8-K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): June 23, 2006

AKSYS, LTD.
(Exact name of registrant as specified in its charter)

000-28290
(Commission File Number)

Delaware
(State or other jurisdiction of
incorporation or organization) 36-3890205
(I.R.S. Employer
Identification No.)

Two Marriott Drive
Lincolnshire, Illinois 60069
(Address of principal executive offices, with zip code)

(847) 229-2020
(Registrant's telephone number, including area code)

Not Applicable
(Former name or former address, if changed since last report)

        Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

        o    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

        o    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

        o    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

        o    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01.    Entry Into Material Definitive Agreements

Closing of Financing with Durus

        On June 23, 2006, Aksys, Ltd. (the "Company") closed the previously announced financing with Durus Life Sciences Master Fund, Ltd. ("Durus"). The Company entered into the following agreements in connection with the closing.

        Loan Agreement, Note and Security Agreement.    The Company entered into a loan agreement on June 23, 2006 with Durus pursuant to which Durus provided approximately $15.9 million in senior debt for a combination of cash and the cancellation of certain promissory notes of the Company held by Durus. The loan bears interest at 7% per annum and is payable in full on December 31, 2007. The loan is evidenced by a secured promissory note. Durus also has made available to the Company as part of the financing a $5 million line of credit to be used by the Company to fund its ongoing operations to the extent that the Company is unable to obtain other financing and certain funding conditions are met.

        The loan agreement contains a number of affirmative and negative covenants and grants certain operational controls over expenditures to Durus. The loan agreement also provides Durus with the right to accelerate the loan under specified events of default, which include a material adverse change in the Company's business. In connection with the loan agreement, the Company also entered into a security agreement with Durus pursuant to which the Company granted Durus a security interest in all of the Company's property.

        Investor Rights Agreement.    The Company entered into an investor rights agreement on June 23, 2006 with Durus and Artal Long Biotech Portfolio LLC ("Artal") pursuant to which, among other things, the Company granted Durus the right to appoint four board members and to approve the identity of the Company's chairman of the board, Chief Executive Officer and Chief Financial Officer. In addition, the investor rights agreement provides that the Company may not take certain actions without the approval of a majority of the board of directors, including the affirmative vote of the directors designated by Durus.

        The investor rights agreement further requires the Company to use its best efforts to register the shares held by Durus and Artal in one or more shelf registration statements. In addition, if the Company proposes to sell the Company or greater than 30% of the fully diluted capital stock of the Company to a third party or the Company otherwise accepts a bona fide offer from a third party to acquire the Company or such number of shares of the Company's capital stock, the investor rights agreement provides that Durus shall have a right of first refusal to acquire the Company or such shares, as the case may be, on the same terms and conditions, including price, as the terms and conditions applying to the third party. The investor rights agreement amends and supersedes the existing registration rights agreement, dated February 23, 2004, between the Company, Durus and Artal.

        Warrant Agreement.    The Company entered into a warrant agreement on June 23, 2006, with Continental Stock Transfer & Trust Company, as warrant agent, in connection with the Company's sale to Durus of warrants to purchase 6,453,000 shares of common stock, at an initial exercise price of $1.10 per share, as discussed further below in Item 3.02 of this Current Report on Form 8-K. Pursuant to the terms of the warrant agreement, the warrant agent will act as agent of the Company with respect to any issuance, transfer, exchange or replacement of warrant certificates issued by the Company pursuant to the securities purchase agreement dated as of March 31, 2006 between the Company and Durus. The Company has agreed to pay the warrant agent compensation for all fees and expenses relating to its services under the warrant agreement.

        Release Agreement.    The Company entered into a release agreement on June 23, 2006, with Durus, Artal, Richard B. Egen, Lawrence D. Damron, Alan R. Meyer, Bernard R. Tresnowski and Brian J.G. Pereira pursuant to which the parties released, subject to certain exceptions, all claims they may have had against certain of the other parties thereto. Messrs. Damron, Meyer, Tresnowski and Pereira

resigned from their positions as members of the Company's board of directors in connection with the closing.

        Indemnification Agreements.    The Company entered into indemnification agreements with the new directors appointed to the board on June 23, 2006. The indemnification agreements provide for the indemnity of the directors against, and the advancement of certain expenses relating to, liabilities incurred in the performance of the directors' duties, to the maximum extent permitted by Delaware corporation law and the Company's bylaws.

        The foregoing summary is qualified in its entirety by the loan agreement, secured promissory note, security agreement, warrant agreement and release agreement, which are attached as exhibits to this Current Report on Form 8-K and incorporated herein by reference.

        The Company issued a press release regarding the closing of the financing transactions with Durus on June 23, 2006. The full text of the press release is attached hereto as Exhibit 99.1 and incorporated herein by reference.

Executive Employment Agreement

        On June 23, 2006, the Company's board of directors appointed Howard J. Lewin as President and Chief Executive Officer of the Company, effective as of such date. Mr. Lewin was also appointed as a member of the board of directors. The Company entered into an executive employment agreement and stock option agreements with Mr. Lewin in connection with his employment with the Company. A summary of the terms of these agreements is set forth below.

        Base Pay.    Mr. Lewin's annual base salary is $350,000 per year, and will be reviewed annually for appropriate increases in accordance with the established procedures of the Company.

        Bonus.    Subject to the terms of the executive employment agreement, Mr. Lewin's target level of bonus will be 80% of his base salary. Mr. Lewin's opportunity to earn any such bonus payment shall be based on achievement of customary performance objectives established by the Company's board of directors or its compensation committee. For the calendar year ending on December 31, 2006, such bonus shall be pro-rated based on the number of days Mr. Lewin is employed by the Company for such year.

        Stock Options.    Mr. Lewin received non-qualified stock options to purchase 2.5 million shares of the Company's common stock in two tranches. The first tranche consists of options to purchase 1.2 million shares of common stock at an exercise price of $0.7644 per share, the closing price of the Company's stock on the Nasdaq Capital Market on June 23, 2006. Three hundred thousand of these shares vest on the first anniversary of the grant date, with 1/36^th of the remaining 900,000 shares vesting monthly thereafter. The second tranche consists of non-qualified stock options to purchase 1.3 million shares of common stock at an exercise price of $0.7644 per share. These shares vest in varying amounts upon the achievement of certain financial, operational and stock price milestones. All of the options granted to Mr. Lewin have a ten-year term and shall immediately vest upon a change of control of the Company.

        Severance.    Should Mr. Lewin's employment with the Company be terminated by Mr. Lewin for good reason or by the Company not for cause other than in connection with a change of control of the Company, Mr. Lewin will receive 18 months of his then current base salary and, if the termination date is on or after January 1, 2008, a pro-rated bonus based on the bonus, if any, paid to Mr. Lewin for the fiscal year prior to termination (paid over 18 months). In addition, the shares subject to the first option tranche shall continue to vest for an additional six months following termination and Mr. Lewin shall have twelve months after his termination date to exercise such options to the extent vested. Mr. Lewin also will be permitted to exercise the second option tranche during the 12 months following termination to the extent that such options are vested on the date of termination or subsequently vest during such 12-month period as a result of the attainment of financial, operational and stock price milestones.

        Should there be a change of control of the Company and Mr. Lewin's employment is, within 12 months thereafter, terminated by Mr. Lewin for good reason or by the Company not for cause, Mr. Lewin will receive 24 months of his then current base salary, a pro-rated bonus based on Mr. Lewin's bonus, if any, for the fiscal year prior to termination (payable over the course of 24 months), and an amount equal to two times Mr. Lewin's prior year's bonus paid in cash (payable over the course of 24 months), provided that in the event Mr. Lewin's employment is terminated during the first year of employment, such bonus shall be $280,000. All options granted to Mr. Lewin will vest immediately upon a change of control of the Company, and Mr. Lewin will have 12 months after the termination of his employment to exercise any stock options granted to him. Mr. Lewin's entitlement to any severance payments upon termination of employment, whether or not in connection with a change of control, is contingent upon his execution of a written release.

        Proprietary Information.    Pursuant to the terms of the executive employment agreement, the Company entered into a proprietary information agreement with Mr. Lewin pursuant to which Mr. Lewin has agreed to maintain the confidentiality of the Company's confidential information and to assign to the Company the rights to any and all inventions developed by Mr. Lewin during his employment with the Company

        The foregoing summary is qualified in its entirety by the executive employment agreement and stock option agreements, which are attached as exhibits to this Current Report on Form 8-K and incorporated herein by reference.

Compensation for Non-Employee Directors

        On June 23, 2006, the Company's board of directors approved, effective as of June 23, 2006, the changes described below to the compensation paid to non-employee directors for service on the board.

        Cash Compensation.    Each non-employee director shall receive an annual retainer fee of $12,000, an annual retainer fee of $4,000 for serving on the audit committee, an annual retainer fee of $10,000 for serving as the chair of the audit committee, and an annual retainer fee of $5,000 for serving as the chair of any other board committee. Each of the annual retainers will be payable quarterly in arrears. In addition, non-employee directors shall receive a board meeting fee of $1,000 for meetings in person or $500 for meetings by telephone, and a fee of $500 per committee meeting unless the meeting is on the same day as a regularly scheduled board meeting. Non-employee directors also will be reimbursed for reasonable travel expenses incurred in attending board and board committee meetings.

        Equity Compensation.    Each non-employee director shall be granted an option to purchase 90,000 shares of common stock of the Company at the time of such director's initial appointment or election to the board. Such options vest in 12 equal quarterly installments over 36 months, subject to accelerated vesting upon a change of control of the Company.

        In accordance with the foregoing, Douglass B. Given and Timothy M. Mayleben were each granted an option to purchase 57,958 shares of common stock on June 23, 2006, in connection with their initial appointment to the board. Messrs. Given and Mayleben were each granted options to purchase less than 90,000 shares because there was an insufficient number of shares available under the Company's stock awards plan to grant each director an option to purchase a full 90,000 shares. The exercise price of each option granted to Messrs. Given and Mayleben is $0.7644 per share, which was the closing price of the Company's common stock on the Nasdaq Capital Market on June 23, 2006. As additional shares of common stock become available for director option grants, these additional shares shall be allocated to Messrs. Given and Mayleben until each receives initial director options to purchase 90,000 shares of common stock in the aggregate.

        Ms. Lake, Ms. Piller and Mr. Trivedi have indicated that they will elect to forgo any right they may have to receive cash or equity compensation for service as non-employee directors.

Item 2.03.    Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant

        The information set forth under Item 1.01 of this Current Report on Form 8-K under the heading "Loan Agreement, Note and Security Agreement" is hereby incorporated by reference into this Item 2.03.

Item 3.02.    Unregistered Sales of Equity Securities

        Durus Financing.    At the closing of the financing transactions with Durus on June 23, 2006, the Company sold to Durus pursuant to the terms of the securities purchase agreement 6,453 shares of Series B preferred stock and warrants to purchase 6,453,000 shares of common stock.

