed, satisfied and complied in
all material respects with the covenants, agreements and conditions contained
therein to be performed, satisfied or complied with on and as of the date
hereof. Simultaneously with the execution and delivery of this Agreement, the
Company has delivered to the Investor a certificate, executed by the Secretary
of the Company and dated as of the date hereof, certifying as to the adoption
of resolutions of the Company’s board of directors consistent with the
foregoing, which resolutions are in a form acceptable to the Investor,

 

18

 

and as to the incumbency, authority and
signature(s) of the officer(s) of the Company authorized to execute and deliver
the Bridge Loan.

 

2.34.                                       Chief
Executive Officer. The Company has received and accepted a letter from
William Dow, substantially in the form attached hereto as Exhibit K, in which
letter Mr. Dow acknowledges and agrees to having been removed from his position
as CEO of the Company and resigns as a member of the board of directors of the
Company effective on and as of the date hereof. Simultaneously with the
execution and delivery of this Agreement, the Company has delivered to the
Investor a certificate, executed by the Secretary of the Company and dated as
of the date hereof, certifying as to the adoption of resolutions of the Company’s
board of directors consistent with the foregoing, which resolutions are in a
form acceptable to the Investor.

 

2.35.                                       Appointment
of Acting CEO. The Company’s board of directors has appointed Laurence
Birch as acting CEO and as a member of the board of directors of the Company
effective on and as of the date hereof. Simultaneously with the execution and
delivery of this Agreement, the Company has delivered to the Investor a
certificate, executed by the Secretary of the Company and dated as of the date
hereof, certifying as to the adoption of resolutions of the Company’s board of
directors consistent with the foregoing, which resolutions are in a form
acceptable to the Investor.

 

2.36.                                       Appointment
of Durus Board Member. The Company and its board of directors have taken
any and all actions necessary under the Certificate of Incorporation and Bylaws
to appoint to the board of directors a member designated by Durus as a Class
III director. Simultaneously with the execution and delivery of this Agreement,
the Company has delivered to the Investor a certificate, executed by the
Secretary of the Company and dated as of the date hereof, certifying as to the
adoption of resolutions of the Company’s board of directors consistent with the
foregoing, which resolutions are in a form acceptable to the Investor.

 

2.37.                                       Indemnification
Agreements. The Company has, or prior to the Initial Closing will have,
executed and delivered an indemnification agreement, substantially in the form
attached hereto as Exhibit L (a “New Indemnification Agreement”), dated as of the
date hereof, with each member of the Company’s board of directors, including
the Durus designee to the board of directors as provided in Section 2.36. Simultaneously
with the execution and delivery of this Agreement, the Company has delivered to
the Investor a certificate, executed by the Secretary of the Company and dated
as of the date hereof, certifying as to the adoption of resolutions of the
Company’s board of directors consistent with the foregoing, which resolutions
are in a form acceptable to the Investor, and as to the incumbency, authority
and signature(s) of the officer(s) of the Company authorized to execute and
deliver the New Indemnification Agreements.

 

2.38.                                       D&O
Insurance. The Company has provided the Investor with evidence of and, as
of the date hereof, has in full force and effect Directors and Officers
liability insurance coverage for the benefit of each member of the Company’s
board of directors, including the Durus designee to the board of directors as
provided in Section 2.36, with

 

19

 

such coverage, in such amount, of such
duration and with such insurance carriers as is set forth in Schedule 2.39.

 

3.               INVESTORS’
REPRESENTATIONS AND WARRANTIES.

 

Each Investor represents and warrants to the Company that:

 

3.1.                                             Organization;
Authority. The Investor is an entity duly organized, validly existing and
in good standing under the laws of the jurisdiction of its organization with
the requisite power and authority to enter into and to consummate the
transactions contemplated by this Agreement and the other Transaction Documents
to which it is a party and otherwise to carry out its obligations hereunder and
thereunder.

 

3.2.                                             Investment
Purpose. The Investor is purchasing the Securities for its own account and
not with a view to the distribution thereof, provided, however, that by making
the representation herein, the Investor reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption from registration under the Securities Act.

 

3.3.                                             Reliance
on Exemptions. The Investor understands that the Securities are being
offered and sold to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that the
Company is relying in part upon the truth and accuracy of, and the Investor’s
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Investor set forth herein in order to determine the
availability of such exemptions and the eligibility of the Investor to acquire
the Securities.

 

3.4.                                             Information.
To the knowledge of the Investor, the Investor and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Securities. The Investor and its advisors, if any, have been afforded the
opportunity to ask questions of the Company. Neither such inquiries nor any other
due diligence investigations conducted by the Investor or its advisors, if any,
or its representatives shall modify, amend or affect the Investor’s right to
rely on the Company’s representations and warranties contained herein. The
Investor understands that its investment in the Securities involves a high
degree of risk.

 

3.5.                                             No
Governmental Review. The Investor understands that no United States federal
or state agency or any other government or governmental agency has passed on or
made any recommendation or endorsement of the Securities or the fairness or
suitability of the investment in the Securities.

 

3.6.                                             Restrictions
on Transfer or Resale; Legends.

 

3.6.1.   Restrictions on
Transfer or Resale  The Investor
understands that, except as provided in the Investor Rights Agreement:
(i) the Securities have not been and are

 

20

 

not being registered under the Securities Act
or any state securities laws, and may not be offered for sale, sold, assigned
or transferred unless (A) the resale of the Securities is registered
pursuant to an effective registration statement under the Securities Act,
(B) if requested by the Company, the Investor shall have delivered to the
Company an opinion of counsel (in form, substance and scope customary for
opinions of counsel in comparable transactions) to the effect that such
Securities to be sold, assigned or transferred may be sold or transferred
pursuant to an exemption from such registration, or (C) the Securities are
sold or transferred pursuant to Rule 144 promulgated under the Securities Act,
as amended, (or a successor rule thereto) (“Rule 144”); (ii) any sale of
the Securities made in reliance on Rule 144 may be made only in accordance with
the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of
the Securities under circumstances in which the seller (or the Person through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the Securities Act) may require compliance with some other exemption
under the Securities Act or the rules and regulations of the SEC thereunder;
and (iii) except as set forth in the Investor Rights Agreement, neither
the Company nor any other Person is under any obligation to register the Securities
under the Securities Act or any state securities laws or to comply with the
terms and conditions of any exemption thereunder.

 

3.6.2.  Legends. The Investor
understands that the certificates or other instruments representing the
Preferred Shares, the Warrants and the New Notes and, until such time as the
resale of the Conversion Shares, the Warrants and the Warrant Shares have been
registered under the Securities Act as contemplated by the Investor Rights
Agreement, the certificates representing the Conversion Shares, the Warrants
and the Warrant Shares, except as set forth below, shall bear any legend as
required by the “blue sky” laws of any state and a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, OR TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OF 1933, AS AMENDED AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.

 

3.7.                                        Authorization;
Enforcement. This Agreement, and the other Transaction Documents to which
the Investor is a party, have been duly and validly authorized, executed and
delivered on behalf of the Investor and shall constitute the legal, valid and
binding obligations of the Investor enforceable against the Investor in
accordance with their respective terms, except as such enforceability may be
limited by general principles

 

21

 

of equity or to applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation and other similar laws
relating to, or affecting generally, the enforcement of applicable creditors’
rights and remedies.

 

3.8.                                        No
Conflicts; No Violation. The execution, delivery and performance by the
Investor of this Agreement and the other Transaction Documents to which the
Investor is a party, and the consummation by the Investor of the transactions
contemplated hereby and thereby, will not (i) result in a violation of the
organizational documents of the Investor or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Investor is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws) applicable to the Investor, except for, in
the case of clauses (ii) and (iii) above, such conflicts, defaults,
rights or violations which would not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on the ability of the
Investor to perform its obligations hereunder.

