Contract

Exhibit 10.3 SECURITY AGREEMENT THIS SECURITY AGREEMENT (this “Agreement”), dated as of June 23, 2006,is made between AKSYS, LTD., a Delaware corporation (“Debtor”), and the Lendersparty (together with any Collateral Agent (as defined below) appointedhereunder, each a “Secured Party” and, collectively, the “Secured Parties”) tothe Loan Agreement referred to below. Debtor and Secured Parties hereby agree as follows: Section 1. Definitions; Interpretation. (a) All capitalized terms used in this Agreement and not otherwisedefined herein shall have the meanings assigned to them in the Loan Agreement. (b) As used in this Agreement, the following terms shall have thefollowing meanings: “Collateral” has the meaning set forth in Section 2. “Collateral Agent” has the meaning set forth in Section 2(e). “Durus” means Durus Life Sciences Master Fund Ltd., a Cayman IslandsExempted Company. “Event of Default” has the meaning set forth in Section 8. “Loan Agreement” means the Loan Agreement, dated as the date hereof,between Debtor and Secured Parties, as amended, amended and restated, modified,renewed, extended or replaced from time to time. “Majority Secured Parties” means at any time Secured Parties holdingat least 51% of the then aggregate unpaid principal amount of the Loans plus theunused portion of the Additional Commitment, or, if no such principal amount isthen outstanding, Secured Parties having at least 51% of the aggregateCommitments. “Obligations” means the indebtedness, liabilities and otherobligations of Debtor and any Guarantor to Secured Parties or any CollateralAgent under or in connection with the Loan Agreement, the Notes and the otherLoan Documents, including the Loans, all interest accrued thereon, all fees dueunder the Loan Agreement and all other amounts payable by Debtor to SecuredParties or any Collateral Agent thereunder or in connection therewith, whethernow or hereafter existing or arising, and whether due or to become due, absoluteor contingent, liquidated or unliquidated, determined or undetermined, andincluding interest that accrues after the commencement by or against Debtor orany Guarantor of any Insolvency Proceeding naming such Person as the debtor insuch proceeding. “Original Agreement” means that certain Security Agreement dated as ofMarch 31, 2006 entered into between Debtor and Durus. 1 “Partnership and LLC Collateral” has the meaning set forth in Section5(r). “Pledged Collateral” means Debtor’s (i) investment property and (ii)Partnership and LLC Collateral, including any ownership interests in anySubsidiaries of Debtor. “Pledged Collateral Agreements” means any shareholders agreement,operating agreement, partnership agreement, voting trust, proxy agreement orother agreement or understanding with respect to any Pledged Collateral. “UCC” means the Uniform Commercial Code as the same may, from time totime, be in effect in the State of New York. (c) Where applicable and except as otherwise defined herein, termsused in this Agreement shall have the meanings assigned to them in the UCC. (d) The rules of interpretation set forth in Section 1.02 of the LoanAgreement shall be applicable to this Agreement and are incorporated herein bythis reference. Section 2. Security Interest. (a) As security for the payment and performance of the Obligations,Debtor hereby grants to Secured Parties a security interest in all of Debtor’sright, title and interest in, to and under the following assets, whereverlocated and whether now existing or owned or hereafter acquired or arising: allgoods, accounts, chattel paper (whether tangible or electronic), software,commercial tort claims, deposit accounts, documents, equipment (including allfixtures), general intangibles (including intellectual property), paymentintangibles, instruments, inventory, investment property, letter-of-creditrights, money, records, and all other personal property and all products,proceeds and supporting obligations of any and all of the foregoing(collectively, the “Collateral”). Notwithstanding the foregoing, “Collateral”shall not include any rights or interests in any lease, license, contract, oragreement, as such, if under the terms of such lease, license, contract, oragreement, or applicable law with respect thereto, the valid grant of a securityinterest or lien therein to Secured Parties is prohibited and such prohibitionhas not been or is not waived or the consent of the other party to such lease,license, contract, or agreement has not been or is not otherwise obtained orunder applicable law such prohibition cannot be waived; provided, that theforegoing exclusion shall in no way be (i) construed to apply if any suchprohibition would be rendered ineffective under the UCC or other applicable law(including the Bankruptcy Code) or principles of equity, (ii) construed so as tolimit, impair or otherwise affect Secured Parties’ unconditional continuingsecurity interests in and liens upon any rights or interests of Debtor in or tothe proceeds thereof, including monies due or to become due under any suchlease, license, contract, or agreement (including any accounts), or (iii)construed to apply at such time as the condition causing such prohibition shallbe remedied and, to the extent severable, “Collateral” shall include any portionof such lease, license, contract, or agreement that does not result in suchprohibition; and provided, further, that Debtor shall obtain the consents withrespect to leases, licenses, contracts and agreements as set forth in the LoanAgreement. (b) Debtor hereby acknowledges and agrees for the benefit of SecuredParties that the Original Agreement is amended and restated by this Agreement,without novation, and 2that the Original Agreement, as amended and restated by this Agreement: (i) isand shall continue to be in full force and effect, without offset orcounterclaim; (ii) is and shall continue to be valid and enforceable; and (c) isnot and shall not be impaired or affected in any respect by the execution anddelivery of this Agreement or by the execution and delivery of, or theconsummation of the transactions contemplated by, the Loan Documents, theexecution of which shall not be deemed a satisfaction, cancellation, or novationof any Obligation of Debtor under the Original Agreement or any other LoanDocument (as defined in the Original Agreement). Debtor further acknowledges andagrees that any reference to the “Security Agreement” in the other Loandocuments shall mean and be references to the Original Agreement as amended andrestated by this Agreement (and as further amended, amended and restated,modified, renewed, extended or replaced from time to time in accordance with theterms hereof). Debtor hereby ratifies and reaffirms the validity andenforceability of all of the liens and security interests heretofore granted toany Secured Party as collateral security for the Obligations and acknowledgesthat all such liens and security interests and all collateral heretofore grantedas security for the Obligations under the Original Agreement continues to be andremains collateral for the Obligations from and after the date hereof pursuantto the Original Agreement as amended and restated by this Agreement. (c) Anything herein to the contrary notwithstanding, (i) Debtor shallremain liable under any Pledged Collateral Agreements and any other contracts,agreements and other documents included in the Collateral, to the extent setforth therein, to perform all of its duties and obligations thereunder to thesame extent as if this Agreement had not been executed, (ii) the exercise bySecured Parties or any Collateral Agent of any of the rights hereunder shall notrelease Debtor from any of its duties or obligations under any PledgedCollateral Agreements or other such contracts, agreements and other documents,and (iii) neither the