        The shares of Series B preferred stock are convertible into 6,453,000 shares of common stock in the aggregate at a conversion price of $1.00 per share, subject to certain anti-dilution and other adjustments from time to time as set forth in the certificate of designation of the Series B preferred stock. Holders of the Series B preferred stock are entitled to elect one director to the Company's board of directors. Holders of Series B preferred stock also have voting rights and shall be entitled to vote, on an as converted basis as set forth in the certificate of designation, together with the holders of common stock as a single class with respect to any matter upon which holders of common stock have the right to vote.

        The Series B preferred stock purchased by Durus has an aggregate liquidation preference of $6,453,000, accrues dividends at the rate of 10% per annum and becomes redeemable after seven years at the option of the holders of a majority of the voting power of the shares of Series B preferred stock then outstanding or at the option of Durus at an earlier date upon the occurrence of specified trigger events. The Company also will be required to obtain the consent of the holders of at least two-thirds of the outstanding shares of Series B preferred stock prior to taking certain actions.

        The warrants have a five-year term and an initial exercise price of $1.10 per share of common stock. Each warrant is subject to certain anti-dilution and other adjustments from time to time as set forth therein.

        Immediately upon issuance, the aggregate number of shares of common stock into which the Series B preferred stock and warrants may be converted and exercised, respectively, will be limited to that number of shares of common stock that may be issued by the Company without the approval of its stockholders under the Marketplace Rules of the Nasdaq Capital Market. Under the securities purchase agreement, the Company is obligated to seek such stockholder approval promptly.

        All of the foregoing securities were issued to Durus pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof. The Company is obligated to use its best efforts to register for resale in one or more shelf registration statements pursuant to the terms of the investor rights agreement the shares of common stock underlying the Series B preferred stock and warrants.

        The rights, preferences and privileges of the Series B preferred stock are set forth in the certificate of designation of the Series B preferred stock. The foregoing summary is qualified in its entirety by the certificate of designation, which is attached as exhibit 4.1 to this Current Report on Form 8-K and incorporated herein by reference.

        Inducement Stock Option Grant.    As reported above in Item 1.01 of this Current Report on Form 8-K, the Company granted to Howard J. Lewin as an inducement to begin employment with the Company stock options to purchase an aggregate of 2.5 million shares of the Company's common stock. The options were not granted under any stock option plans of the Company. The issuance of the securities was exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof.

Item 5.02.    Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers

        Principal Officers.    On June 23, 2006, the Company appointed Howard J. Lewin as the President and Chief Executive Officer of the Company, effective immediately. Mr. Lewin, age 45, previously was with DaVita Inc., one of the two largest companies in the U.S. providing dialysis services to patients suffering from chronic kidney failure, from 2000 to 2004. Mr. Lewin held several positions at DaVita, including Group Vice President, Mergers and Acquisitions, from 2003 to 2004 and Group Vice President, Field Operations, from 2000 to 2004. Prior to joining DaVita, Mr. Lewin served as Chief Executive Officer of New Vision Laser Centers, President of Vivra Nephrology Partners, Vice President of Finance of IG Laboratories and Vice President/Chief Financial Officer of Odyssey Biomedical Corp. Mr. Lewin received his M.B.A. from Harvard University and his Bachelor of Science degree in Chemical Engineering from Cornell University.

        Laurence P. Birch, who served as the Interim President and Chief Executive Officer of the Company from March 31, 2006 until Mr. Lewin's appointment, will continue to serve in his current position as the Company's Chief Financial Officer.

        The Company entered into an executive employment agreement with Mr. Lewin. The material terms of the executive employment agreement are summarized above in Item 1.01 of this Current Report on Form 8-K. The Company also issued a press release regarding Mr. Lewin's appointment on June 26, 2006. The full text of the press release is attached hereto as Exhibit 99.2 and incorporated herein by reference.

        Directors.    Mr. Lewin was appointed to the board of directors on June 23, 2006 in connection with his employment with the Company. In addition, Douglass B. Given, Timothy M. Mayleben, Gretchen C. Piller and Leslie L. Lake were appointed to the Company's board of directors in connection with the closing of the Durus financing on June 23, 2006. Biographical information regarding Dr. Given, Mr. Mayleben, Ms. Piller and Ms. Lake is set forth below.

        Dr. Given, age 54, is a partner at Bay City Capital LLC, a merchant bank providing advisory services and investing in life science companies, a position he has held since January 2005. Dr. Given previously served as Venture Partner at Bay City Capital from January 2005 to December 2005, and Executive in Residence and Limited Partner at Bay City Capital from October 2000 to December 2003. Dr. Given is also chairman of VIA Pharmaceuticals, Inc., a drug development company targeting vascular inflammation that he founded in 2003. From July 2001 to June 2003, Dr. Given was President, Chief Executive Officer and a director of NeoRx Corporation, a life sciences company developing products for targeted delivery of cancer therapeutics. Dr. Given holds an M.D. and a Ph.D. from the University of Chicago, and an M.B.A. from the Wharton School of Business, University of Pennsylvania.

        Mr. Mayleben, age 46, is a consultant with ElMa Advisors LLC, an entity formed by Mr. Mayleben, where he has been advising life science and health care companies since 2004. Mr. Mayleben is a director of NightHawk Radiology Holdings, Inc., a publicly traded provider of overnight and off-hour radiology coverage for hospitals, a position he has held since February 2005. Mr. Mayleben is also a director of Aastrom Biosciences, Inc., a publicly traded developer of automated cell therapy system, where he has served since June 2005. From 2002 to 2004, Mr. Mayleben served as Chief Operating Officer of Esperion Therapeutics, a biopharmaceutical company, and from 1998 to 2004 as Esperion's Chief Financial Officer. Mr. Mayleben received a B.B.A. from the University of Michigan and an M.B.A. with distinction from Northwestern University.

        Ms. Piller, age 42, is a Director of Research for Torrey Associates, LLC, an asset management firm focused on investing in global hedge funds, a position she has held since 2000. Prior to joining Torrey, Ms. Piller worked as a Principal and Portfolio Manager at Croesus Capital Management, LLC, a hedge fund firm specializing in emerging markets, from 1994 to 1999. At Croesus, Ms. Piller was involved in investing primarily in Latin America and Central/Eastern Europe, including Russia and the CIS in equity, debt, commodities, and foreign exchange. Prior to joining Croesus, Ms. Piller was a Vice

President and Portfolio Manager at Putnam Investments in the Global Fixed Income Department from 1987 to 1994. Ms. Piller is a graduate of Mount Holyoke College and holds an M.B.A. degree from Boston University.

        Ms. Lake, age 41, is a Managing Director of the Invus Group, LLC, a private equity firm based in New York where she has managed the fund portfolio since 1995 and has been an active biotech and healthcare investor. Prior to joining Invus, Ms. Lake was the Executive Vice President of Cofinam, Inc., the family office of the Charles Feeney Family where she managed the firm's liquid investments from 1990 to 1995. From 1993 to 1998, she also was the external Chief Investment Officer to the Mitchell Kapor Family, founder of Lotus 1-2-3. Ms. Lake began her career as an analyst for Joseph P. Kennedy Enterprises, the family office of the Kennedy, Shriver and Lawford families. Ms. Lake holds a B.A. in Economics from Simmons College.

        The new directors will join current directors Richard B. Egen, Shodhan Trivedi and Laurence P. Birch. Lawrence D. Damron, Alan R. Meyer, Bernard R. Tresnowski and Brian J.G. Pereira resigned from the Company's board of directors on June 23, 2006 in connection with the closing.

        Ms. Lake, Mr. Mayleben, Ms. Piller and Mr. Trivedi serve on our board of directors as designees of Durus pursuant to the terms of the investor rights agreement. Dr. Given was appointed to the board at the time of the closing of the Durus financing but has no prior relationship with Durus.

        On June 23, 2006, the Company's board of directors also appointed Ms. Lake as chairperson of the board of directors. In addition, Messrs. Egen, Given and Mayleben were appointed to the audit committee of the board of directors, with Mr. Mayleben serving as the chair of the audit committee, and Dr. Given, Ms. Lake and Ms. Piller were appointed to the compensation committee of the board of directors.

Item 9.01.    Financial Statements and Exhibits.

(d)

Exhibits.

Exhibit No.	Description
4.1	Certificate of Designation of Series B Convertible Preferred Stock
10.1	Loan Agreement dated as of June 23, 2006, between Aksys, Ltd. and Durus Life Sciences Master Fund, Ltd.
10.2	Secured Promissory Note dated June 23, 2006, from Aksys, Ltd. to Durus Life Sciences Master Fund, Ltd.
10.3	Security Agreement dated as of June 23, 2006, between Aksys, Ltd. and Durus Life Sciences Master Fund, Ltd.
10.4	Investor Rights Agreement dated as of June 23, 2006, by and among Aksys, Ltd., Durus Life Sciences Master Fund, Ltd. and Artal Long Biotech Portfolio LLC
10.5	Warrant Agreement dated as of June 23, 2006, by and among Aksys, Ltd. and Continental Stock Transfer & Trust Company
10.6	Release Agreement dated as of June 23, 2006, by and among Aksys, Ltd., Durus Life Sciences Master Fund, Ltd., Artal Long Biotech Portfolio LLC, Richard B. Egen, Lawrence D. Damron, Alan R. Meyer, Bernard R. Tresnowski and Brian J.G. Pereira
10.7	Executive Employment Agreement dated as of June 23, 2006, between Aksys, Ltd. and Howard J. Lewin
10.8	Notice of Tranche A Stock Option Award and Stock Option Award Agreement between Aksys, Ltd. and Howard J. Lewin dated as of June 23, 2006
10.9	Notice of Tranche B Stock Option Award and Stock Option Award Agreement between Aksys, Ltd. and Howard J. Lewin dated as of June 23, 2006
99.1	Press Release issued by Aksys, Ltd. dated June 23, 2006
99.2	Press Release issued by Aksys, Ltd. dated June 26, 2006

SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	AKSYS, LTD.
Dated: June 29, 2006	By:	/s/  HOWARD J. LEWIN
		Name:	Howard J. Lewin
		Title:	President and Chief Executive Officer

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Item 1.01. Entry Into Material Definitive Agreements
Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant
Item 3.02. Unregistered Sales of Equity Securities
Item 5.02. Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers
Item 9.01. Financial Statements and Exhibits.
SIGNATURES

EX-4.1

                                                                     Exhibit 4.1

                           CERTIFICATE OF DESIGNATION
                                       OF
                RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS
                                       OF
                      SERIES B CONVERTIBLE PREFERRED STOCK
                                       OF
                                   AKSYS, LTD.

     The undersigned officer of Aksys, Ltd., a corporation organized and
existing under and by virtue of the provisions of the General Corporation Law of
the State of Delaware (the "Corporation"), does hereby certify that:

     A. The Corporation has authorized 1,000,000 shares of Preferred Stock, par
value $0.01 per share, none of which has been issued.