 

3.9.                                        Residency.
The Investor is a resident of that jurisdiction specified below its address on
the Schedule of Investors.

 

4.          COVENANTS
OF THE PARTIES.

 

4.1.                                             Best
Efforts. Each party shall use its reasonable best efforts to satisfy each
of the conditions to be satisfied by it as provided in Sections 5 and 6 of this
Agreement.

 

4.2.                                             Reporting
Status. Until the date on which the Investors shall no longer hold any
Securities (the “Reporting Period”), the Company shall timely file all reports
required to be filed with the SEC pursuant to the Exchange Act, and the Company
shall not terminate its status as an issuer required to file reports under the
Exchange Act even if the Exchange Act or the rules and regulations thereunder
would no longer require or otherwise permit such termination, and the Company
shall use its best efforts to maintain its eligibility to register the
Conversion Shares and the Warrant Shares for resale by the Investors on Form
S-3.

 

4.3.                                             Use
of Proceeds. The Company will use the proceeds from the sale of the
Securities exclusively to fund business operating plans approved by the Company’s
board of directors, including the approval of the members of the Company’s
board of directors designated by the Investors.

 

4.4.                                             Financial
Information. Unless filed with the SEC through the EDGAR System and
available to the public through the EDGAR system, the Company agrees to send
the following to the Investors during the Reporting Period (i) within
one Business Day after the filing thereof with the SEC, a copy of its
annual reports and Quarterly Reports on Form 10-K and 10-Q, any regularly
prepared interim reports or any consolidated balance sheets, income statements,
shareholders’ equity statements and/or cash flow statements

 

22

 

for any period, any current reports on Form
8-K and any registration statements (other than on Form S-8) or amendments
filed pursuant to the Securities Act, (ii) within one (1) Business
Day after release thereof, facsimile copies of all press releases issued by the
Company or any of its Subsidiaries, and (iii) copies of any notices and
other information made available or given to the shareholders of the Company
generally, contemporaneously with the making available or giving thereof to the
shareholders. As used in this Agreement, “Business Day” means any day other
than Saturday, Sunday or other day on which commercial banks in The City of New
York are authorized or required by law to remain closed.

 

4.5.                                             Listing.
The Company will use its best efforts, so long as the Investors own any of the
Securities, to obtain and maintain the listing and trading of the Common Stock
(including the Conversion Shares and the Warrant Shares) on the NASDAQ Capital
Market or, in lieu thereof, the NASDAQ National Market, and the Company will
comply in all respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of the NASDAQ Capital Market or the
NASDAQ National Market, as the case may be, and other exchanges or quotation
systems, as applicable. Neither the Company nor any of its Subsidiaries shall
take any action which would be reasonably expected to result in the delisting
or suspension of the Common Stock on the NASDAQ Capital Market.

 

4.6.                                             Placement
Agent, Advisory and Broker Fees and Expenses. The Company shall be
responsible for the payment of any placement agent’s fees, financial advisory
fees, or broker’s commissions (other than for Persons engaged by the Investors)
relating to or arising out of the transactions contemplated hereby or the other
Transaction Documents. The Company shall pay, and hold the Investors harmless
against, any liability, loss or expense (including, without limitation,
reasonable attorney’s fees and out-of-pocket expenses) arising in connection
with any claim relating to any such payment.

 

4.7.                                        Validity
and Reservation of Shares.

 

4.7.1.  Validity of Shares. The
Company shall take all actions necessary to ensure that, upon issuance or
conversion in accordance with the Certificate of Designation or exercise in
accordance with the Warrants, as the case may be, the Conversion Shares and the
Warrant Shares, respectively, will be validly issued, fully paid and
non-assessable and free from all preemptive or similar rights, taxes, liens and
charges with respect to the issue thereof, with the holders being entitled to
all rights accorded to a holder of Common Stock.

 

4.7.2.  Reservation of Shares. The
Company shall at all times have reserved from its duly authorized capital stock
for the purpose of issuance not less than the sum of (i) 120% of the
maximum number of Conversion Shares issuable upon conversion of the Preferred
Shares (without taking into account any limitations on the conversion of the
Preferred Shares that may be set forth in the Certificate of Designation) and
(ii) 120% of the maximum number of Warrant Shares issuable upon exercise of the
Warrants (without taking into account any limitations on the

 

23

 

exercise of the Warrants set forth in the
Warrants), based upon the conversion price of the Preferred Shares and the
exercise price of the Warrants in effect from time to time. The Company shall
not reduce the number of shares of Common Stock reserved for issuance as
provided above without the consent of the Investors. If at any time the number
of shares of Common Stock authorized and reserved for issuance is below the
number of shares required in the first sentence of this Section 4.7.2, then the
Company will promptly take all corporate action necessary to authorize and
reserve a sufficient number of shares of Common Stock, including without
limitation calling a special meeting of shareholders to authorize additional
shares of Common Stock to meet the Company’s obligations under this Section
4.7.2, and using its best efforts to obtain shareholder approval of such
increase in shares. Within thirty (30) days after the Initial Closing, the
Company shall call a special meeting of shareholders to authorize additional
shares of Common Stock to meet the Company’s obligations under this Section
4.7.2 with respect to the Preferred Shares and Warrants that may be issued at
the Subsequent Closings, and use its best efforts to obtain shareholder approval
of such increase in shares within ninety (90) days after the Initial Closing.

 

4.8.                                        Conduct
of Business and Compliance with Law. Neither the Company nor any of its
Subsidiaries shall violate any term of or be in default under the Certificate
of Incorporation, the Certificate of Designation, any other certificate of
designation, the preferences or rights of any other outstanding series of
preferred stock of the Company, the Bylaws or any Subsidiaries’ organizational
charter or articles of incorporation or bylaws (or equivalent organizational
documents). The business of the Company and its Subsidiaries shall not be
conducted in violation of any applicable judgment, decree, order, statute,
ordinance, rule or regulation applicable to the Company or its Subsidiaries.

 

4.9.                                        Filings
and Consents. The Company and the Investors will cooperate with each other
with respect to obtaining, as promptly as practicable, all necessary consents,
approvals, authorizations and agreements of, and the giving of all notices and
making of all filings with, any third parties, including, without limitation,
governmental and regulatory authorities and the NASDAQ Capital Market,
necessary to authorize, approve or permit the consummation of the transactions
contemplated by this Agreement and the other Transaction Documents, including,
without limitation, requesting an exemption from NASDAQ on behalf of the
Company from any applicable NASDAQ Marketplace rules or other requirements
regarding the need for a vote of the Company’s shareholders in order to
consummate the transactions contemplated in this Agreement and the other
Transaction Documents. The Company shall pay any requisite fees arising from
actions taken in furtherance of this Section 4.9.

 

4.10.                                  Removal
of Legends. Unless otherwise required by applicable state securities laws,
if (i) Securities have been sold under an effective registration statement
filed under the Securities Act, (ii) a holder of Securities, if requested by
the Company, provides the Company with an opinion of counsel (in form,
substance and scope customary for opinions of counsel in comparable
transactions) to the effect that Securities to be sold,

 

24

 

assigned or transferred may be sold or
transferred pursuant to an exemption from registration under the Securities Act
or (iii) Securities can be sold without restriction under Rule 144, then the
Company shall direct the transfer agent for the Securities in question to issue
one or more certificates for such Securities, free from any restrictive legend,
in such name and in such denominations as specified by the Securities holder.