Secured Parties nor any Collateral Agent shall have anyobligation or liability under any Pledged Collateral Agreements or other suchcontracts, agreements and other documents by reason of this Agreement, nor shallSecured Parties or any Collateral Agent be obligated to perform any of theobligations or duties of Debtor thereunder or to take any action to collect orenforce any Pledged Collateral Agreements or other such contract, agreement orother document. (d) This Agreement shall create a continuing security interest in theCollateral which shall remain in effect until terminated in accordance withSection 18 hereof. (e) The Majority Secured Parties may appoint a Secured Party, or anaffiliate of a Secured Party, who has proposed itself available forconsideration therefor or consented thereto upon nomination by any other SecuredParty, to perform the duties and obligations set forth in subsection (f) below(the “Collateral Agent”) at any time, and whether before, during or after theoccurrence of an Event of Default. Following the appointment of CollateralAgent, and agreement upon any fees and other arrangements required by it,including any indemnification agreement it may require, by the Majority SecuredParties, Collateral Agent’s duties and obligations shall commence upon the datespecified in the notice of acceptance to be submitted by Collateral Agent. EachSecured Party hereby authorizes Collateral Agent to take such action as agent onits behalf and to exercise such powers and perform such duties under thisAgreement and the other Loan Documents as are delegated to Collateral Agent bythe terms thereof, together with such powers as are reasonably incidentalthereto. The duties and obligations of Collateral Agent are strictly limited tothose expressly provided for herein, and any additional duties and 3obligations expressly agreed upon by Collateral Agent and the Majority SecuredParties, and no implied covenants, functions, responsibilities, duties,obligations or liabilities shall be read into this Agreement or otherwise existagainst Collateral Agent. Nothing in this Agreement shall, or shall be construedto, constitute Collateral Agent a trustee or fiduciary for any Secured Party. Inperforming its functions and duties hereunder, Collateral Agent shall act solelyas the agent of Secured Parties and does not assume and shall not be deemed tohave assumed any obligation towards or relationship of agency or trust with orfor Debtor. Notwithstanding anything to the contrary contained herein,Collateral Agent shall not be required to take any action which is contrary tothis Agreement or applicable law. (f) The duties and obligations of Collateral Agent hereunder shallconsist of (i) exercising or refraining from exercising any rights, remedies orpowers of Secured Parties under the Loan Documents or under applicable law inrespect of the Loans or all or any portion of any Collateral, (ii) selling,releasing, surrendering, realizing upon or otherwise dealing with, in any mannerand in any order, all or any portion of any Collateral, (iii) making any demandsor giving any notices under Loan Documents, (iv) effecting amendments to andgranting waivers under the Loan Documents, (v) distributing payments to SecuredParties of amounts paid to it by Debtor under any Loan Documents or received byit in connection with the Collateral, (vi) holding on behalf of Secured Partiesany instruments or other possessory Collateral, and (vii) engaging and replacing(in consultation with Secured Parties and with the prior approval of theMajority Secured Parties), instructing and remunerating on behalf of SecuredParties all consultants, experts and other Persons to be engaged by SecuredParties, including legal counsel for Secured Parties, in each case in accordancewith the instructions of the Majority Secured Parties. (g) Neither Collateral Agent nor any of its directors, officers,employees or agents shall be responsible to any Secured Party for any actiontaken or omitted to be taken by it or them hereunder or in connection herewith,except for its or their own gross negligence or willful misconduct. CollateralAgent shall use the level of care it uses with respect to its own property of asimilar nature to assure the safe custody of Collateral in its possession.Beyond the exercise of such level of care to assure the safe custody ofCollateral in its possession as Collateral Agent, and the accounting for anymonies actually received by Collateral Agent in such capacity, Collateral Agentshall have no duty or liability to exercise or preserve any rights, privilegesand powers pertaining to the Collateral. (h) Each Secured Party’s interest in the Collateral shall be on aparity with the interests of all other Secured Parties, and the interest of eachSecured Party in the Collateral shall be equal to its Pro Rata Share (except tothe extent the Secured Parties agree to any other ratable interest therein). AnySecured Party holding any instruments, certificated investment property or otherCollateral hereunder shall do so as agent for and for the ratable benefit of allSecured Parties. (i) Anything herein to the contrary notwithstanding, in no event shallthe Collateral include, and Debtor shall not be deemed to have granted asecurity interest in, any of Debtor’s right, title or interest in any of theoutstanding voting capital stock or other ownership interests of a ControlledForeign Corporation (as defined below) in excess of 65% of the voting power ofall classes of capital stock or other ownership interests of such ControlledForeign 4Corporation entitled to vote; provided that (A) immediately upon the amendmentof the Internal Revenue Code to allow the pledge of a greater percentage of thevoting power of capital stock or other ownership interests in a ControlledForeign Corporation without adverse tax consequences, the Collateral shallinclude, and Debtor shall be deemed to have granted a security interest in, suchgreater percentage of capital stock or other ownership interests of eachControlled Foreign Corporation; and (B) if no adverse tax consequences to Debtorshall arise or exist in connection with the pledge of any Controlled ForeignCorporation, the Collateral shall include, and Debtor shall be deemed to havegranted a security interest in, such Controlled Foreign Corporation. As usedherein, “Controlled Foreign Corporation” shall mean a “controlled foreigncorporation” as defined in the Internal Revenue Code. (j) Secured Parties agree that, notwithstanding anything to thecontrary herein, the security interest granted herein to Secured Parties in andto restricted account No. 1610630624 held at JPMorgan Chase Bank, NA and thecash and cash equivalents held therein (collectively, the “Restricted Account”)shall be subject, subordinate and junior in all respects to the liens andsecurity interests granted to JPMorgan Chase Bank, NA in the Restricted Accountto secure Debtor’s reimbursement obligation as of the date hereof with respectto a letter of credit issued by JPMorgan Chase Bank, NA, for the benefit of TwoLincolnshire Office Venture, LLC in connection with the Company’s lease of thepremises at Two Marriott Drive, Lincolnshire, Illinois. The subordinations andpriorities specified hereinabove with respect to any such Collateral areexpressly conditioned upon the nonavoidability and perfection of the lien orsecurity interest of JPMorgan Chase Bank, NA and, if such lien or securityinterest is not perfected or is avoidable, for any reason, then thesubordinations and relative priority agreements provided for herein shall not beeffective as to the Restricted Account. Debtor agrees that immediately upon anyevent or circumstance resulting in the release of the Restricted Account byJPMorgan Chase Bank, NA. (A) to cause such Person to take all action necessaryto evidence such release immediately