     B. Pursuant to the authority conferred upon the Board of Directors of the
Corporation (the "Board") by its Restated Certificate of Incorporation (the
"Certificate of Incorporation"), and pursuant to the provisions of Section 151
of the General Corporation Law of the State of Delaware, the Board has duly
adopted the following recitals and resolutions in accordance with the powers
granted it by the Certificate of Incorporation, which resolutions remains in
full force and effect on the date hereof:

          WHEREAS, the Certificate of Incorporation provides for a class of
     stock designated "Preferred Stock, issuable from time to time in one or
     more series;"

          WHEREAS, the Board is authorized, within the limitations and
     restrictions stated in the Certificate of Incorporation, to determine or
     alter the rights, preferences, privileges and restrictions granted to or
     imposed upon each wholly unissued series of Preferred Stock, to fix the
     number of shares constituting each such series and to determine the
     designation thereof; and,

          WHEREAS, the Board desires, pursuant to its authority as aforesaid, to
     designate a series of Preferred Stock as "Series B Convertible Preferred
     Stock" and to fix and determine the number of shares constituting such
     series and the rights, preferences, privileges and restrictions of such
     Series.

     NOW, THEREFORE, BE IT RESOLVED, that the Board hereby designates such new
series of Preferred Stock and the number of shares constituting such series as
follows:

     I. Designation of Series. The Corporation shall have a series of Preferred
Stock designated as "Series B Convertible Preferred Stock" (the "Series B
Preferred"), which Series B Preferred, subject to the terms and conditions of
this Certificate of Designation, may be issued from time to time in sub series,
with the first issuance of Series B Preferred designated as Series B-1 and
additional issuances of Series B Preferred designated as Series B-2 and so on.
Each share of Series B Preferred no matter the sub series shall have the same
rights, preferences, privileges and restrictions as any other share of Series B
Preferred, except that shares of Series B Preferred of different sub series may
have different voting rights as provided in Section IV 5(a) of this Certificate
of Designation.


                                        1




     II. Designation of Number of Shares of Series B Preferred. The number of
shares constituting the Series B Preferred shall be 20,000 shares.

     III. Rank of Series B Preferred. The Series B Preferred shall, with respect
to dividend rights and rights on liquidation, winding up and dissolution, rank
senior to all classes of common stock of the Corporation (including Common Stock
(as hereinafter defined)) and senior to any other class of capital stock or
series of preferred stock, unless the issuance of capital stock being on parity
with or senior to the Series B Preferred shall be in compliance with Section IV
6(d) of this Certificate of Designation.

     IV. Fixing the Rights, Preferences, Privileges and Restrictions of the
Series B Preferred. The following rights, preferences, privileges and
restrictions are hereby granted to and imposed upon the Series B Preferred:


               1. Dividends.

                    (a) The holders of Series B Preferred shall be entitled to
receive cumulative, preferential cash dividends out of any assets legally
available therefor, prior and in preference to any declaration or payment of any
dividends on the Corporation's common stock, $0.01 par value ("Common Stock") or
on any other existing or future class or series of Preferred Stock (together
with the Common Stock, the "Junior Stock"), at a rate per annum equal to ten
percent (10%) of the "Original Issue Price" of one-thousand dollars ($1,000.00)
per outstanding share of Series B Preferred (as adjusted for any stock splits,
stock dividends, combinations, recapitalizations or the like (collectively
"Recapitalizations")). Dividends on each share of Series B Preferred shall
accrue quarterly on the last day of March, June, September and December of each
year whether or not declared and whether or not funds are legally available for
payment and shall be payable in arrears on each succeeding April 1, July 1,
October 1 and January 1, respectively (each such date being hereinafter referred
to as a "Preferred Dividend Payment Date"), commencing on the date of issuance
of such share of Series B Preferred. Dividends on the Series B Preferred shall
be cumulative from and after the last Preferred Dividend Payment Date provided
that all dividends have been paid through such date and shall compound
quarterly, to the extent they are unpaid, at the rate of 10% per annum computed
on the basis of a 360-day year of twelve 30-day months. Accrued but unpaid
dividends on the Series B Preferred shall first be fully paid before any
dividend or other distribution shall be paid on or declared and set apart for
the Junior Stock. Cumulative dividends (and any interest thereon) with respect
to a share of Series B Preferred which are accrued, payable and/or in arrears
shall be added to the Original Issue Price and taken into account when
calculating the number of Conversion Shares into which such share of Series B
Preferred is convertible at the then applicable Conversion Price as provided in
Section 4 below.

                    (b) After payment of any dividends pursuant to Section 1(a)
above, any additional dividends shall be distributed among all holders of Junior
Stock and all holders of Series B Preferred in proportion to the number of
shares of Common Stock which would be held by each such holder if all shares of
all series of Preferred Stock were converted to Common Stock at the then
effective conversion rate for each such series of Preferred Stock.

               2. Liquidation Preference.


                                        2



                    (a) In the event of any liquidation, dissolution or winding
up of the Corporation, either voluntary or involuntary (including any action or
proceeding before any court or other governmental agency or authority relating
to bankruptcy, reorganization, insolvency, liquidation, receivership,
dissolution, winding up, relief from creditors or any general assignment for the
benefit of creditors, marshalling of assets for creditors or other similar
arrangement) the holders of Series B Preferred shall be entitled to receive in
cash out of the assets of the Corporation legally available for distribution to
its stockholders whether such assets are capital or surplus or otherwise and
whether or not any dividends in respect of the Series B Preferred have been
declared, prior and in preference to any payment made or any distribution of any
of the assets of the Corporation to the holders of Junior Stock, an amount per
Series B Preferred share equal to the greater of (i) the sum of (A) the Original
Issue Price (subject to adjustment for Recapitalizations) and (B) all accrued
but unpaid dividends on such Series B Preferred share (whether or not declared)
computed to the date of payment and (ii) the amount, if any, which the holder of
such Series B Preferred share would have received in such liquidation,
dissolution or winding up assuming all shares of Series B Preferred had been
converted into Common Stock at the then applicable Conversion Price immediately
prior to the liquidation, dissolution or winding up of the Corporation (such
amount being hereinafter referred to as the "Series B Liquidation Preference").
If upon the occurrence of such an event, the assets and funds distributed to the
holders of the Series B Preferred shall be insufficient to pay to such holders
the full Series B Liquidation Preference, then the entire assets and funds of
the Corporation legally available for distribution to stockholders shall be
distributed ratably among the holders of the Series B Preferred in proportion to
the full preferential amount each such holder is otherwise entitled to receive
under this Section 2(a). In furtherance of the foregoing, the Corporation shall,
to the extent necessary, cause such actions to be taken by any of its
subsidiaries so as to enable the proceeds of any such liquidation, dissolution
or winding up to be distributed to the holders of Series B Preferred in
accordance with this Section.

                    (b) For purposes of this Section 2, a "Change of Control"
shall be deemed to be a liquidation, dissolution, or winding up of the
Corporation, unless the holders of at least a majority of the voting power of
the Series B Preferred then outstanding voting together as a single class, with
voting rights determined in accordance with Section 5 below, shall determine
otherwise. Upon a Change of Control, the holders of Series B Preferred shall be
entitled to receive consideration under the circumstances and in the form and
amount set forth in Section 2(c) below. A "Change of Control" means the
occurrence of any of the following: (i) the acquisition, directly or indirectly,
by any person or group (within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) of beneficial ownership
of more than 35% of the aggregate outstanding voting power of the capital stock
of the Corporation (excluding, however, the acquisition of such voting power as
a result of any transaction or series of related transactions pursuant to which
the initial holder of the Series B Preferred distributes securities of the
Corporation, including shares of the Series B Preferred, Conversion Shares, as
defined in Section 4, and/or other shares of Common Stock, to its stockholders,
limited partners or other interest holders); (ii) the members of the Board,
including the Board members elected or otherwise designated by holders of Series
B Preferred, who are members as of the date of first issuance of the Series B
Preferred Stock (the "Purchase Date") of the Board (all such Board members
collectively referred to as the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board, provided, however, that any
individual who becomes a member of the Board after the Purchase Date and whose
election, or nomination


                                        3



for election by the Corporation's stockholders, is approved by a vote of at
least a majority of the Board members then comprising the Incumbent Board shall
be considered to be a member of the Incumbent Board; or (iii) in one transaction
or one or more series of related transactions (A) the Corporation sells,
transfers, leases or otherwise disposes of, or parts with control of, all or
substantially all of its assets, or the assets of such subsidiary or
subsidiaries of the Corporation any of the assets of which constitute all or
substantially all of the assets of the business of the Corporation and its
subsidiaries taken as a whole, to another person or entity, or (B) any entity
merges with or into or consolidates with or into the Corporation or a subsidiary
of the Corporation in a transaction or series of transactions pursuant to which
the Corporation'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.

                    (c) In the case of a deemed liquidation, dissolution or
winding up of the Corporation under Section 2(b), the holders of Series B
Preferred shall be entitled to receive, upon the consummation of any such
transaction, consideration in the same form as is to be provided to other
stockholders in such transaction (whether cash, shares of stock, securities,
other property or any combination thereof), having a fair market value
(determined in good faith by the Board) equal to the Series B Liquidation
Preference to which such holders of Series B Preferred would otherwise have been
entitled pursuant to Section 2(a).

                    (d) For purposes of Section 2(c), the value of any
consideration received, other than cash or securities, shall be the fair market
value of such consideration as determined by the Board in good faith. Any
securities shall be valued as follows:

                         (i) if traded on a national securities exchange or the
Nasdaq National Market or the Nasdaq Capital Market, the value shall be deemed
to be the average of the closing prices of the securities on such exchange or
the Nasdaq National Market or the Nasdaq Capital Market, as the case may be,
over the twenty (20) day period ending one (1) business day prior to the closing
of such transaction;

                         (ii) if actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices (whichever
is applicable) over the twenty (20) day period ending three (3) days prior to
the closing; and

                         (iii) if there is no active public trading market for
the securities, the value thereof shall be the fair market value thereof as
determined by the Board in good faith.

                    (e) The Corporation shall give each holder of Series B
Preferred written notice of an impending transaction contemplated by Section
2(b) not later than twenty (20) days prior to the stockholders' meeting called
to approve such transaction, or twenty (20) days prior to the closing of such
transaction, whichever is earlier, and shall also notify such holders in writing
of the final approval of such transaction. The first of such notices shall
describe the material terms and conditions of the impending transaction and the
provisions of this Section 2, and the Corporation shall thereafter give such
holders prompt notice of any material changes. The transaction shall in no event
take place sooner than twenty (20) days after the


                                        4



Corporation has given the first notice provided for herein or sooner than ten
(10) days after the Corporation has given notice of any material changes
provided for herein; provided, however, that such periods may be shortened upon
the written consent of the holders of Series B Preferred that are entitled to
such notice rights or similar notice rights and that represent at least a
majority of the voting power of all then outstanding shares of such Series B
Preferred. Notwithstanding the foregoing, the Corporation's obligation to
provide notice under this Section 2(e) is subject and subordinate to the
Corporation's legal obligations regarding the handling and dissemination of
material non-public information under the Exchange Act, and the rules and
regulations of the quotation system or securities exchange on which the Common
Stock may at any time be listed and other applicable law.