 

4.11.                                  No
Integration. None of the Company, its Subsidiaries, any of their
Affiliates, nor any Person acting on their behalf will make any offers or sales
of any security or solicit any offers to buy any security, under circumstances
that would require registration of any of the Securities under the Securities
Act or cause the offering of the Securities hereunder to be integrated with
prior offerings by the Company for purposes of the Securities Act or any
applicable shareholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system
on which any of the securities of the Company are listed or designated.

 

4.12.                                  Other
Changes. Except as agreed to by the Investor, beginning the date hereof
until the Initial Closing Date, the Company shall not, and shall not suffer or
permit any of its Subsidiaries to (i) make any expenditures in respect of
(A) any lease or any sale and leaseback (real or personal property) other
than rental payments under real property and personal property leases set forth
in Schedule 2.16, (B) any purchase or other acquisition of any fixed or capital
assets or any other assets other than expenditures in the ordinary course of
business consistent with past practices not in excess of $50,000 individually
and $50,000 in the aggregate, or (C) any other expenditures except in the
ordinary course of business consistent with past practices, (ii) enter
into any new contract, agreement, indenture, license or instrument or enter
into any other transaction except on commercially reasonable terms and in the
ordinary course of business consistent with past practices, (iii) establish
any new Plan or change any Plan except as required by law, (iv) increase the
compensation of any existing employee, officer, director or consultant, or pay
or award any bonus, incentive compensation, service award or other like benefit
to any employee, officer, director or consultant, or make any severance or
termination payments, or enter into or amend any severance agreement with, any
employee, officer or director, or enter into any new employment, consulting,
non-competition, retirement, parachute or indemnification agreement with any
officer, director, employee or agent, or modify any such existing agreement; or
(v) take any action that, if taken prior to the date of this Agreement, would
have be disclosed on a disclosure schedule to any of the Company’s
representations and warranties contained herein.

 

4.13.                                  Shareholder Approval. In order to comply with the
Marketplace Rules of the NASDAQ Capital Market with respect to the issuance of
the Conversion Shares and the Warrant Shares, the Company shall promptly notice
and hold an annual or special meeting of its shareholders (which meeting shall
take place no later than June 30, 2006) in accordance with all applicable laws
and rules and regulations of the SEC and the NASDAQ Capital Market and the
Company’s Certificate of Incorporation and Bylaws, at which meeting the Company
shall seek shareholder approval of resolutions providing for the Company’s issuance of the maximum number of Conversion
Shares and Warrant

 

25

 

Shares issuable upon the
conversion and exercise of the maximum number of Preferred Shares and Warrants
issuable under this Agreement and the other Transaction Documents (assuming
that such Preferred Shares are converted, and such Warrants are exercised, at
their initial conversion price and initial exercise price, respectively).

 

4.14.                                  Rights
Agreement. Beginning on and as of the date hereof, the Company shall take any and
all actions necessary or advisable to effectuate, as promptly as practicable
after the date hereof, the redemption of the outstanding Rights under the
Rights Agreement as provided in Section 2.8.2 and as contemplated by Section 23
of the Rights Agreement. Without limiting the generality of the foregoing, the
Company shall cause the Rights Agent to take all actions necessary or advisable in
connection with the foregoing. The Company shall keep Durus informed of its
actions with respect to the foregoing, and shall take all steps in connection
therewith reasonably requested by Durus. All actions in connection with the
Rights Agreement shall be subject to the prior consent of the Durus, such
consent not to be unreasonably withheld.

 

4.15.                                  Further
Assurances. The Company shall undertake such actions and execute and
deliver such additional instruments and documents as may be reasonably
requested by the Investors, before or after any Closing, in order to consummate
the transactions contemplated by, and to confirm and carry out and to
effectuate fully the intent and purposes of, this Agreement and the other
Transaction Documents.

 

5.               CONDITIONS
TO THE COMPANY’S OBLIGATION TO SELL.

 

The obligation of the Company hereunder to issue and sell the Units of
Preferred Shares and Warrants to an Investor at the Initial Closing and a
Subsequent Closing, as the case may be, is subject to the satisfaction by the
Investor, on or before the Initial Closing Date, and by the Investor on or
before the Subsequent Closing Date, as the case may be, of each of the
following conditions (any of which may be waived by the Company in whole or in
part):

 

5.1.                                        The
Investor shall have executed and delivered this Agreement, the Loan Agreement,
the Investor Rights Agreement and any other of the Transaction Documents
required to be executed and delivered by the Investor at the applicable
Closing.

 

5.2.                                        The
Investor shall have delivered at the Closing the purchase price for the
Preferred Shares and the Warrants being purchased at such Closing, in the
amount and manner provided for by this Agreement.

 

5.3.                                        The
representations and warranties of the Investor shall be true and correct in all
material respects as of the date when made and as of the Initial Closing Date
or the Subsequent Closing Date, as the case may be, as though made at that
time, and the Investor shall have performed, satisfied and complied with in all
material respects the covenants, agreements and conditions required by this
Agreement and any of the other Transaction Documents to be performed, satisfied
or complied with by the Investor at or prior to the Initial Closing Date or the
Subsequent Closing Date, as the case may be.

 

26

 

5.4.                                   No
statute, rule, regulation, executive order, decree, ruling or injunction will
have been enacted, entered, promulgated or endorsed by or in any court or
governmental or regulatory authority of competent jurisdiction or any self
regulatory organization having authority over the matters contemplated hereby
which prohibits the consummation by the Investor and the Company of the
purchase and sale of the Units to be acquired by such Investor at the
applicable Closing.

 

6.                    CONDITIONS TO INVESTOR’S OBLIGATION TO PURCHASE.

 

6.1.                                   Initial
Closing. The obligation of an Investor hereunder to purchase the Units of Series B-1
Preferred Shares and Warrants at the Initial Closing is subject to the
satisfaction, on or before the Initial Closing Date, of each of the following
conditions (any of which may be waived by the Investor in whole or in
part):

 

6.1.1.                               Execution
and Delivery of Documents and Issuance of Securities. The Company shall
have duly executed and delivered this Agreement, the Loan Agreement, the Investor
Rights Agreement, the Warrant Agreement, the Certificate of Designation and any
other of the Transaction Documents required to be executed and delivered by the
Company at the Initial Closing. The Company shall have also delivered to the
Investor duly executed certificates, against payment therefor, representing the
Series B-1 Preferred Shares and the Warrants.

 

6.1.2.                               Due
Diligence and Other Documents. The Investor shall have completed its due
diligence review of the Company to its satisfaction, as determined by the
Investor in its sole discretion. The Investor shall have received such other
approval, opinions, documents or materials as the Investor may reasonably
request.

 

6.1.3.                               Representations
and Warranties; Performance of Obligations. The representations and
warranties of the Company (before and after giving effect to the consummation
of the transactions contemplated by this Agreement and the other Transaction
Documents) shall be true and correct in all material respects as of the date
when made and as of the Initial Closing Date as though made at that time, and
the Company shall have performed, satisfied and complied in all respects with
the covenants, agreements and conditions required by the this Agreement, the
Loan Agreement, the Investor Rights Agreement, the Warrant Agreement and the
other Transaction Documents to be performed, satisfied or complied with by the
Company. The Investor shall have received a certificate, executed by the Chief
Executive Officer or Chief Financial Officer of the Company, dated as of the
Initial Closing Date, to the foregoing effect and as to such other matters as may be
reasonably requested by the Investor.

 

6.1.4.                               No
Restraints; Approvals.

 

6.1.4.1.            No
statute, rule, regulation, executive order, decree, ruling or injunction will
have been enacted, entered, promulgated or endorsed by or in any court or
governmental or regulatory authority of competent jurisdiction, or any self 

 

27

 

regulatory organization having authority over
the matters contemplated hereby, which would prohibit the consummation of any
of, or materially adversely affect, the transactions contemplated by this
Agreement or the other Transaction Documents. No action, suit or proceeding
shall have been instituted and remain pending, or have been threatened, before
a court or other governmental or regulatory body of competent jurisdiction to
restrain, prohibit or otherwise challenge any of the transactions contemplated
by this Agreement or the other Transaction Documents (or seeking damages from
the Investor, any of its Affiliates or the Company as a result thereof).