upon the occurrence of such event orcircumstance, (B) to furnish to Secured Parties or any Collateral Agent at leastten (10) days prior written notice of any anticipated event or circumstance thatwould result in the release of the Restricted Account, and (iii) to cooperatewith Secured Parties and any Collateral Agent in obtaining control (as definedin the UCC) of the Restricted Account. Section 3. Financing Statements and Other Action. (a) Debtor hereby authorizes Secured Parties or Collateral Agent tofile at any time and from time to time any financing statements describing theCollateral, and Debtor shall execute and deliver to Secured Parties or anyCollateral Agent, and Debtor hereby authorizes Secured Parties or any CollateralAgent to file (with or without Debtor’s signature), at any time and from time totime, all amendments to financing statements, assignments, continuationfinancing statements, termination statements, security agreements relating tointellectual property Collateral, account control agreements, collateral accessagreements, landlord waivers and other documents and instruments, in formreasonably satisfactory to Majority Secured Parties or any Collateral Agent, andto take such other action, in each case as any Secured Parties or CollateralAgent may reasonably request, to perfect and continue perfection of, maintainthe priority of or provide notice of the security interest of Secured Parties inthe Collateral and to accomplish the purposes of this Agreement. Withoutlimiting the generality of the foregoing, Debtor ratifies and authorizes thefiling by Secured Parties or Collateral Agent of (i) any financing statementsfiled 5prior to the date hereof, and (ii) any financing statements describing theCollateral as “all assets” or “all personal property”. (b) Debtor will cooperate with Secured Parties and any CollateralAgent in obtaining control (as defined in the UCC) of Collateral consisting ofsuch deposit accounts, investment property, letter of credit rights andelectronic chatter paper as the Majority Secured Parties or any Collateral Agentmay request. (c) Upon request of the Majority Secured Parties or any CollateralAgent, Debtor will join with Secured Parties or any Collateral Agent innotifying any third party who has possession of any Collateral of SecuredParties’ security interest therein and obtaining an acknowledgment from thethird party that it is holding the Collateral for the benefit of SecuredParties; provided, however, this Section 3(c) shall not apply with respect toCollateral consisting of machines used by individuals for the purpose of homehealthcare treatments. (d) Upon request of the Majority Secured Parties or any CollateralAgent, Debtor (i) shall cause certificates to be issued in respect of anyuncertificated Pledged Collateral, (ii) shall exchange certificated PledgedCollateral for certificates of larger or smaller denominations, and (iii) shallcause any securities intermediaries to show on their books that Secured Partiesor Collateral Agent are the entitlement holder with respect to any PledgedCollateral. (e) Upon request of the Majority Secured Parties or any CollateralAgent, Debtor will not create any chattel paper without placing a legend on thechattel paper acceptable to the Majority Secured Parties or any Collateral Agentindicating that Secured Parties and any Collateral Agent have a securityinterest in the chattel paper. Section 4. Representations and Warranties. Debtor represents andwarrants to Secured Parties that: (a) This Agreement creates a security interest which is enforceableagainst the Collateral in which Debtor now has rights and will create a securityinterest which is enforceable against the Collateral in which Debtor hereafteracquires rights at the time Debtor acquires any such rights; and (ii) SecuredParties have a perfected and first priority security interest in the Collateral,in which Debtor now has rights, and will have a perfected and first prioritysecurity interest in the Collateral in which Debtor hereafter acquires rights atthe time Debtor acquires any such rights, in each case securing the payment andperformance of the Obligations. (b) Debtor’s chief executive office and principal place of business(as of the date of this Agreement) is located at the address set forth inSchedule 1; Debtor’s jurisdiction of organization and organizational ID numberis set forth in Schedule 1; Debtor’s exact legal name is as set forth in thefirst paragraph of this Agreement; and all other locations where Debtor conductsbusiness or Collateral is kept (as of the date of this Agreement) are set forthin Schedule 1. All trade names and trade styles under which Debtor conducts itsbusiness operations as of the date hereof are set forth in Schedule 2, and,except as set forth in Schedule 2, Debtor has not, at any time in the past: (i)been known as or used any other corporate, trade or fictitious name; (ii)changed its name; (iii) been the surviving or resulting corporation in a 6merger or consolidation; or (iv) acquired through asset purchase or otherwiseany business of any Person. (c) Debtor has rights in or the power to transfer the Collateral, andDebtor is the sole and complete owner of the Collateral or has the right to usethe Collateral pursuant to a valid and enforceable license, free from any Lienother than Permitted Liens. (d) All of Debtor’s United States and foreign patents and patentapplications, copyrights (registered and material unregistered), applicationsfor copyright registrations, trademarks, service marks and trade names(registered and material unregistered), and applications for registration ofsuch trademarks, service marks and trade names, are set forth in Schedule 2. (e) No control agreements exist with respect to any Collateral otherthan control agreements in favor of Secured Parties. (f) Debtor does not have or hold any chattel paper, letter-of-creditrights or commercial tort claims except as disclosed in writing to SecuredParties. (g) The names and addresses of all financial institutions and otherPersons at which Debtor maintains its deposit and securities accounts, and theaccount numbers and account names of such accounts, are set forth in Schedule 1. (h) Schedule 3 lists Debtor’s ownership interests in each of itsSubsidiaries as of the date hereof. (i) Debtor is and will be the legal record and beneficial owner of allPledged Collateral, and has and will have good and marketable title thereto. (j) Except as disclosed in writing to Secured Parties, there are noPledged Collateral Agreements which affect or relate to the voting or giving ofwritten consents with respect to any of the Pledged Collateral. Each PledgedCollateral Agreement contains the entire agreement between the parties theretowith respect to the subject matter thereof, has not been amended or modified,and is in full force and effect in accordance with its terms. To the bestknowledge of Debtor, there exists no violation or default under any PledgedCollateral Agreement by Debtor or the other parties thereto. Debtor has notknowingly waived or released any of its rights under or otherwise consented to adeparture from the terms and provisions of any Pledged Collateral Agreement. (k) Debtor is not and will not become a lessee under any real propertylease or party to any other agreement governing the location of Collateral atthe premises of another Person pursuant to which the lessor or such other Personmay obtain any rights in any of the Collateral except as disclosed in writing toSecured Parties, and no such lease or other such agreement now prohibits,restrains, impairs or will prohibit, restrain or impair Debtor’s right to removeany Collateral from the premises at which such Collateral is situated, exceptfor the usual and customary restrictions contained in such leases of realproperty and in such other agreements. 