                    (f) In the event that the Corporation has not complied with
its obligations to the holders of the Series B Preferred under Section 2(c), or
in the event of a deemed liquidation, dissolution or winding up of the
Corporation described in Section 2(c), the proceeds of which are insufficient to
pay the Optional Redemption Price for all shares of Series B Preferred
outstanding as contemplated in Section 3, the Corporation shall forthwith take
action to:

                         (i) cause such closing to be postponed until such time
as the requirements of Section 2(c) have been complied with and the proceeds of
such deemed liquidation, dissolution or winding up are sufficient to pay the
Optional Redemption Price for all shares of Series B Preferred outstanding; or

                         (ii) cancel such transaction, in which event the
rights, preferences and privileges of the Series B Preferred shall revert to and
be the same as such rights, preferences and privileges existing immediately
prior to the date of the first notice referred to in Section 2(e) above.

                    (g) Nothing in this Section 2 shall be deemed to prevent
redemption of the Series B Preferred in the manner provided in Section 3.

               3. Redemption at Option of Holders of Series B Preferred.

                    (a) Triggering Event. A "Triggering Event" shall be deemed
to have occurred at such time as any of the following events:

                         (i) the Corporation materially defaults on its
obligations under the Investor Rights Agreement, dated as of June 23, 2006,
among the Corporation, Durus Life Sciences Master Fund Ltd. and the other
signatories thereto, and such default remains unremedied for a period of ninety
(90) days following the date that the Corporation first receives notice or
otherwise becomes aware of its default;

                         (ii) the Corporation fails to deliver the required
number of Conversion Shares within ten (10) days of receipt by it from a holder
of Series B Preferred of a notice requesting conversion of any Series B
Preferred into Common Stock as contemplated in Section 4(b) below, or the
Corporation gives written notice to any holder of Series B Preferred of the
Corporation's intention not to comply, as required, with a request for
conversion of any Series B Preferred into Common Stock;


                                        5



                         (iii) the occurrence of a "Change of Control" as
defined in Section 2(b);

                         (iv) the Corporation or any subsidiary thereof becomes
insolvent, fails to pay, or admits its inability to pay, its debts as they
become due, whether at stated maturity or otherwise, voluntarily ceases to
conduct its business in the ordinary course or takes any action to effectuate or
authorize any of the foregoing; and

                         (v) any indebtedness of the Corporation or any
subsidiary (whether for borrowed money or otherwise) in aggregate principal
amount in excess of $1,000,000 shall be accelerated and declared immediately due
and payable.

                    (b) Redemption at Option of Holder Upon Triggering Event or
     Put Date.

                         (i) Upon the occurrence of a Triggering Event, a holder
of Series B Preferred shall have the right to require that the Company redeem
all or a portion of the Series B Preferred held by such holder at a price per
Series B Preferred share equal to the greater of (A) the Series B Liquidation
Preference and (B) the product of (1) the number of Conversion Shares into which
such share of Series B Preferred is convertible at the then applicable
Conversion Price and (2) the closing price of the Common Stock on the principal
securities exchange, quotation system or securities market on which the Common
Stock is then traded on the trading day immediately preceding such Triggering
Event (the "Optional Redemption Price").

                         (ii) At any time on or after March 31, 2013 (the "Put
Date"), the holders of not less than a majority of the voting power of the
Series B Preferred then outstanding shall have the right to require that the
Corporation redeem all of the then outstanding Series B Preferred at a price per
share of Series B Preferred equal to the Series B Liquidation Preference (the
"Put Redemption Price").

                    (c) Mechanics of Redemption at Option of Holder.

                         (i) Within two (2) business days after the occurrence
of a Triggering Event, the Corporation shall deliver written notice thereof via
facsimile and overnight courier ("Notice of Triggering Event") to each holder of
Series B Preferred.

                         (ii) At any time after the earlier of such holder's
receipt of a Notice of Triggering Event and such holder becoming aware of a
Triggering Event, any holder of Series B Preferred then outstanding may require
the Corporation to redeem an amount up to all of such holder's Series B
Preferred by delivering written notice thereof via facsimile and overnight
courier ("Notice of Optional Redemption") to the Corporation, which Notice of
Optional Redemption shall indicate the number of shares of Series B Preferred
that such holder is electing to have redeemed.

                         (iii) At any time after the Put Date, the holders of
not less than a majority of the voting power of the Series B Preferred then
outstanding shall have the right to require that the Corporation redeem all of
the then outstanding Series B Preferred by


                                        6



delivering written notice thereof via facsimile and overnight courier (a "Put
Notice") to the Corporation.

                    (d) Payment of Optional Redemption Price. Upon the
Corporation's receipt of a Notice of Optional Redemption from any holder(s) of
Series B Preferred, the Corporation shall within one (1) business day of such
receipt notify each holder of Series B Preferred by facsimile of the
Corporation's receipt of such notice(s). The Corporation shall pay the Optional
Redemption Price to each holder of Series B Preferred that delivers a Notice of
Optional Redemption to the Corporation on the fifth (5th) business day after the
Corporation's receipt of the Notice of Optional Redemption (the "Optional
Redemption Date"); provided that the holder of Series B Preferred submitting a
Notice of Optional Redemption shall have surrendered the certificates of the
shares of Series B Preferred to be redeemed, duly endorsed, at the principal
executive offices of the Corporation or of any transfer agent for the Series B
Preferred. From and after the Optional Redemption Date, unless there shall have
been a default in the payment of the Optional Redemption Price, all rights of
the holders of shares of Series B Preferred submitted for redemption on the
Optional Redemption Date (except the right to receive the Optional Redemption
Price without interest upon surrender of the certificates of the shares of
Series B Preferred to be redeemed) shall cease with respect to such shares, and
such shares thereafter shall not be transferred on the books of the Corporation
or be deemed to be outstanding for any purpose whatsoever. If the Corporation is
unable to redeem all of the Series B Preferred submitted for redemption, the
Corporation shall redeem a pro rata amount from each holder based on the number
of Series B Preferred shares submitted for redemption by such holder relative to
the total number of Series B Preferred shares submitted for redemption by all
holders. The shares of Series B Preferred not so redeemed shall remain
outstanding and entitled to all the rights and preferences contained in this
Certificate of Designation. At any time when additional funds of the Corporation
are available for the redemption of shares of Series B Preferred, such funds
will immediately be used to redeem the balance of the shares of Series B
Preferred that the Corporation has become obligated to redeem on an Optional
Redemption Date, but that the Corporation has not redeemed.

                    (e) Payment of Put Redemption Price. Upon the Corporation's
receipt of a Put Notice from the holders of Series B Preferred, the Corporation
shall within one (1) business day of such receipt notify each holder of Series B
Preferred by facsimile of the Corporation's receipt of such notice. The
Corporation shall pay the Put Redemption Price to each holder of Series B
Preferred on the fifth (5th) business day after the Corporation's receipt of the
Put Notice (the "Put Redemption Date"); provided that each such holder of Series
B Preferred shall have surrendered the certificates of the shares of Series B
Preferred to be redeemed, duly endorsed, at the principal executive offices of
the Corporation or of any transfer agent for the Series B Preferred. Any shares
of Series B Preferred not submitted for redemption following the delivery of a
Put Notice to the Corporation shall remain outstanding and entitled to all the
rights and preferences contained in this Certificate of Designation; provided,
however, that the certificates of any such shares of Series B Preferred may at
any time (but in no event more frequently than once per calendar quarter by any
individual holder of Series B Preferred) after the Put Redemption Date be
submitted to the Corporation for redemption at the Put Redemption Price. From
and after the Put Redemption Date, unless there shall have been a default in the
payment of the Put Redemption Price, all rights of the holders of shares of
Series B Preferred submitted for redemption on the Put Redemption Date (except
the right to receive


                                        7



the Put Redemption Price without interest upon surrender of the certificates of
the shares of Series B Preferred to be redeemed) shall cease with respect to
such shares, and such shares thereafter shall not be transferred on the books of
the Corporation or be deemed to be outstanding for any purpose whatsoever. If
the Corporation is unable to redeem all of the Series B Preferred submitted for
redemption on the Put Redemption Date, the Corporation shall redeem a pro rata
amount from each holder based on the number of Series B Preferred submitted for
redemption by such holder relative to the total number of Series B Preferred
shares submitted for redemption by all holders. The shares of Series B Preferred
not so redeemed shall remain outstanding and entitled to all the rights and
preferences contained in this Certificate of Designation. At any time when
additional funds of the Corporation are available for the redemption of shares
of Series B Preferred, such funds will immediately be used to redeem the balance
of the shares of Series B Preferred that the Corporation has become obligated to
redeem on the Put Redemption Date, but that the Corporation has not redeemed.

                    (f) No shares of Series B Preferred shall be redeemed in
whole or in part under this Section 3 at any time that such redemption is
prohibited by the General Corporation Law of the State of Delaware.

               4. Conversion. The holders of Series B Preferred shall have
conversion rights as follows (the "Conversion Rights"):


                    (a) Right to Convert. Each share of Series B Preferred shall
be convertible, at the option of the holder thereof, at any time after the date
of original issuance of such share, at the office of the Corporation or any
transfer agent for the Series B Preferred, into such number of fully paid and
nonassessable shares of Common Stock ("Conversion Shares") as is determined by
dividing the Original Issue Price, plus any accrued but unpaid dividends, for
each such share of Series B Preferred by the Conversion Price applicable to such
share, determined as hereafter provided, in effect on the date the certificate
is surrendered for conversion. The initial conversion price per share for shares
of Series B Preferred shall be equal to One Dollar ($1.00) (the "Conversion
Price"); provided, however, that the Conversion Price for the Series B Preferred
shall be subject to adjustment as set forth in Section 4(c).

                    (b) Mechanics of Conversion. Before any holder of Series B
Preferred shall be entitled to convert such holder's Series B Preferred into
shares of Common Stock, such holder shall surrender the certificate(s) thereof,
duly endorsed, at the principal executive offices of the Corporation or of any
transfer agent for the Series B Preferred, and shall give written notice to the
Corporation at such office of the election to convert the same and stating
therein the name or names in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. The Corporation shall, as
soon as practicable thereafter, issue and deliver to such holder of Series B
Preferred a certificate(s) for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of receipt
by the Company of the shares of Series B Preferred to be converted, and the
person(s) or entit(ies) entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder(s)
of such shares of Common Stock on such date.