 

6.1.4.2.            Except
as contemplated by Section 4.13, the Company shall have obtained all
governmental, regulatory or third party consents and approvals necessary for
the consummation of the transactions contemplated by this Agreement and the
other Transaction Documents, including, without limitation, the Company shall
have obtained an exemption or other form of relief or clarification (in form and
substance acceptable to the Investor) from NASDAQ to the effect that any of the
NASDAQ’s rules regarding the need for a vote of the Company’s shareholders
are inapplicable to the transactions contemplated in this Agreement and the
other Transaction Documents.

 

6.1.4.3.            The
Investor shall have received a certificate, executed by the Chief Executive
Officer or Chief Financial Officer of the Company, dated as of the Initial
Closing Date, certifying that all (i) authorizations, consents or
approvals of, notices to or filings with any governmental or regulatory
authority and (ii) approvals and consents of any other Person, required in
connection with the consummation of the transactions contemplated by this
Agreement and the other Transaction Documents, shall have been obtained or made
and that all applicable waiting periods have expired without notice of any
action which seeks to restrain, enjoin or otherwise prohibit or materially
delay the transactions contemplated by this Agreement and the other Transaction
Documents and as to such other matters as may be reasonably requested by
the Investor.

 

6.1.5.                               Opinion
of Company Counsel. The Investor shall have received the opinion of the
Company’s outside counsel, dated as of the Initial Closing Date, in substantially
the form of Exhibit M attached hereto.

 

6.1.6.                               Organizational
Documents; Good Standing. The Company shall have delivered to the Investor (i) a
certificate evidencing the formation and good standing of the Company and each
of its material Subsidiaries in each such entity’s jurisdiction of formation
issued by the Secretary of State (or equivalent) of such jurisdiction of
formation as of a date within five (5) days of the Initial Closing Date, (ii) a
certificate evidencing the Company’s qualification as a foreign corporation and
good standing issued by the Secretary of State (or comparable office) of each
jurisdiction in which the Company conducts business and is required to so
qualify, as of a date within five (5) days of the Initial Closing Date, (iii) a
certified copy of 

 

28

 

the Certificate of Incorporation as certified
by the Secretary of State of the State of Delaware within five (5) days of
the Initial Closing Date and (iv) a certified copy of the Certificate of
Designation as certified by the Secretary of State of the State of Delaware
within five (5) days of the Initial Closing Date.

 

6.1.7.                               Resolutions;
Incumbency. The Company shall have delivered to the Investor (i) a
certificate, executed by the Secretary of the Company and dated as of the
Initial Closing Date, as to (A) the resolutions adopted unanimously by the
Company’s board of directors with respect to the transactions contemplated by
this Agreement and the other Transaction Documents, in a form acceptable
to the Investor, (B) the Certificate of Incorporation, (C) the
Bylaws, each as in effect at the Initial Closing, and (D) the incumbency,
authority and signatures of each officer of the Company authorized to execute
and deliver this Agreement and the other Transaction Documents to be executed
and delivered at the Initial Closing and act with respect thereto and (ii) a
letter from the Company’s transfer agent certifying the number of shares of
Common Stock outstanding as of a date within five (5) days of the Initial
Closing Date.

 

6.1.8.                               Continued
Listing. The Common Stock shall be listed on the NASDAQ Capital Market and
shall not have been suspended, as of the Initial Closing Date, by the SEC or
the NASDAQ Capital Market from trading on the NASDAQ Capital Market nor shall
proceedings regarding such suspension by the SEC or the NASDAQ Capital Market
have been threatened, as of the Initial Closing Date, either by the SEC or the
NASDAQ Capital Market nor shall the Company be out of compliance with any of
the minimum maintenance requirements of the NASDAQ Capital Market.

 

6.1.9.                               Board
and Employee Matters.

 

6.1.9.1.            The
Company’s Bylaws shall provide that its Board of Directors shall consist of
seven (7) members as of the Initial Closing Date and the Investor shall
have designated at least four (4) of the Company’s seven (7) board
members, and such designees, on and as of the Initial Closing Date, shall have
been appointed to the Company’s board of directors in accordance with the
Certificate of Incorporation and Bylaws such that one (1) designee is a Class I
director, one (1) designee is a Class II director and two (2) designees
are Class III directors, and any necessary consents, approvals,
authorizations and agreements of, and the giving of all notices and making of
all filings with, any third parties in connection with the appointment of such
designees to the Company’s board of directors shall have been received or made,
as the case may be, including, without limitation, the provision of any
information to the Company’s shareholders in accordance with Rule 14f-1 of
the Exchange Act regarding the right of the Investor to designate a majority of
the members of the Company’s board of directors.

 

29

 

6.1.9.2.            The
Company shall have executed and delivered a New Indemnification Agreement for
each of the Investor’s designees to the Company’s board of directors.

 

6.1.9.3.            The
Company shall have provided the Investor with evidence of Directors and
Officers liability insurance coverage for the benefit of the Investor’s
designees to the Company’s board of directors, with coverage of the type,
amount, duration and with such insurance carriers acceptable to the Investor.

 

6.1.9.4.            The
Company shall have duly authorized, executed and delivered agreements, in
substantially the form attached hereto as Exhibit N, with members of
the Company’s existing board of directors to be designated by the Investor,
pursuant to which agreements such designated members of the board shall have
resigned from the board of directors of the Company on and as of the Initial
Closing Date in order to create four vacancies therein that will have then been
filled by appointment of the Investor’s designees as provided in this
Agreement.

 

6.1.9.5.            Any
disclosures to be made by the Company in connection with changes in the
management and members of the board of directors of the Company shall be
satisfactory to the Investor in its sole discretion.

 

6.1.9.6.       The Company shall have
entered into a consulting agreement with William Dow substantially in the form attached
hereto as Exhibit O, pursuant to which agreement Mr. Dow shall have
resigned as an employee of the Company on and as of the Initial Closing Date
and agreed to provide certain consulting services to the Company in exchange
for certain consideration as provided therein.

 

6.1.10.                         Rights
Agreement. The Company shall have effectuated and consummated the
redemption of the outstanding Rights under the Rights Agreement, as provided in
Sections 2.8.2 and 4.14, in accordance with Section 23 of the Rights
Agreement.

 

6.1.11.                         Mutual
Release. The Company shall have duly authorized, executed and delivered a
Mutual Release among the Company, Durus and Artal, substantially in the form attached
hereto as Exhibit P and effective on and as of the Initial Closing Date.

 

6.1.12.                         Other
Matters.

 

6.1.12.1.        The Company
shall have delivered to the Investor such other documents relating to the
transactions contemplated by this Agreement and the other Transaction Documents
as the Investor or its counsel may reasonably request.

 

30

 

6.1.12.2.        No event or
events shall have occurred since the date hereof that, taken individually or in
the aggregate, would reasonably be expected to have a Material Adverse Effect.

 

6.1.12.3.        The Company
shall have paid, via wire transfer of immediately available funds or other
acceptable payment mechanism, the fees and expenses incurred by the Investor as
provided in Section 10.3.

 

6.1.12.4.        The Company
shall have entered into an amendment to its Research, Development, and License
Agreement with DEKA Research and Development Corporation, in form and
substance mutually agreed to by the Company and the Investor.