7 Section 5. Covenants. So long as any of the Obligations remainunsatisfied, or Secured Parties shall have any Commitments, Debtor agrees that: (a) Debtor shall appear in and defend any action, suit or proceedingwhich may affect its title to, or right or interest in, any Collateral Agent’sor Secured Parties’ right or interest in, the Collateral, and shall do andperform all reasonable acts that may be necessary and appropriate to maintain,preserve and protect the Collateral. (b) Debtor shall comply with all laws, regulations and ordinances, andall policies of insurance, relating to the possession, operation, maintenanceand control of the Collateral. (c) Debtor shall give prompt written notice to Secured Parties (and inany event not later than ten (10) days prior to any change described below inthis subsection) of: (i) any change in the location of Debtor’s chief executiveoffice or principal place of business; (ii) any change in the locations setforth in Schedule 1; (iii) any change in its name; (iv) any changes in itsidentity or structure in any manner which might make any financing statementfiled hereunder incorrect or misleading; and (v) any change in its jurisdictionof organization; provided that Debtor shall not locate any Collateral outside ofthe United States nor shall Debtor change its jurisdiction of organization to ajurisdiction outside of the United States. (d) Debtor shall carry and maintain in full force and effect, at itsown expense and with financially sound and reputable insurance companies (notAffiliates of Debtor), insurance with respect to the Collateral in such amounts,with such deductibles and covering such risks as is customarily carried inaccordance with sound business practice by companies engaged in the same orsimilar businesses and owning similar properties in the localities where Debtoroperates, and in any event in amount, adequacy and scope satisfactory to theBoard of Directors of Debtor. Insurance on the Collateral shall name the SecuredParties and any Collateral Agent as additional insured and as loss payee. Uponthe request of Majority Secured Parties or any Collateral Agent, Debtor shallfurnish Secured Parties or any Collateral Agent from time to time with fullinformation as to the insurance carried by it and, if so requested, copies ofall such insurance policies. Debtor shall also furnish to Secured Parties fromtime to time upon the request of the Majority Secured Parties or any CollateralAgent a certificate of Debtor’s insurance broker or other insurance specialiststating that all premiums then due on the policies relating to insurance on theCollateral have been paid and that such policies are in full force and effect.All insurance policies required under this subsection (d) shall provide thatthey shall not be terminated or cancelled nor shall any such policy bematerially changed without at least 30 days’ prior written notice (or 10 days’prior written notice in the event of cancellation for non-payment of premium) toDebtor and Secured Parties or any Collateral Agent. Receipt of notice oftermination or cancellation of any such insurance policies or reduction ofcoverages or amounts thereunder shall entitle Secured Parties or any CollateralAgent to renew any such policies, cause the coverages and amounts thereof to bemaintained at levels required pursuant to the first sentence of this subsection(d) or otherwise to obtain similar insurance in place of such policies, in eachcase at the expense of Debtor. If the Collateral shall be materially damaged ordestroyed, in whole or in part, by fire or other casualty, Debtor shall giveprompt notice thereof to Secured Parties or any Collateral Agent. Additionally,Debtor shall in any event promptly give Secured Parties or any Collateral Agentnotice of all reports made to insurance companies in 8respect of any claim in excess of $100,000. No settlement on account of any losscovered by insurance shall be made for less than insured value without theconsent of Majority Secured Parties. (e) Debtor shall keep accurate and complete books and records withrespect to the Collateral, disclosing Secured Parties’ security interesthereunder. (f) Debtor shall not surrender or lose possession of (other than toany Collateral Agent or any of the Secured Parties), sell, lease, or otherwisedispose of or transfer any of the Collateral or any right or interest therein,except as expressly permitted by the Loan Documents. (g) Debtor shall keep the Collateral free of all Liens exceptPermitted Liens. (h) Debtor shall pay and discharge all taxes, fees, assessments andgovernmental charges or levies imposed upon it with respect to the Collateralprior to the date on which penalties attach thereto, except to the extent suchtaxes, fees, assessments or governmental charges or levies are being contestedin good faith by appropriate proceedings and are adequately reserved against inaccordance with GAAP. (i) Debtor shall maintain and preserve its legal existence, its rightsto transact business and all other rights, franchises and privileges necessaryor desirable in the normal course of its business and operations and theownership of the Collateral, except in connection with any transactionsexpressly permitted by the Loan Agreement. (j) Upon the request of the Majority Secured Parties or any CollateralAgent, Debtor shall (i) immediately deliver to such Secured Party or CollateralAgent, or their designated agent, appropriately endorsed or accompanied byappropriate instruments of transfer or assignment, all documents andinstruments, all certificated securities with respect to any Pledged Collateral,all letters of credit and all accounts and other rights to payment at any timeevidenced by promissory notes, trade acceptances or other instruments, and (ii)cause certificates to be issued in respect of any uncertificated PledgedCollateral, (iii) provide such notice, obtain such acknowledgments and take allsuch other action, with respect to any investment property, chattel paper,documents and letter-of credit rights, as the Majority Secured Parties orCollateral Agent, as the case may be, shall reasonably specify. (k) Debtor shall: (i) with such frequency as the Majority SecuredParties or any Collateral Agent may require, furnish to Secured Parties or anyCollateral Agent such lists of customers and other information relating to theaccounts and other rights to payment as the Majority Secured Parties or anyCollateral Agent shall reasonably request; (ii) give only normal discounts,allowances and credits as to accounts and other rights to payment, in theordinary course of business, according to normal trade practices utilized byDebtor, and enforce all accounts and other rights to payment strictly inaccordance with their terms, except that Debtor may grant any extension of thetime for payment or enter into any agreement to make a rebate or otherwise toreduce the amount owing on or with respect to, or compromise or settle for lessthan the full amount thereof, any account or other right to payment, in theordinary course of business, according to normal and prudent trade practicesutilized by Debtor; and (iii) Debtor shall upon 9the request of the Majority Secured Parties or any Collateral Agent (A) at anytime, notify all or any designated portion of the account debtors and otherobligors on the accounts and other rights to payment of the security interesthereunder, and (B) upon the occurrence and during the continuance of an Event ofDefault, notify the account debtors and other obligors on the accounts and otherrights to payment or any designated portion thereof that payment shall be madedirectly to Secured Parties or any Collateral Agent or to such other Persons orlocations as the Majority Secured Parties or any Collateral Agent shall specify. (l) Debtor shall, at such times as the Majority