                                        8



                    (c) Conversion Price Adjustments of Series B Preferred. The
Conversion Price of the Series B Preferred shall be subject to adjustment from
time to time as follows:

                         (i) Adjustment of Conversion Price. If the Corporation
shall issue, at any time after the Purchase Date, any Additional Stock, as
defined below, without consideration or for a consideration per share less than
the closing price of the Common Stock on the principal securities exchange,
quotation system or securities market on which the Common Stock is then traded
on the trading day immediately preceding the date of issuance of such Additional
Stock (the "Market Price"), then the Conversion Price for such Series B
Preferred in effect immediately after each such issuance of Additional Stock
shall be adjusted to a price determined by multiplying such Conversion Price
then in effect by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding and deemed outstanding pursuant to Section
4(c)(iv) (not including shares excluded from the definition of Additional Stock
pursuant to Section 4(c)(ii)(B)) immediately prior to such issuance of
Additional Stock plus the number of shares of Common Stock that the aggregate
consideration received by the Corporation for such issuance would purchase at
such existing Market Price and the denominator of which shall be the number of
shares of Common Stock outstanding and deemed outstanding pursuant to Section
4(c)(iv) (not including shares excluded from the definition of Additional Stock
pursuant to Section 4(c)(ii)(B)) immediately prior to such issuance of
Additional Stock plus the number of shares of such Additional Stock.

                         (ii) Definition of "Additional Stock". "Additional
Stock" shall mean any shares of Common Stock issued (or deemed to have been
issued pursuant to Section 4(c)(iv)) by the Corporation after the Purchase Date,
other than:

                              (A) Common Stock issued pursuant to a transaction
described in Section 4(d) hereof;

                              (B) shares of Common Stock issued or deemed issued
to employees, officers, consultants or directors of the Corporation pursuant to
a stock option plan or restricted stock purchase plan approved by the
Compensation Committee of the Board, including the approval of the members of
the Compensation Committee elected or otherwise designated by holders of Series
B Preferred.

                              (C) shares of Common Stock issued pursuant to the
exercise, conversion or exchange of convertible or exercisable securities
outstanding on and as of the Purchase Date;

                              (D) shares of Common Stock deemed to have been
issued pursuant to Section 4(c)(iv) or issuable upon the issuance or exercise of
warrants to purchase shares of Common Stock issued by the Corporation and
purchased by holders of Series B Preferred;

                              (E) shares of Common Stock deemed to have been
issued pursuant to Section 4(c)(iv) or issuable upon the issuance or conversion
of the Series B Preferred; and


                                        9



                              (F) shares of Common Stock issued or issuable in
connection with any transaction where such securities so issued or issuable are
excepted from the definition "Additional Stock" by the affirmative vote of the
holders of a majority of the voting power of the outstanding Series B Preferred.

                         (iii) Determination of Consideration. In the case of
the issuance of Additional Stock for cash, the consideration shall be deemed to
be the amount of cash paid therefor before deducting any reasonable discounts,
commissions or other expenses allowed, paid or incurred by the Corporation for
any underwriting or otherwise in connection with the issuance and sale thereof.
In the case of the issuance of the Additional Stock for a consideration in whole
or in part other than cash, the consideration other than cash shall be deemed to
be the fair value thereof as determined by the Board in good faith.

                         (iv) Deemed Issuances of Common Stock. In the case of
the issuance (whether before, on or after the Purchase Date) of options to
purchase or rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock or options to purchase or
rights to subscribe for such convertible or exchangeable securities, the
following provisions shall apply for all purposes of this Section 4(c):

                              (A) The aggregate maximum number of shares of
Common Stock deliverable upon exercise (to the extent then exercisable, but
without taking into account potential antidilution adjustments) of such options
to purchase or rights to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in Section
4(c)(iii)), if any, received by the Corporation upon the issuance of such
options or rights plus the minimum exercise price provided in such options or
rights (without taking into account potential antidilution adjustments) for the
Common Stock covered thereby.

                              (B) The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange (to the extent then
convertible or exchangeable, but without taking into account potential
antidilution adjustments) for any such convertible or exchangeable securities or
upon the exercise of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such securities were
issued or such options or rights were issued and for a consideration equal to
the consideration, if any, received by the Corporation for any such securities
and related options or rights, plus the minimum additional consideration, if
any, to be received by the Corporation (without taking into account potential
antidilution adjustments) upon the conversion or exchange of such securities or
the exercise of any related options or rights (the consideration in each case to
be determined in the manner provided in Section 4(c)(iii)).

                              (C) In the event of any change in the number of
shares of Common Stock deliverable or in the consideration payable to the
Corporation upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof, the
Conversion Price of the Series B Preferred, to the extent in any way


                                       10



affected by or computed using such options, rights or securities, shall be
recomputed to reflect such change, but no further adjustment shall be made for
the actual issuance of Common Stock or any payment of such consideration upon
the exercise of any such options or rights or the conversion or exchange of such
securities.

                              (D) Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of the Series B Preferred, to the extent in any
way affected by or computed using such options, rights or securities or options
or rights related to such securities, shall be recomputed to reflect the
issuance of only the number of shares of Common Stock (and convertible or
exchangeable securities which remain in effect) actually issued upon the
exercise of such options or rights, upon the conversion or exchange of such
securities or upon the exercise of the options or rights related to such
securities.

                              (E) The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to Sections
4(c)(iv)(A) and 4(c)(iv)(B) shall be appropriately adjusted to reflect any
change, termination or expiration of the type described in either Section
4(c)(iv)(C) or 4(c)(iv)(D).

                         (v) No Fractional Adjustments; No Increased Conversion
Price. No adjustment of the Conversion Price for the Series B Preferred shall be
made in an amount less than one cent per share of Series B Preferred, provided
that any adjustments that are not required to be made by reason of this sentence
shall be carried forward and shall be either taken into account in any
subsequent adjustment made prior to three (3) years from the date of the event
giving rise to the adjustment being carried forward, or shall be made at the end
of three (3) years from the date of the event giving rise to the adjustment
being carried forward. Except to the limited extent provided for in Sections
4(c)(iv)(C) and or 4(c)(iv)(D), no adjustment of such Conversion Price pursuant
to this Section 4(c) shall have the effect of increasing the Conversion Price
above the Conversion Price in effect immediately prior to such adjustment.

                    (d) Stock Splits And Dividends. In the event the Corporation
should at any time or from time to time after the Purchase Date fix a record
date for, or shall otherwise cause, the effectuation of a split or subdivision
of the outstanding shares of Common Stock or the determination of holders of
Common Stock entitled to receive a dividend or other distribution payable in
additional shares of Common Stock or other securities or rights convertible
into, or entitling the holder thereof to receive directly or indirectly,
additional shares of Common Stock (hereinafter referred to as "Common Stock
Equivalents") without payment of any consideration by such holder for the
additional shares of Common Stock or the Common Stock Equivalents (including the
additional shares of Common Stock issuable upon conversion or exercise thereof),
then, as of such record date (or the date of such dividend, distribution, split
or subdivision if no record date is fixed), the Conversion Price of the Series B
Preferred shall be appropriately decreased so that the number of shares of
Common Stock issuable on conversion of each share of such Series B Preferred
shall be increased in proportion to such increase of the aggregate of shares of
Common Stock outstanding and those issuable with respect to such Common Stock
Equivalents with the number of shares issuable with respect to Common Stock
Equivalents determined from time to time.


                                       11



                    (e) Reverse Stock Splits. If the number of shares of Common
Stock outstanding at any time after the Purchase Date is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Price for the Series B Preferred
shall be appropriately increased so that the number of shares of Common Stock
issuable on conversion of each share of such series shall be decreased in
proportion to such decrease in outstanding shares.

                    (f) Other Distributions. In the event the Corporation shall
declare a distribution payable in securities of other entities, evidences of
indebtedness issued by the Corporation or other persons or entities, assets
(excluding cash dividends) or options or rights not referred to in Section 4(d),
then, in each such case for the purpose of this Section 4(f), the holders of
Series B Preferred shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Corporation into which their shares of Series B Preferred are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Corporation entitled to receive such distribution, and such
distributions (to the extent such distributions have previously not been paid to
the holders of the shares of Series B Preferred) shall be deemed to be accrued
dividends for shares of the Series B Preferred.

                    (g) Recapitalizations And Mergers. If at any time or from
time to time there shall be a recapitalization of the Corporation or a merger or
consolidation of the Corporation with or into another entity or sale of the
Corporation's assets or stock (other than a subdivision or combination provided
for elsewhere in Section 2 or this Section 4) provision shall be made so that
the holders of Series B Preferred shall thereafter be entitled to receive upon
conversion of such Series B Preferred the number of shares of stock or other
securities or property of the Corporation or otherwise, to which a holder of
Common Stock deliverable upon conversion would have been entitled on such
recapitalization, merger, consolidation or sale transaction. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 4 with respect to the rights of the holders of such Series B
Preferred after the recapitalization, merger, consolidation or sale transaction
to the end that the provisions of this Section 4 (including adjustment of the
Conversion Price then in effect and the number of shares purchasable upon
conversion of such Series B Preferred) shall be applicable after that event and
be as nearly equivalent as practicable.

                    (h) No Impairment. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such actions as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of Series B Preferred against impairment.

                    (i) No Fractional Shares and Certificate as to Adjustments.

                         (i) No fractional shares shall be issued upon the
conversion of any share or shares of Series B Preferred, and any fractional
shares shall be paid in cash in


                                       12



accordance with Section 155 of the General Corporation Law of the State of
Delaware. The number of shares issuable upon such conversion shall be determined
on the basis of the total number of shares of Series B Preferred the holder is
at the time converting into Common Stock and the number of shares of Common
Stock issuable upon such aggregate conversion.

                         (ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Price of the Series B Preferred pursuant to this
Section 4, the Corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of Series B Preferred a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series B Preferred, furnish or cause to be
furnished to such holder a like certificate setting forth (A) such adjustment
and readjustment, (B) the Conversion Price for the Series B Preferred at the
time in effect, and (C) the number of shares of Common Stock and the amount, if
any, of other property which at the time would be received upon the conversion
of a share of the Series B Preferred.

                    (j) Notices of Record Date and Extraordinary Transactions.
In the event of any taking by the Corporation of a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a cash dividend) or other
distribution, any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to receive
any other right, or in the event of a proposed liquidation, recapitalization,
merger or sale involving the Corporation, the Corporation shall mail to each
holder of Series B Preferred, at least twenty (20) days prior to the record date
or date of the proposed transaction, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right, or
the nature of the proposed transaction and the proposed date of consummation of
such transaction.

                    (k) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series B Preferred, such number of its shares of
Common Stock as shall be equal to 120% of the maximum number of shares of Common
Stock necessary from time to time to effect the conversion of all outstanding
shares of Series B Preferred; and if at any time the number of authorized but
unissued shares of Common Stock shall be below such an amount, in addition to
such other remedies as shall be available to the holder of Series B Preferred,
the Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares, including, without limitation, engaging in
reasonable best efforts to obtain the requisite stockholder approval of any
necessary amendment to the Certificate of Incorporation. Notwithstanding the
foregoing, the Corporation shall not be obligated to issue any shares of Common
Stock upon conversion of shares of Series B Preferred if the issuance of such
shares of Common Stock would cause the Corporation to exceed that number of
shares of Common Stock that the Corporation may issue upon conversion of Series
B Preferred without breaching the Company's obligations under the rules or
regulations of the principal securities exchange, quotation system or market on
which the Common Stock is traded at the time, unless the Corporation (i) obtains
the approval of its stockholders as required


                                       13



by the rules or regulations of such principal exchange, quotation system or
market or (ii) obtains an opinion of counsel, reasonably satisfactory to the
holders of Series B Preferred holding a majority of the voting power of the
outstanding Series B Preferred, that such approval is not required.