 

6.2.                                   Subsequent
Closings. In connection with any Subsequent Closing, an Investor electing
to purchase additional Units of Preferred Shares and Warrants at a Subsequent
Closing shall be entitled to receive evidence of the satisfaction, on or before
the Subsequent Closing Date, of each of the following conditions (any of which may be
waived by the Investor in whole or in part):

 

6.2.1.                               Issuance
of Securities. The Company shall have delivered to the Investor duly
executed certificates, against payment therefor, representing the Preferred
Shares and the Warrants.

 

6.2.2.                               Representations
and Warranties; Performance of Obligations. The representations and
warranties of the Company (before and after giving effect to the consummation
of the transactions contemplated by the Transaction Documents) shall be true
and correct in all material respects as of the date when made and as of the
Subsequent Closing Date as though made at that time (except to the extent, and
only to the extent, that the Company’s representations and warranties may change
as a result of the consummation of the transactions contemplated by this
Agreement and the other Transaction Documents on the Initial Closing Date) and
the Company shall have performed, satisfied and complied in all respects with
the covenants, agreements and conditions required by this Agreement and the
other Transaction Documents to be performed, satisfied or complied with by the
Company. The Investor shall have received a certificate, executed by the Chief
Executive Officer or Chief Financial Officer of the Company, dated as of the
Subsequent Closing Date, to the foregoing effect and as to such other matters
as may be reasonably requested by the Investor(s).

 

6.2.3.                               No
Restraints.

 

6.2.3.1.         No statute,
rule, regulation, executive order, decree, ruling or injunction will have been
enacted, entered, promulgated or endorsed by or in any court or governmental or
regulatory authority of competent jurisdiction, or any self regulatory
organization having authority over the matters contemplated hereby, which would
prohibit the consummation of any of, or materially adversely 

 

31

 

affect, the transactions contemplated by this
Agreement or the other Transaction Documents. No action, suit or proceeding
shall have been instituted and remain pending, or have been threatened, before
a court or other governmental or regulatory body of competent jurisdiction to
restrain, prohibit or otherwise challenge any of the transactions contemplated
by this Agreement or the other Transaction Documents (or seeking damages from
the Investor, any of its Affiliates or the Company as a result thereof).

 

6.2.3.2.         Except as
contemplated by Section 4.13, the Company shall have obtained all
governmental, regulatory or third party consents and approvals necessary for
the consummation of the transactions contemplated by this Agreement and the
other Transaction Documents, including, without limitation, the Company shall
have obtained an exemption or other form of relief or clarification (in form and
substance acceptable to the Investor) from NASDAQ to the effect that any of the
NASDAQ’s rules regarding the need for a vote of the Company’s shareholders
are inapplicable to the transactions contemplated in this Agreement and the
other Transaction Documents.

 

6.2.3.3.         The Investor
shall have received a certificate, executed by the Chief Executive Officer or
Chief Financial Officer of the Company, dated as of the Subsequent Closing
Date, certifying that all (i) authorizations, consents or approvals of,
notices to or filings with any governmental or regulatory authority and (ii) approvals
and consents of any other Person, required in connection with the consummation
of the transactions contemplated by this Agreement and the other Transaction
Documents, shall have been obtained or made and that all applicable waiting
periods have expired without notice of any action which seeks to restrain,
enjoin or otherwise prohibit or materially delay the transactions contemplated
by this Agreement and the other Transaction Documents and as to such other
matters as may be reasonably requested by the Investors.

 

6.2.4.                               Opinion
of Company Counsel. The Investor shall have received the opinion of the
Company’s outside counsel, dated as of the Subsequent Closing Date, in
substantially the form of Exhibit Q attached hereto.

 

6.2.5.                               Organizational
Documents; Good Standing. The Company shall have delivered to the Investor (i) a
certificate evidencing the formation and good standing of the Company and each
of its material Subsidiaries in each such entity’s jurisdiction of formation
issued by the Secretary of State (or equivalent) of such jurisdiction of
formation as of a date within five (5) days of the Subsequent Closing
Date, (ii) a certificate evidencing the Company’s qualification as a
foreign corporation and good standing issued by the Secretary of State (or
comparable office) of each jurisdiction in which the Company conducts business
and is required to so qualify, as of a date within five (5) days of the
Subsequent Closing Date and (iii) a certified copy of the Certificate of
Incorporation as certified by the Secretary of State of the State of Delaware
within five (5) days of the Subsequent Closing Date.

 

32

 

6.2.6.                               Resolutions;
Incumbency. The Company shall have delivered to the Investor (i) a
certificate, executed by the Secretary of the Company and dated as of the
Subsequent Closing Date, as to (A) the resolutions adopted by the Company’s
board of directors with respect to the transactions contemplated by this
Agreement and the other Transaction Documents, in a form acceptable to the
Investor, (B) the Certificate of Incorporation, (C) the Bylaws, each
as in effect at the Subsequent Closing, and (D) the incumbency, authority
and signatures of each officer of the Company authorized to execute and deliver
this Agreement and the other Transaction Documents to be executed and delivered
at the Subsequent Closing and act with respect thereto and (ii) a letter
from the Company’s transfer agent certifying the number of shares of Common
Stock outstanding as of a date within five (5) days of the Subsequent
Closing Date.

 

6.2.7.                               Continued
Listing. The Common Stock shall be listed on the NASDAQ Capital Market and
shall not have been suspended, as of the Subsequent Closing Date, by the SEC or
the NASDAQ Capital Market from trading on the NASDAQ Capital Market nor shall
proceedings regarding such suspension by the SEC or the NASDAQ Capital Market
have been threatened, as of the Subsequent Closing Date, either by the SEC or
the NASDAQ Capital Market or by falling below the minimum maintenance
requirements of the NASDAQ Capital Market.

 

6.2.8.                               Other
Matters.

 

6.2.8.1.         The Company
shall have delivered to the Investor(s) such other documents relating to the
transactions contemplated by this Agreement and the other Transaction Documents
as the Investor or its counsel may reasonably request.

 

6.2.8.2.         No event or
events shall have occurred since the date hereof that, taken individually or in
the aggregate, would reasonably be expected to have a Material Adverse Effect.

 

6.2.8.3.         The Company
shall have paid, via wire transfer of immediately available funds or other
acceptable payment mechanism, the fees and expenses incurred by the Investor(s)
as provided in Section 10.3.

 

7.                    INDEMNIFICATION

 

In consideration of an Investor’s execution
and delivery of this Agreement and the other Transaction Documents and the
acquisition of the Securities, and in addition to all of the Company’s other
obligations under this Agreement, the Loan Agreements, the Investor Rights
Agreement, the Preferred Shares, the Warrants, the New Notes and the other
Transaction Documents, the Company hereby acknowledges and agrees that it shall
defend, protect, indemnify and hold harmless the Investor and each other holder
of the Securities and each and all of their respective shareholders, partners,
members, officers, directors, employees, managers and direct and indirect
investors and any of the foregoing Persons’

 

33

 

agents or other representatives (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement and the other Transaction Documents)
(collectively the “Indemnitees”) from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages and expenses as incurred in connection therewith (regardless of whether
any such Indemnitee is a party to the action for which indemnification is
sought), and including reasonable attorney’s fees and disbursements (the “Indemnified
Liabilities”), incurred by an Indemnitee as a result of, or arising out of, or
relating to (a) any misrepresentation by the Company or any breach of any
representation or warranty made by the Company herein or in any other
Transaction Document or in any certificate, instrument or document contemplated
hereby or thereby, (b) any breach of any covenant, agreement or obligation
of the Company contained herein or in any other Transaction Document or in any
certificate, instrument or document contemplated hereby or thereby or (c) any
cause of action, suit or claim brought or made against such Indemnitee by a
third party (including for these purposes a derivative action brought on behalf
of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or breach by the Company, or the enforcement by the
Investor, of this Agreement or any other Transaction Document or any certificate,
instrument or document contemplated hereby or thereby  or (ii) the
status of such Indemnitee as an investor in the Company. To the extent that the
foregoing indemnification obligations on the part of the Company may be
unenforceable for any reason, the Company shall make the maximum contribution
to the payment and satisfaction of each of the Indemnified Liabilities that is
permissible under applicable law.