Secured Parties shallreasonably request, prepare and deliver to Secured Parties a report of allinventory, in form and substance satisfactory to the Majority Secured Parties. (m) Debtor shall (i) notify Secured Parties or any Collateral Agent ofany material claim made or asserted against the Collateral by any Person and ofany change in the composition of the Collateral or other event which couldmaterially adversely affect the value of the Collateral or Secured Parties’ Lienthereon; (ii) furnish to Secured Parties or any Collateral Agent such statementsand schedules further identifying and describing the Collateral and such otherreports and other information in connection with the Collateral as the MajoritySecured Parties or any Collateral Agent may reasonably request, all inreasonable detail; and (iii) upon reasonable request of the Majority SecuredParties or any Collateral Agent make such demands and requests for informationand reports as Debtor is entitled to make in respect of the Collateral. (n) If and when Debtor shall obtain rights to any new patents,trademarks, service marks, trade names or registered or material unregisteredcopyrights, or otherwise acquire or become entitled to the benefit of, or applyfor registration of, any of the foregoing, Debtor (i) shall promptly notifySecured Parties or any Collateral Agent, as the case may be, thereof and (ii)hereby authorizes Secured Parties or any Collateral Agent, as the case may be,to modify, amend, or supplement Schedule 2 and from time to time to include anyof the foregoing and make all necessary or appropriate filings with respectthereto. Debtor shall promptly execute and deliver appropriate documents (inform and substance reasonably satisfactory to the Majority Secured Parties) withrespect to any such current or future registered copyrights for recording in theU.S. Copyright Office. (o) Without limiting the generality of subsection (n), Debtor shallnot register with the U.S. Copyright Office any unregistered copyrights (whetherin existence on the date hereof or thereafter acquired, arising, or developed)unless Debtor provides Secured Parties or any Collateral Agent, as the case maybe, with written notice of its intent to register such copyrights not less than30 days prior to the date of the proposed registration. (p) At the request of the Majority Secured Parties or any CollateralAgent, Debtor will obtain from each Person from whom Debtor leases any premisesat which any Collateral is at any time present such collateral access,subordination, waiver, consent and estoppel agreements, as the Majority SecuredParties or such Collateral Agent may require, in form and substance satisfactoryto the Majority Secured Parties or such Collateral Agent. 10 (q) Debtor shall give Secured Parties or any Collateral Agent, as thecase may be, immediate notice of the acquisition of any instruments orsecurities, or the establishment of any new deposit account or any newsecurities account with respect to any Pledged Collateral. (r) (i) Debtor shall comply with all of its obligations under anyPledged Collateral Agreements to which it is a party and shall enforce all ofits rights thereunder. (ii) Debtor will take all actions necessary to cause eachPledged Collateral Agreement relating to Collateral consisting of any and alllimited liability and general partnership interests and limited liabilitycompany interests of any type or nature (“Partnership and LLC Collateral”) toprovide specifically at all times that: (A) no Partnership and LLC Collateralshall be a security governed by Article 8 of the applicable Uniform CommercialCode; and (B) no consent of any member, manager, partner or other Person shallbe a condition to the admission as a member or partner of any transferee thatacquires ownership of the Partnership and LLC Collateral as a result of theexercise by Secured Parties or any Collateral Agent of any remedy hereunder orunder applicable law. Additionally, Debtor agrees that no Partnership and LLCCollateral (A) shall be dealt in or traded on any securities exchange or in anysecurities market, (B) shall constitute an investment company security, or (C)shall be held by Debtor in a securities account. (iii) Debtor shall not vote toenable or take any other action to: (A) amend or terminate, or waive compliancewith any of the terms of, any Pledged Collateral Agreement, certificate orarticles of incorporation, bylaws or other organizational documents in any waythat changes the rights of Debtor with respect to any Partnership and LLCCollateral or other Collateral constituting investment property in a manneradverse to the Secured Parties or that adversely affects the validity,perfection or priority of Secured Parties’ security interest therein. (s) Debtor shall immediately notify Secured Parties or any CollateralAgent if Debtor holds or acquires (i) any commercial tort claims, (ii) anychattel paper, including any interest in any electronic chattel paper, otherthan chattel paper arising in the ordinary course of Debtor’s business inconnection with leases by Debtor to its customers of its inventory, or (iii) anyletter-of-credit rights. (t) In the event that Debtor acquires rights in any Subsidiary afterthe date hereof, it shall deliver to Secured Parties and any Collateral Agent acompleted supplement to Schedule 3, reflecting such new Subsidiary and Debtorshall comply with the Section 5.02(m) of the Loan Agreement. Notwithstanding theforegoing, it is understood and agreed that the security interest of SecuredParties shall attach to any such Subsidiary immediately upon Debtor’sacquisition of rights therein and shall not be affected by the failure of Debtorto deliver any such supplement to Schedule 3 or to comply with Section 5.02(m)of the Loan Agreement. Section 6. Rights of Secured Parties. (a) Until Secured Parties exercise their rights hereunder to collectthe accounts and other rights to payment, Debtor shall endeavor in the firstinstance diligently to collect all amounts due or to become due on or withrespect to the accounts and other rights to payment. At the request of theMajority Secured Parties or any Collateral Agent, upon the occurrence and duringthe continuance of any Event of Default, all remittances received by Debtorshall be held in trust for Secured Parties and, in accordance with the MajoritySecured Parties’ or any Collateral Agent’s instructions, remitted to SecuredParties or any Collateral 11Agent or deposited to an account of Secured Parties or any Collateral Agent inthe form received (with any necessary endorsements or instruments of assignmentor transfer). (b) At the request of the Majority Secured Parties or any CollateralAgent, upon the occurrence and during the continuance of any Event of Default,Secured Parties shall be entitled to receive all distributions and payments ofany nature with respect to any Pledged Collateral or instrument Collateral, andall such distributions or payments received by the Debtor shall be held in trustfor Secured Parties and, in accordance with the Majority Secured Parties’ or anyCollateral Agent’s instructions, remitted to Secured Parties or any CollateralAgent or deposited to an account designated by the Majority Secured Parties orany Collateral Agent in the form received (with any necessary endorsements orinstruments of assignment or transfer). Further, upon the occurrence and duringthe continuance of any Event of Default any such distributions and payments withrespect to any Pledged Collateral held in any securities account shall be heldand retained in such securities account, in each case as part of the Collateralhereunder, and the Majority Secured Parties or any Collateral Agent shall havethe right, following prior written notice to the Debtor, to vote and to giveconsents, ratifications and waivers with respect to any Pledged