                    (l) Limitation on Number of Conversion Shares. The
Corporation shall not be obligated to issue any shares of Common Stock upon
conversion of shares of Series B Preferred after the aggregate number of shares
of Common Stock previously issued by the Corporation upon (i) the conversion of
shares of Series B Preferred no matter the sub series and (ii) the exercise of
any warrants to purchase shares of Common Stock issued by the Corporation and
purchased by holders of Series B Preferred has exceeded the Nasdaq Conversion
Limitation (as defined below), except that such limitation shall not apply from
and after such time as the Corporation obtains Shareholder Approval (as defined
below) for issuances of Common Stock upon conversion of shares of Series B
Preferred in excess of such amount. In the event the Corporation receives on the
same date a notice requesting conversion of shares of Series B Preferred from
more than one holder of Series B Preferred and the Corporation can convert some,
but not all, of such shares of Series B Preferred, the Corporation shall convert
from each holder electing to have shares of Series B Preferred converted at such
time a pro rata amount of such holder's Series B Preferred shares submitted for
conversion based on the number of shares of Series B Preferred submitted for
conversion on such date by such holder relative to the number of all shares of
Series B Preferred submitted for conversion on such date. The Nasdaq Conversion
Limitation shall mean 6,425,476 shares of Common Stock or such other amount as
Nasdaq shall determine is the applicable limitation under Marketplace Rule
4350(i)(1)(D). Shareholder Approval shall mean the approval of the Corporation's
stockholders as may be required by the applicable rules and regulations of
Nasdaq, including Marketplace Rule 4350(i)(1)(D).

               5. Voting Rights.

                    (a) General. The holder of a share of Series B Preferred of
a given sub series shall have the right to one (1) vote for each share of Common
Stock into which such share of Series B Preferred would be converted (i)
assuming that the Conversion Price for such share of Series B Preferred is equal
to the closing price of the Common Stock on the Nasdaq Capital Market (or other
principal securities exchange or automated quotation system on which the Common
Stock is then traded) on the earlier of (x) the date that an agreement is
entered into between the Corporation and the holder of such share of Series B
Preferred for the purchase of such share of Series B Preferred and (y) the date
that such share of Series B Preferred is issued and (ii) taking into account any
limitation under Section 4(l) on the number of shares of Common Stock into which
such share of Series B Preferred could then be converted. With respect to such
vote and except as otherwise expressly provided herein or as required by
applicable law, such holder shall have full voting rights and powers equal to
the voting rights and powers of the holders of Common Stock, and shall be
entitled, notwithstanding any provision hereof, to notice of any stockholders'
meeting in accordance with the Bylaws of the Corporation, and shall be entitled
to vote, together with holders of Common Stock as a single class, with respect
to any matter upon which holders of Common Stock have the right to vote.
Fractional votes shall not, however, be permitted and any fractional voting
rights available on


                                       15



an as-converted basis shall be rounded to the nearest whole number (with
one-half being rounded upward).

                    (b) Election of Directors. So long as 2,500 shares of Series
B Preferred remain outstanding, the holders of the Series B Preferred shall be
entitled, voting separately as a single class, to elect one (1) member of the
Board at or pursuant to each meeting or consent of the Corporation's
stockholders for the election of directors, to remove from office such director,
to fill any vacancy caused by the resignation or death of such director and to
fill any vacancy (by unanimous consent if done in writing, or by majority vote
otherwise) caused by the removal of such director. The holders of shares of
Common Stock and Series B Preferred shall be entitled, voting together in
accordance with Section 5(a) hereof, to elect the remaining directors of the
Corporation at or pursuant to each meeting or consent of the Corporation's
stockholders for the election of directors, to remove from office such
directors, to fill any vacancy caused by the resignation or death of such
directors and to fill any vacancy (by unanimous consent if done in writing, or
by majority vote otherwise) caused by the removal of any such directors.

               6. Protective Provisions.

          So long as any shares of Series B Preferred are outstanding, the
Corporation shall not, and shall not permit any of its subsidiaries to, without
first obtaining the approval (by vote or written consent, as provided by law) of
the holders of at least a two-thirds (2/3) of the then outstanding shares of
Series B Preferred, voting separately as a single class:

                    (a) alter or change, whether by merger, consolidation or
otherwise, the rights, preferences or privileges of the shares of Series B
Preferred so as to affect adversely such shares of Series B Preferred;

                    (b) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Series B Preferred;

                    (c) alter or change the Certificate of Incorporation, as
amended to date, or the Bylaws of the Corporation or the certificate of
incorporation or bylaws (or equivalent organizational documents) of any
subsidiary of the Corporation, so as to affect the rights, preferences or
privileges of the Series B Preferred;

                    (d) authorize or issue, or obligate itself to issue, whether
by merger, consolidation or otherwise, any equity security, including any other
security convertible into or exercisable for any equity security, having a
preference over, or being on a parity with, the Series B Preferred with respect
to dividends, liquidation, winding up, dissolution or redemption;

                    (e) incur any indebtedness in excess of $500,000
individually or $2,000,000 in the aggregate;

                    (f) effect any reclassification or recapitalization of the
outstanding capital stock of the Corporation;


                                       15



                    (g) effect any "Change of Control" transaction described in
Section 2(b);

                    (h) effect any redemption, repurchase, acquisition or
retirement for value of any capital stock or options of the Corporation, except
for any such redemption or repurchase approved by the Board, including the
approval of Board members elected or otherwise designated by holders of Series B
Preferred;

                    (i) declare or pay any dividend or make any other
distribution on the capital stock of the Corporation;

                    (j) enter into a new transaction with an officer or director
of the Corporation, except for any such transaction approved by the Compensation
Committee of the Board, including the approval of the members of the
Compensation Committee elected or otherwise designated by holders of Series B
Preferred;

                    (k) increase the authorized number of Preferred Stock or
issue any additional shares of Preferred Stock;

                    (l) increase or decrease the authorized number of directors
of the Corporation; or

                    (m) enter into any contract, agreement or understanding
obligating the Corporation or any of its subsidiaries to do any of the
foregoing.

               7. Status of Redeemed, Converted or Otherwise Acquired Stock. In
the event any shares of Series B Preferred shall be redeemed, converted or
otherwise acquired by the Corporation, the shares so redeemed, converted or
otherwise acquired shall not be re-issuable by the Corporation as Series B
Preferred and shall be retired and cancelled promptly after the redemption,
conversion or acquisition thereof. The Certificate of Incorporation shall be
appropriately amended to effect the corresponding reduction in the number of
authorized shares of Series B Preferred.

               8. Notices. Any notice required by the provisions of this
Certificate of Designation to be given to the holders of shares of Series B
Preferred shall be deemed given if deposited in the United States mail, postage
prepaid, and addressed to each holder of record at its, his or her address
appearing on the books of the Corporation.


                                       16



          IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be executed by its duly authorized officer this 22nd day of June
, 2006.

                                        AKSYS, LTD.


                                        By: /s/ Sharon Koenig
                                            ------------------------------------
                                            Sharon Koenig, Secretary


                                       17

EX-10.1

                                                                    Exhibit 10.1

                                 LOAN AGREEMENT

          THIS LOAN AGREEMENT (this "Agreement"), dated as of June 23, 2006, is
made between AKSYS, LTD., a Delaware corporation (the "Company"), and DURUS LIFE
SCIENCES MASTER FUND LTD., a Cayman Islands Exempted Company ("Durus"), and any
other lender that may be named on the signature pages of this Agreement from
time to time by assumption of the obligation of Durus to make any portion of the
loans contemplated by this Agreement in whole or in part or by assignment to
such lender of any of the loans previously made under this Agreement by Durus or
another lender (together with Durus, each a "Lender" and, collectively, the
"Lenders").

          The Company has requested the Lenders to make a term loan to the
Company in an aggregate principal amount of $15,778,000 (or such greater amount
as includes certain capitalized interest in accordance with the terms of this
Agreement) on the closing date hereof and additional term loans thereafter in an
aggregate principal amount of up to $5,000,000. The Lenders are severally but
not jointly willing to make such loans 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:

          "$9.3 Million Closing Date Loan" has the meaning set forth in Section
2.02(a)(ii).

          "Additional Commitment" means, at any point in time, an aggregate loan
commitment amount of $5,000,000 MINUS (i) the aggregate initial principal amount
of all Additional Loans previously made hereunder, and MINUS (ii) any reductions
in the Additional Commitment amount pursuant to Section 2.05(b). Where the
context so requires, Additional Commitment shall mean the obligation of the
Additional Loan Lender to make its Additional Loan up to such amount on the
terms and conditions set forth in this Agreement.

          "Additional Commitment Availability Expiry Date" has the meaning set
forth in Section 2.01(b).

          "Additional Loan" has the meaning set forth in Section 2.01(b).

          "Additional Loan Borrowing Date" has the meaning set forth in Section
2.02(b).

          "Additional Loan Lender" means Durus, or in the case of the assignment
by Durus of its obligation to make any portion of the Additional Loan under this
Agreement, such other lender that may be named on the signature pages of this
Agreement from time to time by assumption of the obligation of Durus to make any
portion of the Additional Loan contemplated by this Agreement.


                                       1



          "Additional Loan Maturity Date" means, unless the Additional Loans are
sooner paid in accordance with the terms of this Agreement or the Notes,
December 31, 2007.

          "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."

          "Bridge Loan" means the loan made by Durus to the Company pursuant to
the Bridge Loan Agreement and the Note entered into and as defined therein.

          "Bridge Loan Agreement" means the Bridge Loan Agreement dated as of
March 31, 2006 between the Company and Durus.

          "Budget" means the budget of the Company approved by the Board of
Directors of the Company and furnished to and approved by the Majority Lenders,
which Budget for fiscal year 2006 is attached as Exhibit J to the Securities
Purchase Agreement, and any budget supplementing and superseding such budget in
accordance with Section 5.01(a)(iii), and any modifications thereto, in each
case, as approved by the Board of Directors of the Company and the Majority
Lenders.

          "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.

          "Cash Closing Date Loan" has the meaning set forth in Section
2.02(a)(iii).

          "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 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


                                       2



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.

          "Closing Date Commitment" means, as to any Lender, the amount set
forth opposite its name on Schedule 1 under the heading "Closing Date
Commitment," or, where the context so requires, the obligation of such Lender to
make its Loan up to such amount on the terms and conditions set forth in this
Agreement.