 

The indemnification obligations on the part of
the Company contained in this Section 7 do not apply to amounts paid in
settlement of Indemnified Liabilities if such settlement is made without the
prior written consent of the Company, which consent shall not be unreasonably
withheld. The Company may participate in, and assume and control, the
defense of any claim with counsel mutually satisfactory to the Company and the
Indemnitee. If, in the reasonable opinion of counsel mutually satisfactory to
the Company and the Indemnitee, the representation by such counsel of the
Company and the Indemnitee is inappropriate due to actual or potential
conflicts of interests between the Indemnitee and any other party represented
by such counsel in such proceeding or the actual or potential defendants in, or
targets of, any such action including the Indemnitee, and any such Indemnitee
reasonably determines that there may be legal defenses available to such
Indemnitee that are different from or in addition to those available to the
Company, then the Indemnitee is entitled to assume such defense and may retain
its own counsel, with fees and expenses to be paid by the Company.

 

8.                    DEFINITIONS

 

“Affiliate” has the meaning set forth in Section 2.6.

 

“Agreement” means this Securities Purchase Agreement dated as of March 31,
2006 entered into by and between the Company and the Investor.

 

“Artal” has the meaning set forth in Recital E.

 

34

 

“Bridge Loan” has the meaning set forth in Recital D.

 

“Business Day” has the meaning set forth in Section 4.4.

 

“Bylaws” has the meanings set forth in Section 2.15.

 

“Certificate of Designation” has the meaning set forth in Recital A.

 

“Certificate of Incorporation” has the meaning set forth in Section 2.15.

 

“Closing” has the meaning set forth in Section 1.4.

 

“Common Stock” means the Company’s common stock, par value $0.01 per
share

 

“Company” means Aksys, Ltd.

 

“Conversion Shares” has the meaning set forth in Recital A.

 

“Environmental Laws” has the meaning set forth in Section 2.22.

 

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

 

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

 

“ERISA Event” means (i) a reportable event as defined in Section 4043
of ERISA with respect to a Pension Plan, excluding, however, such events as to
which the PBGC by regulation has waived the requirement of Section 4043(a) of
ERISA that it be notified within 30 days of the occurrence of such event; (ii) the
applicability of the requirements of Section 4043(b) of ERISA with
respect to a contributing sponsor, as defined in Section 4001(a)(13) of
ERISA, to any Pension Plan where an event described in paragraph (9), (10),
(11), (12) or (13) of Section 4043(c) of ERISA is reasonably expected
to occur with respect to such plan within the following 30 days; (iii) a
withdrawal by the Company or any ERISA Affiliate thereof from a Pension Plan or
the termination of any Pension Plan resulting in liability under
Sections 4063 or 4064 of ERISA; (iv) the withdrawal of the Company or
any ERISA Affiliate thereof in a complete or partial withdrawal (within the
meaning of Section 4203 and 4205 of ERISA) from any Multiemployer Plan if
there is any potential liability therefore, or the receipt by the Company or
any ERISA Affiliate thereof of notice from any Multiemployer Plan that it is in
reorganization or insolvency pursuant to Section 4241 or 4245 of
ERISA;  (v) the filing of a notice
of intent to terminate, the treatment of a plan amendment as a termination
under Section 4041 or 4041A of ERISA, or the

 

35

 

commencement of proceedings by the PBGC to terminate a Pension Plan or
Multiemployer Plan; (vi) the imposition of liability on the Company or any
ERISA Affiliate thereof pursuant to Sections 4062(e) or 4069 of ERISA or
by reason of the application of Section 4212(c) of ERISA; (vii) the
failure by the Company or any ERISA Affiliate thereof to make any required
contribution to a Plan, or the failure to meet the minimum funding standard of Section 412
of the Internal Revenue Code with respect to any Pension Plan (whether or not
waived in accordance with Section 412(d) of the Internal Revenue
Code) or the failure to make by its due date a required installment under Section 412(m)
of the Internal Revenue Code with respect to any Pension Plan or the failure to
make any required contribution to a Multiemployer Plan; (viii) an event or
condition which might reasonably be expected to constitute grounds under Section 4042
of ERISA for the termination of, or the appointment of a trustee to administer,
any Pension Plan or Multiemployer Plan; (ix) the imposition of any
liability under Title I or Title IV of ERISA, other than PBGC premiums due
but not delinquent under Section 4007 of ERISA, upon the Company, or any
ERISA Affiliate thereof; (x) an application for a funding waiver under Section 303
of ERISA or an extension of any amortization period pursuant to Section 412
of the Internal Revenue Code with respect to any Pension Plan; (xi) the
occurrence of a non-exempt prohibited transaction under Sections 406 or 407 of
ERISA for which the Company or any Subsidiary thereof may be directly or
indirectly liable; (xii) a violation of the applicable requirements of Section 404
or 405 of ERISA or the exclusive benefit rule under Section 401(a) of
the Internal Revenue Code by any fiduciary or disqualified person for which the
Company or any ERISA Affiliate thereof may be directly or indirectly
liable; (xii) the occurrence of an act or omission which could give rise to the
imposition on the Company or any ERISA Affiliate thereof of fines, penalties,
taxes or related charges under Chapter 43 of the Internal Revenue Code or under
Sections 409, 502(c), (i) or (1) or 4071 of ERISA; (xiii) the
assertion of a material claim (other than routine claims for benefits) against
any Plan or the assets thereof, or against the Company, or any Subsidiary
thereof in connection with any such plan; (xiv) receipt from the IRS of notice
of the failure of any Qualified Plan to qualify under Section 401(a) of
the Internal Revenue Code, or the failure of any trust forming part of any
Qualified Plan to fail to qualify for exemption from taxation under Section 501(a) of
the Internal Revenue Code; (xv) the imposition of any lien on any of the
rights, properties or assets of the Company or any ERISA Affiliate thereof, in
either case pursuant to Title I or IV of ERISA or to Section 401(a)(29)
or 412 of the Internal Revenue Code; or (xvi) the establishment or amendment by
the Company or any Subsidiary thereof of any “welfare plan”, as such term is
defined in Section 3(1) of ERISA, that provides post-employment
welfare benefits in a manner that would increase the liability of the Company.

 

“Exercise Price” has the meaning set forth in the Warrant Agreement.

 

“Indebtedness” has the meaning set forth in Section 2.16.

 

“Initial Closing” has the meaning set forth in Section 1.4.1.

 

“Initial Closing Date” has the meaning set forth in Section 1.4.1.

 

“Insolvent” has the meaning set forth in 2.10.

 

36

 

“Investor” and the “Investors” have the meaning set forth in the first
paragraph of this Agreement.

 

“Investor Rights Agreement” has the meaning set forth in Recital D.

 

“Loan Agreement” has the meaning set forth in Recital D.

 

“Loan Agreements” has the meaning set forth in Recital D.

 

“Material Adverse Effect” has the meaning set forth in Section 2.1.

 

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

 

“New Notes” has the meaning set forth in Recital D.

 

“Notice of Additional Investment” has the meaning set forth in Section 1.3.2.

 

“Outstanding Notes” has the meaning set forth in Recital E.