Collateral andinstruments, and to exercise all rights of conversion, exchange, subscription orany other rights, privileges or options pertaining thereto, as if SecuredParties or any Collateral Agent were the absolute owner thereof; provided thatSecured Parties or any Collateral Agent shall have no duty to exercise any ofthe foregoing rights afforded to it or them and shall not be responsible to theDebtor or any other Person for any failure to do so or delay in doing so. Section 7. Authorization; Collateral Agent Appointed Attorney-in-Fact.Any Collateral Agent shall have the right to, in the name of Debtor, or in thename of Secured Parties or Collateral Agent or otherwise, upon notice to butwithout the requirement of assent by Debtor, and Debtor hereby constitutes andappoints Collateral Agent (and any of Collateral Agent’s officers, employees oragents designated by Collateral Agent) as Debtor’s true and lawfulattorney-in-fact, with full power and authority to: (i) sign and file any of thefinancing statements and other documents and instruments which must be executedor filed to perfect or continue perfected, maintain the priority of or providenotice of Secured Parties’ security interest in the Collateral (including anynotices to or agreements with any securities intermediary); (ii) assert, adjust,sue for, compromise or release any claims under any policies of insurance; (iii)give notices of control, default or exclusivity (or similar notices) under anyaccount control agreement or similar agreement with respect to exercisingcontrol over deposit accounts or securities accounts; and (iv) execute any andall such other documents and instruments, and do any and all acts and things forand on behalf of Debtor, which Collateral Agent or the Majority Secured Partiesmay deem reasonably necessary or advisable to maintain, protect, realize uponand preserve the Collateral and Secured Parties’ security interest therein andto accomplish the purposes of this Agreement. The foregoing power of attorney iscoupled with an interest and irrevocable so long as the Obligations have notbeen paid and performed in full. In the event that a Collateral Agent is notappointed, each Secured Party, acting upon the direction of the Majority SecuredParties, is hereby authorized to exercise the authority set forth in, and act asattorney-in-fact as contemplated by, this Section 7. Collateral Agent and theSecured Parties agree that, except upon and during the continuance of an Eventof Default, the power of attorney, or any rights granted to Collateral Agent orany designated Secured Party, pursuant to clauses (ii), (iii) and (iv), shallnot be exercised. Debtor hereby ratifies, to the extent permitted by law, allthat 12Collateral Agent or any such Secured Party shall lawfully and in good faith door cause to be done by virtue of and in compliance with this Section 7. Section 8. Events of Default. Any of the following events which shalloccur and be continuing shall constitute an “Event of Default”: (a) Any “Event of Default” as defined in the Loan Agreement or in anyother Loan Document shall have occurred and be continuing; (b) Any material impairment in the value of the Collateral or anyimpairment of the priority of Secured Parties’ Liens hereunder. (c) Any levy upon, seizure or attachment of any of the Collateral, theaggregate value of which exceeds $100,000, which shall not have been rescindedor withdrawn. (d) Any loss, theft or substantial damage to, or destruction of, anymaterial portion of the Collateral (unless within 10 days after the occurrenceof any such event, Debtor furnishes to Secured Parties evidence satisfactory tothe Majority Secured Parties that the amount of any such loss, theft, damage toor destruction of the Collateral is fully insured under policies naming SecuredParties as additional named insureds or loss payees). Section 9. Remedies. (a) Upon the occurrence and during the continuance of any Event ofDefault, each Secured Party shall have, in addition to all other rights andremedies granted to it in this Agreement, the Loan Agreement or any other LoanDocument, all rights and remedies of a secured party under the UCC and otherapplicable laws. Without limiting the generality of the foregoing, (i) SecuredParties or any Collateral Agent in each case as directed by Majority SecuredParties may peaceably and without notice enter any premises of Debtor, takepossession of any the Collateral, remove or dispose of all or part of theCollateral on any premises of Debtor or elsewhere, or, in the case of equipment,render it nonfunctional, and otherwise collect, receive, appropriate and realizeupon all or any part of the Collateral, and demand, give receipt for, settle,renew, extend, exchange, compromise, adjust, or sue for all or any part of theCollateral, as the Majority Secured Parties may determine; (ii) Secured Partiesor any Collateral Agent in each case as directed by Majority Secured Parties mayrequire Debtor to assemble all or any part of the Collateral and make itavailable to Secured Parties at any place and time designated by SecuredParties, and may withdraw (or cause to be withdrawn) any and all funds and otherCollateral from any deposit accounts or securities accounts; (iii) SecuredParties or any Collateral Agent in each case as directed by Majority SecuredParties may use or transfer any of Debtor’s rights and interests in anyintellectual property Collateral, by license, by sublicense (to the extentpermitted by an applicable license) or otherwise, on such conditions and in suchmanner as the Majority Secured Parties may determine, (iv) Secured Parties orany Collateral Agent in each case as directed by Majority Secured Parties maysecure the appointment of a receiver of the Collateral or any part thereof (tothe extent and in the manner provided by applicable law); and (v) SecuredParties or any Collateral Agent, in each case as directed by Majority SecuredParties, may sell, resell, lease, use, assign, license, sublicense, transfer orotherwise dispose of any or all of the Collateral in its then condition orfollowing any 13commercially reasonable preparation or processing (utilizing in connectiontherewith any of Debtor’s assets, without charge or liability to Secured Partiestherefor) at public or private sale, by one or more contracts, in one or moreparcels, at the same or different times, for cash or credit, or for futuredelivery without assumption of any credit risk, all as Majority Secured Partiesdeem advisable; provided, however, that Debtor shall be credited with the netproceeds of sale only when such proceeds are finally collected by SecuredParties. Debtor recognizes that Secured Parties or any Collateral Agent may beunable to make a public sale of any or all of the Pledged Collateral, by reasonof prohibitions contained in applicable securities laws or otherwise, andexpressly agrees that a private sale to a restricted group of purchasers forinvestment and not with a view to any distribution thereof shall be considered acommercially reasonable sale. Secured Parties or any Collateral Agent shall havethe right upon any such public sale, and, to the extent permitted by law, uponany such private sale, to purchase the whole or any part of the Collateral sosold, free of any right or equity of redemption, which right or equity ofredemption Debtor hereby releases, to the extent permitted by law. Any SecuredParty or any Collateral Agent shall give Debtor such notice of any private orpublic sales as may be required by the UCC or other applicable law. (b) For the purpose of enabling Secured Parties to exercise theirrights and remedies under this Section 9 or otherwise in connection with thisAgreement, effective upon the occurrence and during the continuance of an Eventof Default, Debtor hereby grants to Secured Parties and Collateral Agent, ifany, an