          "Closing Date Loan" has the meaning set forth in Section 2.01(a) and
shall be comprised of the Five Million Closing Date Loan, the $9.3 Million
Closing Date Loan and the Cash Closing Date Loan.

          "Closing Date Loan Maturity Date" means, unless the Closing Date Loan
is sooner paid in accordance with the terms of this Agreement or the Notes,
December 31, 2007.

          "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 Lenders or any Collateral Agent
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
Majority Lenders.

          "Collateral Agent" means any collateral agent appointed by the
Majority Lenders.

          "Collateral Agency Agreement" means any collateral agency agreement or
other interinvestor agreement among the Lenders and any Collateral Agent, in
form and substance satisfactory to them, providing for the duties and
responsibilities of a collateral agent in connection with the Collateral
Documents.

          "Collateral Documents" means the Collateral Agency Agreement, 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 Lenders or any Collateral Agent securing payment and performance of
the Obligations and all filings, documents and agreements made or delivered
pursuant thereto.

          "Commitment" means the Closing Date Commitment and the Additional
Commitment, as the case may be.


                                       3



          "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.

          "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


                                       4



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 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.

          "Five Million Closing Date Loan" has the meaning set forth in Section
2.02(a).

          "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 Lenders by such
Guarantor under or in connection with its Guaranty.


                                       5



          "Guaranty" means the Guaranty of a Guarantor, in form and substance
satisfactory to the Majority Lenders.

          "Indebtedness" of any Person means, without duplication (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, in
connection with GAAP for the periods covered thereby, is classified as a capital
lease, (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, 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


                                       6



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 Notes, the Collateral
Documents, any Guaranty, any other Guarantor Documents and all other
certificates, documents, agreements and instruments delivered to the Lenders
under or in connection with this Agreement.

          "Loan" means any Closing Date Loan and the Additional Loans.

          "Majority Lenders" means at any time Lenders holding at least 51% of
the then aggregate unpaid principal amount of the Loans plus the unused portion
of the Additional Commitment, or, if no such principal amount is then
outstanding, Lenders having at least 51% of the aggregate Commitments.

          "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
Transaction Documents (as defined in the 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 Transaction Documents, or (ii)
materially adversely affects the legality, validity, binding effect or
enforceability of any of the Loan Documents or the other Transaction Documents,
the rights and remedies of the Lenders or any Collateral Agent thereunder, or
the validity, perfection or priority of any Lien granted to the Lenders or any
Collateral Agent under any of the Collateral Documents.

          "Material Contract" means, (i) each contract or agreement listed in
Schedule 2 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 the Additional Loan Maturity Date and the
Closing Date Loan Maturity Date, as the case may be.

          "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


                                       7



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 promissory note made by the Company in favor of a
Lender evidencing Loans made by such Lender, substantially in the form of
Exhibit A.

          "Obligations" means the indebtedness, liabilities and other
obligations of the Company and any Guarantor to the Lenders or any Collateral
Agent under or in connection with this Agreement, the Notes and the other Loan
Documents, including the Loans, all interest accrued thereon, all fees due under
this Agreement and all other amounts payable by the Company to any Lender or any
Collateral Agent 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 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 Lenders or any
Collateral Agent; (ii) the existing Liens listed in Schedule 2; (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 any of the Lender's Liens 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 any
of the Lender's Liens 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


                                       8



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 Lenders, in form and substance satisfactory to the
Majority Lenders.

          "Pro Rata Share" means, as to any Lender at any time, the percentage
equivalent (expressed as a decimal) at such time of the aggregate principal
amount of such Lender's Loans divided by the aggregate principal amount of the
Loans then held by all Lenders (or, if no such principal amount is then
outstanding, such Lender's Commitment divided by the combined Commitment of all
Lender's). The initial Pro Rata Share of each Lender is set forth opposite such
Lender's name in Schedule 1 under the heading "Pro Rata Share."

          "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.

          "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 Lenders, in form and substance satisfactory to the
Majority Lenders.

          "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


                                       9



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 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 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 Lenders, in form and substance
satisfactory to the Majority Lenders and on terms satisfactory to the Majority
Lenders.

          "Subordinated Note Purchase Agreement" means that certain Note
Purchase Agreement, dated as of February 23, 2004, by and among the Company,
Durus Life Sciences Master Fund Ltd. 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.

          "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


                                       10



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 LOANS

          SECTION 2.01 The Loans.

          (a) Closing Date Loans. Each Lender severally agrees, on the terms and
conditions hereinafter set forth, to make a term loan (each a "Closing Date
Loan" and collectively, the "Closing Date Loans") to the Company on the Closing
Date, in the principal amount of its Closing Date Commitment.

          (b) Additional Loans. The Additional Loan Lender agrees, on the terms
and conditions hereinafter set forth, to make additional term loans (each an
"Additional Loan" and collectively, the "Additional Loans") to the Company from
time to time on any Business Day during the period commencing the day after the
Closing Date until December 31, 2006 (the "Additional Commitment Availability
Expiry Date"), in an aggregate principal amount up to but not exceeding its
Additional Commitment.

          (c) No Reborrowing. Any amount of the Loans repaid may not be
reborrowed.

          SECTION 2.02 Borrowing Procedure for Loans.

          (a) Closing Date Loans. Upon fulfillment of the applicable conditions
set forth in Article III, Durus shall make the Closing Date Loan available to
the Company as follows: (i) $5,080,548 shall be applied to roll over (and amend
and restate) the Bridge Loan and all accrued and unpaid interest thereon as of
the Closing Date, without novation, into a Closing Date Loan made by Durus (the
"Five Million Closing Date Loan"), (ii) $9,325,000 of the outstanding principal
amount of the notes held by Durus pursuant to the Subordinated Note Purchase
Agreement shall be surrendered to the Company and cancelled in exchange for
$9,325,000 principal amount of Closing Date Loan (the "$9.3 Million Closing Date
Loan"), and (iii) $1,453,000 in immediately available funds, or other funds as
shall separately be agreed upon by Durus (the "Cash Closing Date Loan"), which
Cash Closing Date Loan shall be made available to the Company by Durus, on
behalf of the Company, (x) making payment by wire transfer of immediately
available funds directly to such third parties on account of fees and expenses
payable by the Company pursuant to Section 3.02(d) of this Agreement and
Sections 6.1.12.3 and 6.2.8.3 of the Securities Purchase Agreement, and (y)
making a disbursement to Durus in reimbursement of such fees and expenses
previously paid by Durus, and (z) in each case, as specified in, and in the
amounts and in accordance with the instructions set forth in, a funds flow
memorandum dated the date hereof.


                                       11



          (b) Additional Loans. Each Additional Loan shall be made upon written
notice from the Company to the applicable Additional Loan Lender obligated to
make such loan, which notice shall be received by the Additional Loan Lender not
later than 12:00 noon (New York time) at least five (5) Business Days prior to
the proposed borrowing date of such Additional Loan (each an "Additional Loan
Borrowing Date"). Such notice of borrowing shall be irrevocable and binding on
the Company and shall specify the proposed Additional Loan Borrowing Date (which
shall be no earlier than the third Business Day following receipt of such notice
by the Additional Loan Lender), the amount of the borrowing (which shall be at
least $500,000 or a greater amount in increments of $50,000), and payment
instructions with respect to the funds to be made available to the Company. Upon
fulfillment of the applicable conditions set forth in Article III, the
Additional Loan Lender shall make the Additional Loan available to the Company
in same day funds, or such other funds as shall separately be agreed upon by the
Company and the Additional Loan Lender, in accordance with the payment
instructions provided to the Lenders.

          SECTION 2.03 Notes. As additional evidence of the Indebtedness of the
Company to the Lenders resulting from the Loan made by such Lenders, the Company
shall execute and deliver to (i) each Lender pursuant to Article III, a Note,
dated the Closing Date, in the principal amount of the Closing Date Loan made by
such Lender on the Closing Date (or, in the case of the Bridge Loan rolled over
into a Closing Date Loan, made on the borrowing date thereof), and (ii) the
Additional Loan Lender on each Additional Loan Borrowing Date, pursuant to
Article III, a Note, dated such Additional Loan Borrowing Date, in the principal
amount of the Additional Loan made by the Additional Loan Lender on such
Additional Loan Borrowing Date. The Lenders shall record in their internal
records the dates and amounts of the Loan made by them, the amount of principal
and interest due and payable to the Lenders 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 Loans. 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 Notes to pay any amount
owing with respect to the Loans.

          SECTION 2.04 Interest.

          (a) Interest Rate; Interest Payment Dates. Subject to subsection (b)
below, the Company shall pay to each Lender interest on the unpaid principal
amount of the Loans made by such Lender (as such principal amount may be
increased as a result of the provisions of this Section) from the date of such
Loans until the maturity thereof, at a rate per annum equal at all times to 7%,
quarterly in arrears on the last Business Day in each quarter commencing on June
30, 2006, on the date of any prepayment of such Loan, and at maturity. Except as
otherwise provided herein, in lieu of payment in cash of any interest due and
payable on the Loans, 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 Loans. Notwithstanding the foregoing, upon written
notice to the Lenders 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 Loans with respect to any interest payment dates specified in
such notice.


                                       12



          (b) Default Rate of Interest. In the event that any amount of
principal of or interest on any 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 Lenders 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 Lenders interest, charges or fees at a rate in excess of the highest
rate permitted by applicable law.

          SECTION 2.05 Termination and Reduction of the Additional Commitment.

          (a) Termination of Additional Commitment. On the Additional Commitment
Availability Expiry Date any remaining Additional Commitment shall terminate in
full.

          (b) Mandatory Reduction of Additional Commitment. Upon the issuance
and sale of any debt or equity securities by the Company, or the incurrence of
Indebtedness for borrowed money by the Company on or before the Additional
Commitment Availability Expiry Date, the Additional Commitment shall
automatically be reduced by an amount equal to the Net Cash Proceeds therefrom;
provided, however that no such reduction shall required upon (i) any such
issuance, sale or incurrence pursuant to the transactions contemplated by this
Agreement and the Securities Purchase Agreement and the other documents entered
into in connection therewith, or (ii) 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 members of the Compensation Committee
elected or otherwise designated by Durus.

          SECTION 2.06 Repayment of the Loans. The Company shall repay to each
Lender the outstanding principal amount of the Loans made by such Lender in full
on the applicable Maturity Date.

          SECTION 2.07 Prepayments of the Loans.

          (a) Optional Prepayments. The Company may, upon written notice to each
Lender at least five (5) Business Days prior to the proposed prepayment date,
prepay the outstanding amount of the Loans 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


                                       13



notice shall be due and payable on the date specified therein, with accrued and
unpaid interest to such date on the amount prepaid. Partial prepayments of the
Loans shall be applied (y) FIRST, the outstanding principal amount of the
Additional Loans, and (z) SECOND, the outstanding principal amount of the other
Loans.

          (b) Mandatory Prepayments.