 

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

 

“Pension Plan” means an employee benefit plan (as defined in Section 3(3) of
ERISA) other than a Multiemployer Plan (i) that is or was at any time
maintained or sponsored by the Company or any ERISA Affiliate thereof or to
which the Company, or any ERISA Affiliate thereof has ever made, or was
obligated to make, contributions, and (ii) that is or was subject to Section 412
of the Internal Revenue Code, Section 302 of ERISA or Title IV of ERISA.

 

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

 

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

 

“Preferred Shares” has the meaning set forth in Recital A.

 

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

 

37

 

“Redemption Price” has the meaning set forth in the Rights Agreement.

 

“Rights Agreement” has the meaning set forth in Section 2.8.2.

 

“Schedule of Investors” has the meaning set forth in the first
paragraph of this Agreement.

 

“SEC” has the meaning set forth in Section 2.9.

 

“SEC Documents” has the meaning set forth in Section 2.9.

 

“Securities” has the meaning set forth in Recital F.

 

“Securities Act” has the meaning set forth in Section 2.3.

 

“Subsequent Closing” has the meaning set forth in Section 1.4.2.

 

“Subsequent Closing Date” has the meaning set forth in 1.4.2.

 

“Subsidiary” has the meaning set forth in Section 2.1.

 

“Transaction Documents” has the meaning set forth in Section 2.2.

 

“Units” has the meaning set forth in Recital B.

 

“Warrant Agent” has the meaning given to such term set forth in the
Warrant Agreement.

 

“Warrants” has the meaning set forth in Recital B.

 

“Warrant Agreement” has the meaning set forth in Recital B.

 

“Warrant Shares” has the meaning set forth in Recital B.

 

9.                   TERMINATION. In
the event that the Initial Closing shall not have occurred on or before the
date that is sixty (60) days following the date hereof due to the Company’s
failure to satisfy the conditions set forth in Sections 6 (and Durus does not
waive such unsatisfied condition(s)), Durus may, in its sole discretion,
terminate this Agreement at any time after such date without any liability
whatsoever to the Company; provided, however, if this Agreement is terminated
pursuant to this Section 9, the Company shall remain obligated to the
Investors under Section 10.3.

 

10.            MISCELLANEOUS

 

10.1.                                           Press
Releases and Announcements. All press releases and announcements concerning
the transactions contemplated by this Agreement and the other Transaction
Documents shall be mutually agreed to by the Company and the Investors, except
for any such disclosure required by law which, in the case of such disclosure
by the

 

38

 

Company, shall, to the extent practicable
under the circumstances, be first discussed with the Investors and, in the case
of such disclosure by the Investors, shall, to the extent practicable under the
circumstances, be first discussed with the Company.

 

10.2.                                           Interpretation.

 

10.2.1.                           The
various section headings are inserted for purposes of reference only and
shall not affect the meaning or interpretation of this Agreement or any
provision hereof.

 

10.2.2.                           Each
party hereto acknowledges that it has been represented by competent counsel and
participated in the drafting of this Agreement and the other Transaction
Documents and agrees that any applicable rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in connection with the construction or interpretation of this
Agreement and the other Transaction Documents.

 

10.3.                                           Fees
and Expenses. The Company shall reimburse the Investor(s) for reasonable
attorney’s fees and related costs and expenses incurred in connection with the
transactions contemplated by this Agreement and the other Transaction Documents
and due diligence in connection therewith, including fees and related costs and
expenses incurred in connection with any Additional Investment by the
Investor(s) as contemplated by Section 1.3, which amount(s) shall be paid
to the Investors or its counsel whether or not the transactions contemplated by
this Agreement and the other Transaction Documents are consummated, including,
without limitation, in the event this Agreement is terminated as contemplated
in Section 9. Except as expressly set forth above, each party hereto shall
be solely responsible for the payment of the fees and expenses of its advisers,
counsel, accountants and other experts, if any, and all other expenses incurred
by such party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement and the other Transaction Documents. Without
limiting the generality of the foregoing, the Company shall pay all stamp and
other taxes, if any, which may be payable in respect of the issuance, sale
and delivery to the Investor(s) or any designees of the Preferred Shares, the
Warrants, the New Notes, the Conversion Shares or the Warrant Shares, and shall
save the Investor harmless against any loss or liability resulting from
nonpayment or delay in the payment of any such taxes.

 

10.4.                                                Governing
Law; Jurisdiction and Venue; Waiver of Jury Trial.

 

10.4.1.                           This
Agreement is to 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.

 

39

 

10.4.2.                           For
purposes of any suit, action or other legal proceeding relating to this
Agreement or the enforcement of any provision of this Agreement, 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 this Agreement or the subject matter of this Agreement may not
be enforced in or by such court.

 

10.4.3.                           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 and 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.

 

10.4.4.                           Each
party hereto hereby knowingly, voluntarily, and intentionally waives the right
to a trial by jury in respect of any litigation arising out of, under or in
connection with this Agreement, this waiver being a material inducement for
each such party to enter into this Agreement.

 

10.5.                                           Specific
Performance. The parties hereto agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific intent or were otherwise breached. It is accordingly
agreed that the parties shall be entitled to an injunction or injunctions to
prevent or cure breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions hereof without the necessity of
demonstration actual damages and without having to post a bond or other form of
security as a condition to such relief, this being in addition to any other
remedy to which they may be entitled by law or equity.

 

10.6.                                           Survival.
Unless this Agreement is terminated under Section 9, the representations
and warranties of the parties hereunder shall survive each Closing.

 

10.7.                                           Third
Party Beneficiaries. Except as set forth in Section 7 of this
Agreement, this Agreement is intended for the benefit of the parties hereto and
their respective permitted successors (including subsequent Securities holders)
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other Person or entity.

 

10.8.                                           Entire
Agreement. This Agreement, the other Transaction Documents and the other
documents contemplated hereby and thereby (including all schedules and exhibits

 

40

 

thereto) constitute the full and entire
understanding and agreement among the parties with regard to the subjects
hereof and thereof, and no party shall be liable or bound to any other in any
manner by any representations, warranties, covenants and agreements except as
specifically set forth herein and therein. This Agreement supersedes all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof.

 

10.9.                                           Severability.
The provisions of this Agreement shall be severable, and any invalidity,
unenforceability or illegality of any provision or provisions of this Agreement
shall not affect any other provision or provisions of this Agreement, and each
term and provision of this Agreement shall be construed to be valid and
enforceable to the full extent permitted by law.

 

10.10.                                     Amendment
and Waiver. This Agreement may be amended or modified only upon the
mutual written consent of the Company and the Investors. No failure to exercise
and no delay in exercising any right, power or privilege granted under this
Agreement shall operate as a waiver of such right, power or privilege. No
single or partial exercise of any right, power or privilege granted under this
Agreement shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies provided in
this Agreement are cumulative and are not exclusive of any rights or remedies
provided by law.

 

10.11.                                     Relationship
of the Parties. For all purposes of this Agreement and the other
Transaction Documents, each of the parties hereto and their respective
Affiliates shall be deemed to be independent entities and, anything in this
Agreement or the other Transaction Documents to the contrary notwithstanding,
nothing herein shall be deemed to constitute the parties hereto or any of their
respective Affiliates as partners, joint venturers, co-owners, an association
or any entity separate and apart from each party itself, nor shall this
Agreement or any other Transaction Documents make any party hereto an employee
or agent, legal or otherwise, of the other parties for any purposes whatsoever.
None of the parties hereto is authorized to make any statements or
representations on behalf of any other party or in any way to obligate any
other party, except as expressly authorized in writing by the other parties. Except
as expressly provided in this Agreement or any other Transaction Documents, no
party hereto or thereto shall assume nor shall be liable for any liabilities or
obligations of the other parties, whether past, present or future.