irrevocable, non-exclusive and assignable license (exercisable withoutpayment or royalty or other compensation to Debtor) to use, license orsublicense any intellectual property Collateral to the extent such grant is notprohibited with respect to such intellectual property Collateral. (c) Neither Collateral Agent nor any Secured Party shall have anyobligation to clean up or otherwise prepare the Collateral for sale. NeitherCollateral Agent nor any Secured Party shall have any obligation to attempt tosatisfy the Obligations by collecting them from any other Person liable forthem, and Collateral Agent and the Majority Secured Parties may release, modifyor waive any Collateral provided by any other Person to secure any of theObligations, all without affecting Collateral Agent’s or any Secured Party’srights against Debtor. Debtor waives any right it may have to require CollateralAgent or any Secured Party to pursue any third Person for any of theObligations. Collateral Agent and Secured Parties may comply with any applicablestate or federal law requirements in connection with a disposition of theCollateral and compliance will not be considered adversely to affect thecommercial reasonableness of any sale of the Collateral. Collateral Agent andSecured Parties may sell the Collateral without giving any warranties as to theCollateral. Collateral Agent and Secured Parties may specifically disclaim anywarranties of title or the like. This procedure will not be considered adverselyto affect the commercial reasonableness of any sale of the Collateral. IfSecured Parties sell any of the Collateral upon credit, Debtor will be creditedonly with payments actually made by the purchaser, received by Collateral Agentand Secured Parties and applied to the indebtedness of the purchaser. In theevent the purchaser fails to pay for the Collateral, Collateral Agent or SecuredParties may resell the Collateral, and Debtor shall be credited with theproceeds of the sale. (d) To the extent Debtor uses the proceeds of any of the Obligationsto purchase Collateral, Debtor’s repayment of the Obligations shall apply on a”first-in, first-out” 14basis so that the portion of the Obligations used to purchase a particular itemof Collateral shall be paid in the chronological order the Debtor purchased theCollateral. (e) The cash proceeds actually received from the sale or otherdisposition or collection of Collateral, and any other amounts received inrespect of the Collateral the application of which is not otherwise provided forherein, shall be applied FIRST, to the payment of the fees, costs and expensesof any Collateral Agent and Secured Parties in exercising or enforcing itsrights hereunder and in collecting or attempting to collect any of theCollateral, and to the payment of all other amounts payable to Secured Partieswith respect to the Loan Documents (other than principal and interest); andSECOND, to the payment of all other Obligations in the following order unless aspecific determination is made by the Majority Lenders with respect thereto (i)FIRST, to any other fees, costs, expenses and other amounts (other thanprincipal and interest) due the Lenders under the Loan Documents; (ii) SECOND,to accrued and unpaid interest due the Lenders; (iii) THIRD, to the outstandingprincipal amount of the Five Million Closing Date Loan, the Cash Closing DateLoan and the Additional Loans, and (iv) FOURTH, to the outstanding principalamount of the $9.3 Million Closing Date Loan. Any surplus thereof which existsafter payment and performance in full of the Obligations shall be promptly paidover to Debtor or otherwise disposed of in accordance with the UCC or otherapplicable law. Debtor shall remain liable to Secured Parties for any deficiencywhich exists after any sale or other disposition or collection of Collateral. Section 10. Certain Waivers. Debtor waives, to the fullest extentpermitted by law, (i) any right of redemption with respect to the Collateral,whether before or after sale hereunder, and all rights, if any, of marshallingof the Collateral or other collateral or security for the Obligations; (ii) anyright to require any Collateral Agent or any Secured Party (A) to proceedagainst any Person, (B) to exhaust any other collateral or security for any ofthe Obligations, (C) to pursue any remedy in any Secured Party’s or anyCollateral Agent’s power, or (D) to make or give any presentments, demands forperformance, notices of nonperformance, protests, notices of protests or noticesof dishonor in connection with any of the Collateral; and (iii) all claims,damages, and demands against any Secured Party or any Collateral Agent arisingout of the repossession, retention, sale or application of the proceeds of anysale of the Collateral. Section 11. Notices. All notices and other communications required orpermitted hereunder shall be in writing and shall be deemed effectively given:(i) upon personal delivery to the party to be notified; (ii) when sent byconfirmed telex or facsimile if sent during normal business hours of therecipient, if not, then on the next business day; (iii) five (5) days afterhaving been sent by registered or certified mail, return receipt requested,postage prepaid; or (iv) two (2) days after deposit with a nationally recognizedovernight courier, specifying next day delivery, with written verification ofreceipt. All communications shall be sent to the parties hereto at theirrespective addresses or facsimile numbers set forth below their names on thesignature pages hereof, or, in the case of any Collateral Agent, as specified byCollateral Agent in writing to Debtor and Secured Parties, or, all cases, asnotified by such party from time to time at least ten (10) days prior to theeffectiveness of such notice. Section 12. No Waiver; Cumulative Remedies. No failure on the part ofany Secured Party or any Collateral Agent to exercise, and no delay inexercising, any right, remedy, power or privilege hereunder shall operate as awaiver thereof, nor shall any single or partial 15exercise of any such right, remedy, power or privilege preclude any other orfurther exercise thereof or the exercise of any other right, remedy, power orprivilege. The rights and remedies under this Agreement are cumulative and notexclusive of any rights, remedies, powers and privileges that may otherwise beavailable to such Secured Party or Collateral Agent. Section 13. Binding Effect. This Agreement shall be binding upon,inure to the benefit of and be enforceable by Debtor, any Secured Party, anyCollateral Agent appointed hereunder and their respective successors andassigns. Any Collateral Agent is expressly designated to be a third partybeneficiary hereof. Debtor may not assign, transfer, hypothecate or otherwiseconvey its rights, benefits, obligations or duties hereunder without the priorexpress written consent of the Secured Parties. Any such purported assignment,transfer, hypothecation or other conveyance by Debtor without the prior expresswritten consent of the Secured Parties shall be void. Debtor acknowledges andagrees that in connection with an assignment of, or grant of a participation in,the Obligations, Secured Parties may assign, or grant participations in, all ora portion of their rights and obligations hereunder. Upon any assignment ofSecured Parties’ rights hereunder, such assignee or assignees shall have, to theextent of such assignment, all rights of Secured Parties hereunder. Debtoragrees that, upon any such assignment, such assignee may enforce directly,without joinder of Secured Parties, the rights of Secured Parties set forth inthis Agreement. Any such assignee shall be entitled to enforce Secured Parties’rights and remedies under this Agreement to the same extent as if it were anoriginal secured party named herein. Section 14. Governing Law; Waiver of Jury