 

10.12.                                     Notices.

 

All notices 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 the

 

41

 

respective addresses set forth below, or as
notified by such party from time to time at least ten (10) days prior to
the effectiveness of such notice:

 

	
  if to the Investors:

  	
  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

  
	
   

  	
  Tel: (011) 35-31-707-5113

  
	
   

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

  
	
  with a copy to:

  	
  Gavin Grover, Esq.

  
	
   

  	
  Morrison & Foerster LLP

  
	
   

  	
  425 Market Street

  
	
   

  	
  San Francisco,
  California 94105

  
	
   

  	
  Tel:
  415-268-7000

  
	
   

  	
  Fax:
  415-269-7522

  
	
  and a copy to:

  	
  Paul N. Roth, Esq.

  
	
   

  	
  Schulte, Roth & Zabel

  
	
   

  	
  919 Third Avenue

  
	
   

  	
  New York, New York 10022

  
	
   

  	
  Tel: 212-756-2000

  
	
   

  	
  Fax: 212-593-5955

  
	
   

  	
   

  
	
  if to the Company:

  	
  Aksys, Ltd.

  
	
   

  	
  Two Marriott Drive

  
	
   

  	
  Lincolnshire, Illinois 60069

  
	
   

  	
  Tel: 847-229-2020

  
	
   

  	
  Fax: 847-229-2080

  
	
   

  	
   

  
	
  with a copy to:

  	
  Keith S. Crow P.C.

  
	
   

  	
  Kirkland & Ellis LLP

  
	
   

  	
  200 East Randolph Drive

  
	
   

  	
  Chicago, Illinois 60601

  
	
   

  	
  Tel: 312-861-2000

  
	
   

  	
  Fax: 312-861-2200

  

 

10.13.                                     Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.

 

10.14.                                          Attorney’s
Fees. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party shall be entitled
to reasonable attorney’s fees, costs and necessary disbursements in addition to
any other relief to which such party may be entitled.

 

42

 

In Witness Whereof, the parties hereto have
executed this Agreement as of the date set forth in the first paragraph hereof.

 

	
   

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  AKSYS, LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Laurence
  P. Birch

  	
   

  
	
   

  	
   

  	
  Name: Laurence
  P. Birch

  
	
   

  	
   

  	
  Title: CEO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  INVESTOR:

  
	
   

  	
   

  
	
   

  	
  DURUS LIFE SCIENCES MASTER FUND LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Leslie Lake

  	
   

  
	
   

  	
   

  	
  Name: Leslie
  Lake

  
	
   

  	
   

  	
  Title: Director

  

 

 

[Signature page to Securities
Purchase Agreement]

 

 

Exhibit A

 

SCHEDULE
OF INVESTORS

 

 

	
  Investor

  	
   

  	
  Investor’s Address
  and Facsimile Number

  	
   

  	
  Securities Purchased

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  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
Tel: (011) 35-31-707-5113

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

  	
   

  	
  5000 Units, with each Unit

  consisting of the following:

  

  One (1) share of Series B-1

  Preferred Stock and

  
Warrants to purchase 1,000 Warrant
  SharesExhibit 10.22

 

[Execution Copy]

 

BRIDGE LOAN AGREEMENT

 

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

 

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

 

Accordingly, the parties hereto agree as follows:

 

ARTICLE I

DEFINITIONS

 

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

 

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

 

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

 

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

 

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

 

1

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

2

 

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

 

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

 

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

 

3

 

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

 

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

 

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

 

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

 

“Guarantor” means any guarantor of the Obligations.

 

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

 

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

 

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

 

4

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

5

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

6

 

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

 

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

 

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

 

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

 

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

 

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

 

7

 

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

 

“SEC” means the Securities and Exchange Commission.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

8

 

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

 

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

 

ARTICLE II

THE LOAN

 

SECTION 2.01     The Loan.

 

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

 

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

 

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

 

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

 

9

 

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

 

SECTION 2.04     Interest.

 

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

 

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

 

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

 

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

 

SECTION 2.05       Rollover
or Repayment of the Loan.

 

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

 

10

 

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

 

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

 

SECTION 2.07     Payments.

 

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

 

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

 

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

 

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

 

11

 

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

 

ARTICLE III          

CONDITIONS PRECEDENT

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

12

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

13

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

 

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

 

ARTICLE V

COVENANTS

 

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

 

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

 

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

 

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

 

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

 

14

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

15

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

16

 

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

 

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

 

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

 

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

 

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

 

17

 

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

 

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

 

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

 

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

 

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

 

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

 

18

 

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

 

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

 

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

 

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

 

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

 

19

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

20

 

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

 

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

 

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

 

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

 

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

 

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

 

21

 

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

 

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

 

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

 

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

 

22

 

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

 

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

 

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

 

ARTICLE VI          

EVENTS OF DEFAULT

 

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

 

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

 

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

 

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

 

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

 

23

 

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

 

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

 

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

 

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

 

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

 

24

 

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

 

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

 

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

 

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

 

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

 

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

 

25

 

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

 

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

 

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

 

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

 

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

 

ARTICLE VII        

MISCELLANEOUS

 

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

 

26

 

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

 

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

 

SECTION 7.04     Costs and Expenses; Indemnity.

 

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

 

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

 

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

 

27

 

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

 

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

 

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

 

SECTION 7.07     Binding Effect; Assignment.

 

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

 

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

 

28

 

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

 

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

 

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

 

SECTION 7.10     Submission to Jurisdiction.

 

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

 

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

 

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

 

29

 

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

 

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

 

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

 

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

 

30

 

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

 

	
   

  	
  THE COMPANY

  	
   

  
	
   

  	
   

  
	
   

  	
  AKSYS, LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   /s/ Laurence P. Birch

  	
   

  
	
   

  	
   

  	
   Title: CEO

  
	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
   

  
	
   

  	
  Two Marriott Drive

  
	
   

  	
  Lincolnshire, Illinois 60069

  
	
   

  	
   

  
	
   

  	
  Attn.:

  	
   

  	
   

  
	
   

  	
  Fax No. 847-229-2080

  
	
   

  	
   

  
	
   

  	
  With a copy to:

  
	
   

  	
   

  
	
   

  	
  Keith S. Crow P.C.

  
	
   

  	
  Kirkland & Ellis LLP

  
	
   

  	
  200 East Randolph Drive

  
	
   

  	
  Chicago, Illinois 60601

  
	
   

  	
  Fax: 312-861-2200

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  THE LENDER

  	
   

  
	
   

  	
   

  
	
   

  	
  DURUS LIFE SCIENCES
  MASTER

  FUND LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   /s/ Leslie Lake

  	
   

  
	
   

  	
   

  	
   Title: Director

  
	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
   

  
	
   

  	
  Durus Life Sciences Master Fund Ltd.

  
	
   

  	
  c/o International Fund Services
  (Ireland) Ltd.

  
	
   

  	
  3rd Floor, Bishops Square

  
	
   

  	
  Redmonds Hill

  
	
   

  	
  Dublin 2, Ireland

  
	
   

  	
  Attention: Susan Byrne

  
	
   

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

  
						

 

31

 

	
   

  	
  With a copy to:

  
	
   

  	
   

  
	
   

  	
  Gavin Grover, Esq.

  
	
   

  	
  Morrison & Foerster LLP

  
	
   

  	
  425 Market Street

  
	
   

  	
  San Francisco, California 94105

  
	
   

  	
  Fax: 415-269-7522

  
	
   

  	
   

  
	
   

  	
  And with a copy to:

  
	
   

  	
   

  
	
   

  	
  Paul N. Roth, Esq.

  
	
   

  	
  Schulte, Roth & Zabel

  
	
   

  	
  919 Third Avenue

  
	
   

  	
  New York, New York 10022

  
	
   

  	
  Fax: 212-593-5955

  

 

32

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