Trial; Submission toJurisdiction. (a) This Agreement shall be construed in accordance with and governedby the internal laws of the State of New York (as permitted by Section 5-1401 ofthe New York General Obligations Law (or any similar successor provision))without giving effect to any choice of law rule that would cause the applicationof the laws of any jurisdiction other than the internal laws of the State of NewYork to the rights and duties of the parties, except as required by mandatoryprovisions of law and to the extent the validity or perfection of the securityinterests hereunder, or the remedies hereunder, in respect of any Collateral aregoverned by the law of a jurisdiction other than New York. (b) THE PARTIES HERETO HEREBY KNOWINGLY, VOLUNTARILY, ANDINTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATIONARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOANDOCUMENTS, THIS WAIVER BEING A MATERIAL INDUCEMENT FOR EACH SUCH PARTY TO ENTERINTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. (c) For purposes of any suit, action or other legal proceedingrelating to this Agreement or the other Loan Documents or the enforcement of anyprovision of this Agreement or the Loan Documents, each party hereto herebyexpressly and irrevocably submits and consents to the exclusive jurisdiction ofthe courts of the State of New York sitting in the borough of Manhattan and theUnited States District Court for the Southern District of New York for thepurposes of any such suit, action or legal proceeding, including to enforce anysettlement, order or award; and agrees that such state and federal courts shallbe deemed to be a 16convenient forum; and waives and agrees not to assert (by way of motion, as adefense or otherwise), in any such legal proceeding commenced in such court anyclaim that such party is not subject personally to the jurisdiction of suchcourt, 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 thesubject matter thereof may not be enforced in or by such court. (d) Each party hereto agrees to the entry of an order to enforce anyresolution, settlement, order or award made pursuant to this Section by thecourts of the State of New York sitting in the borough of Manhattan or theUnited States District Court for the Southern District of New York and inconnection therewith hereby waives, and agrees not to assert by way of motion,as a defense, or otherwise, any claim that such resolution, settlement, order oraward is inconsistent with or violative of the laws or public policy of the lawsof the State of New York or any other jurisdiction. Section 15. Entire Agreement; Amendment. This Agreement and the otherLoan Documents contain the entire agreement of the parties with respect to thesubject matter hereof and supersede any prior agreements, commitments, drafts,communication, discussions and understandings, oral or written, with respectthereto. No amendment to this Agreement, or any waiver of any provision hereof,shall be effective unless it is in writing and signed by the Majority SecuredParties (or any Collateral Agent with the written consent of the MajoritySecured Parties) and (in the case of any amendment) the Debtor; provided,however, that without the consent of all Secured Parties, no amendment, waiveror consent shall do any of the following: (i) subject the Secured Parties to anyadditional obligations; (ii) reduce any amount payable to the Secured Partieshereunder; (iii) postpone any date fixed for any payment in respect of anyamount payable to any Secured Parties hereunder; (iv) change the definition of”Majority Secured Parties” or any definition or provision of this Agreementrequiring the approval of the Secured Parties or some other specified amount ofSecured Parties; or (vi) amend the provisions of this Section 15; and provided,further, that no amendment, waiver or consent shall, unless in writing andsigned by the Collateral Agent, affect the rights, duties or obligations of theCollateral Agent under or in respect of this Agreement. Any such amendment,waiver or consent shall be effective only in the specific instance and for thespecific purpose for which given. Section 16. Severability. If any provision of this Agreement shall beprohibited by or invalid under any applicable law or regulation in anyjurisdiction, it shall, as to such jurisdiction, be deemed modified to conformto the minimum requirements of such law or regulation, or, if for any reason itis not deemed so modified, it shall be ineffective and invalid only to theextent of such prohibition or invalidity without affecting the remainingprovisions of this Agreement, or the validity or effectiveness of such provisionin any other jurisdiction. Section 17. Counterparts. This Agreement may be executed in any numberof counterparts and by different parties hereto in separate counterparts, eachof which when so executed shall be deemed to be an original and all of whichtaken together shall constitute but one and the same agreement. Section 18. Termination. Upon payment and performance in full of allObligations (other than inchoate indemnity obligations and any other obligationswhich by their 17terms are to survive the termination of the Loan Documents) and termination ofthe Commitments, the security interest created under this Agreement shallterminate and each Secured Party and Collateral Agent shall promptly execute anddeliver to Debtor such documents and instruments reasonably requested by Debtoras shall be necessary to evidence termination of all security interests given byDebtor to such Secured Party or Collateral Agent hereunder. 18 IN WITNESS WHEREOF, the parties hereto have duly executed thisAgreement, as of the date first above written. DEBTOR: AKSYS, LTD. By /s/ ————————————— Name: Title: Address: Two Marriot Drive Lincolnshire, IL 60069 Attn: ____________________________________ Fax: 847-229-2080 WITH A COPY TO: Keith S. Crow P.C. Kirkland & Ellis LLP 200 East Randolph Drive Chicago, Illinois 60601 Fax: 312-861-2200 S-1 SECURED PARTIES: DURUS LIFE SCIENCES MASTER FUND LTD. By /s/ ————————————— Name: Title: Address: Durus Life Sciences Master Fund Ltd. c/o International Fund Services (Ireland) Ltd. 3rd Floor, Bishops Square Redmonds Hill Dublin 2, Ireland Attention: Susan Byrne Fax: (011) 35-31-707-5013 WITH A COPY TO: Gavin Grover, Esq. Morrison & Foerster LLP 425 Market Street San Francisco, California 94105 Fax: 415-269-7522 AND WITH A COPY TO: Paul N. Roth, Esq. Schulte, Roth & Zabel 919 Third Avenue New York, New York 10022 Fax: 212-593-5955 S-2 SCHEDULE 1 to the Security Agreement1. Jurisdiction of Organization2. Organizational ID Number3. Chief Executive Office and Principal Place of Business4. Other locations where Debtor conducts business or Collateral is kept5. Deposit Accounts and Security Accounts Schedule 1-1. SCHEDULE 2 to the Security Agreement1. PATENTS AND PATENT APPLICATIONS.2. COPYRIGHTS (REGISTERED AND UNREGISTERED) AND COPYRIGHT APPLICATIONS.3. TRADEMARKS, SERVICE MARKS AND TRADE NAMES AND TRADEMARK, SERVICE MARK AND TRADE NAME APPLICATIONS. Schedule 2-1. SCHEDULE 3 to the Security Agreement PLEDGED SUBSIDIARIES 1. Pledged Collateral consisting of interests in each limitedliability company that is a subsidiary of Debtor as follows: SUBSIDIARY NUMBER OF UNITS DATE OF ISSUANCE OF UNITS 2. Pledged Collateral consisting of interests in each generalpartnership, limited partnership, limited liability partnership or otherpartnership that is a subsidiary of Debtor as follows: TYPE OF PARTNERSHIP INTEREST NUMBER OF UNITS OR (E.G., GENERAL, DATE OF ISSUANCE OTHER OWNERSHIP SUBSIDIARY LIMITED) OR FORMATION INTERESTS 3. Pledged Collateral consisting of capital stock of each corporatesubsidiary of Debtor being represented by stock certificates as follows: NO. AND CLASS SUBSIDIARY CERTIFICATE NO. CERTIFICATE DATE OF SHARES Schedule 3-1.