               (i) Subject to clause (iii), upon the sale, transfer or other
disposition of any assets (or group of related assets) by the Company or any
Subsidiary outside of the ordinary course of its business, the Company shall,
within one Business Day of the Company's or such Subsidiary's receipt of the
proceeds thereof, prepay the outstanding principal amount of the $9.3 Million
Closing Date Loan, together with accrued and unpaid interest to the date of such
prepayment on the amount so prepaid, in an amount equal to 100% of the Net Cash
Proceeds therefrom; provided, however, that any such prepayment shall not be
required if the Net Cash Proceeds from such sale, transfer or other disposition,
when added to the Net Cash Proceeds arising from all other such transactions in
the same fiscal year, is less than $100,000.

               (ii) Subject to clause (iii), within one Business Day of receipt
by the Company of the Net Cash Proceeds from a financing described in Section
2.05(b), (and, if received by the Company on or prior to the Additional
Commitment Availability Expiry Date, to the extent such Net Cash Proceeds exceed
the unused Additional Commitment) the Company shall prepay the outstanding
principal amount of the $9.3 Million Closing Date Loan together with accrued and
unpaid interest to the date of such prepayment on the amount so prepaid, in an
amount equal to 100% of the Net Cash Proceeds therefrom; provided, however that
no such prepayment shall required upon (A) any such issuance and sale of equity
securities pursuant to the transactions contemplated by the Securities Purchase
Agreement and the other documents entered into in connection therewith, or (ii)
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
members of the Compensation Committee elected or otherwise designated by Durus.

               (iii) Notwithstanding anything therein to the contrary, the
aggregate principal amount required to be prepaid under clauses (i) and (ii)
shall be limited to an amount equal to the aggregate outstanding principal
amount of the Additional Loans.

               (iv) The Company shall give the Lenders at least ten Business
Days prior written notice of any event that would cause the Loans to be prepaid
under this Section 2.07(b).

               (v) The provisions of this Section 2.07(b) and Section 2.05(b)
shall not be deemed to be implied consent to any such sale, transfer or other
disposition or such issuance, sale or incurrence otherwise prohibited by the
terms and conditions of this Agreement.

          SECTION 2.08 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


                                       14



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 each
Lender in Dollars and in same day funds, or such other funds as shall be
separately agreed upon by the Company and the Lenders, in accordance with the
Lenders' 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 Loans have 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 Majority
Lenders with respect thereto, be applied (i) FIRST, to any fees, costs, expenses
and other amounts (other than principal and interest) due the Lenders under the
Loan Documents; (ii) SECOND, to accrued and unpaid interest due the Lenders; and
(iii) THIRD, to principal due the Lenders.

          (d) Pro Rata Treatment. Except as otherwise provided in this
Agreement, each payment (including each prepayment) by the Company on account of
the principal of and interest on the Loans and on account of any fees shall be
made ratably in accordance with the respective Pro Rata Shares of the Lenders.

          SECTION 2.09 Right of Set-Off. Upon the occurrence and during the
continuance of any Event of Default each 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 such
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 validity of such set-off and application. The
rights of each Lender under this Section 2.09 are in addition to other rights
and remedies (including other rights of set-off) which such Lender may have.

          SECTION 2.10 Obligations Several. The obligations of the Lenders under
the Loan Documents are several and not joint. The failure of any Lender or any
Collateral Agent to carry out its obligations thereunder shall not relieve any
other Lender or any Collateral Agent of any obligation thereunder, nor shall any
Lender or any Collateral Agent be responsible for the obligations of, or any
action taken or omitted by, any other Person hereunder or thereunder.
Notwithstanding anything to the contrary in this Section 2.10, if Durus shall
have assigned all or any part of its Additional Loan Commitment and any such
assignee shall fail to make its portion


                                       15



of the Additional Loans as and when required hereunder, then Durus shall
promptly make such Additional Loans to the Company, which amount shall be
included in the calculation of Durus' Pro Rate Share; provided, however that
nothing herein shall be deemed a waiver by Durus of any claim, right or remedy
it may have against such defaulting Additional Lender with respect to such
Additional Lender's failure to make such Additional Loans. Nothing contained in
any Loan Document shall be deemed to cause any Lender or any Collateral Agent to
be considered a partner of or joint venturer with any other Lender or Lenders,
any Collateral Agent, any Guarantor or the Company.

          SECTION 2.11 Sharing. If any Lender shall obtain any payment (whether
voluntary, involuntary, through the exercise of any right of set-off, or
otherwise) on account of the Loans made by it (other than pursuant to a
provision hereof providing for non-pro rata treatment) in excess of its Pro Rata
Share of payments on account of the Loans obtained by all the Lenders, such
Lender shall forthwith purchase from the other Lenders, without recourse, such
participations in the Loans made by them as shall be necessary to cause such
purchasing Lender to share the excess payment ratably with each of them in
accordance with the respective Pro Rata Shares of the Lenders; provided,
however, that if all or any portion of such excess payment is thereafter
recovered by or on behalf of the Company from such purchasing Lender, the
purchase shall be rescinded and the purchase price restored to the extent of
such recovery, but without interest. The Company agrees that any Lender so
purchasing a participation from another Lender pursuant to this Section 2.11 may
exercise all its rights of payment (including the right of set-off) with respect
to such participation as fully as if such Lender were the direct creditor of the
Company in the amount of such participation. No documentation other than notices
and the like referred to in this Section 2.11 shall be required to implement the
terms of this Section 2.11.

                                   ARTICLE III
                              CONDITIONS PRECEDENT

          SECTION 3.01 Conditions Precedent to the Closing Date Loans. The
obligation of each Lender to make its Closing Date Loan on the date of the
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 Loans:

          (a) Loan Documents. The Lenders shall have received the following Loan
Documents: (i) this Agreement and the Notes required hereunder with respect to
the Closing Date Loans, executed by the Company; and (ii) the Collateral
Documents and the Guarantees of each Subsidiary of the Company as of the Closing
Date, executed by each of the respective parties thereto.

          (b) Documents and Actions Relating to Collateral. The Lenders shall
have received, in form and substance satisfactory to them, results of such Lien
searches as they 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 Majority Lenders has been taken,
which shall be necessary to create, in favor of any Collateral Agent or the
Lenders, a perfected first priority Lien on the Collateral.


                                       16



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

               (i) certificates of one or more nationally recognized insurance
brokers or other insurance specialists acceptable to the Majority Lenders, 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 or approvals of any
governmental agency or authority, and (B) as requested by the Majority Lenders,
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 Lenders),
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 certificate of the Secretary or other appropriate officer
of the Company, dated the Closing Date, certifying (A) copies of the articles or
certificate of 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 (B) 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

               (v) a certificate of the Secretary or other appropriate officer
of each Guarantor, dated the Closing Date, certifying (A) 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 (B) 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) Consummation under the Securities Purchase Agreement. Before or
concurrently with the making of the Closing Date Loans (i) the conditions
precedent to the Initial Closing under (and as defined in) the Securities
Purchase Agreement shall have been satisfied (or waived as provided therein) and
(ii) the transactions contemplated by the Initial Closing shall have been
consummated.

          (e) Budget. The Majority Lenders shall have approved the Budget.


                                       17



          SECTION 3.02 Conditions Precedent to the all Loans. The obligation of
each Lender to make its Loan shall also be subject to the satisfaction of each
of the following conditions precedent:

          (a) Notice and Certificate. In the case of a borrowing constituting an
Additional Loan (i) the proceeds of the Five Million Closing Date Loan shall
have been used in full to fund operations in accordance with the Budget, and
(ii) the Company has sought to raise additional funds through the issuance and
sale of debt or equity securities of the Company and the incurrence of
additional Indebtedness for borrowed money, during the period from the Closing
Date to the date of such certificate (it being understood that the amount of the
Additional Loan Commitment shall be reduced by the Net Cash Proceeds received
from any such alternative financing), and (iii) the Company shall have given its
notice of borrowing to the Additional Loan Lender as provided in Section 2.02,
accompanied by a certificate of a Responsible Officer of the Company certifying
that the foregoing conditions in clauses (i) and (ii) of this Section 3.02(a)
have been satisfied.

          (b) Representations and Warranties; No Default. On the date of the
borrowing of such Loans, 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 date of the Loans as
though made on and as of such date; and (ii) no Default shall have occurred and
be continuing or shall result from the making of the Loans. The giving of any
notice of borrowing and the acceptance by the Company of the proceeds of the
Loans shall be deemed a certification to the Lenders that on and as of the date
of the Loans such statements are true.

          (c) Additional Documents. The Lenders shall have received, in form and
substance satisfactory to the Majority Lenders such additional approvals,
documents and other information as the Majority Lenders may reasonably request.

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

          (e) Legal Opinion. The Lenders 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 Majority Lenders.

          (f) No Event of Default. There shall be in existence no event,
circumstance or conditions that with notice, lapse of time or other action
constitutes or would be reasonably expected to constitute a Material Adverse
Effect or any other Event of Default under this Agreement.


                                       18



                                   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.

                                    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) or the Lenders shall have any Commitments, the Company agrees that:

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

               (i) Unless filed with the SEC through the EDGAR System and
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 Majority Lenders 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;

               (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
Lenders 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; and

               (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
Majority Lenders, 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.

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


                                       19



               (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
Guarantor 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 Lenders, and (C)
any event that materially adversely affects the value of the Company's and its
Subsidiaries' intellectual property;

               (viii) promptly after the Company has knowledge or becomes aware
thereof, notice of any deviation from the Budget, other than DE MINIMIS
deviations therefrom;

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

               (x) 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 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


                                       20



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

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

Each notice pursuant to clauses (i) through (viii) of this subsection (b) shall
be accompanied by a written statement by 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) or the Lenders shall have any Commitments, the Company agrees that:

          (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) 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.

          (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


                                       21



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 any Lender designated by
the Majority Lenders, or any of such designated Lender's 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 such
designated Lender or any of its agents or representatives to conduct periodic
audits of the Collateral at such frequencies as the Majority Lenders 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' independent accountants to
discuss the business affairs, finances and accounts of such Person with the
agents and representatives of such designated 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, any other indenture, contract or
instrument to which it may be a party or under which it or its properties may be
bound.


                                       22



          (i) Maintenance of Properties, Etc. The Company will, and will cause
each of its Subsidiaries to, 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
Lenders 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 Majority Lenders' written consent.

          (l) Use of Proceeds. The Company will use the proceeds of the Loans
solely (i) in exchange for the surrender and cancellation of subordinated
Indebtedness issued pursuant to the Subordinated Note Purchase Agreement, (ii)
to roll over the Bridge Loan and accrued and unpaid interest thereon into a
Closing Date Loan, (iii) to pay the fees and expenses contemplated by Section
3.02(d) hereof and Sections 6.1.12.3 and 6.2.8.3 of the Securities Purchase
Agreement, and (iv) to fund business operations in accordance with the Budget.
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. The Company shall hold the cash proceeds from the Five Million
Closing Date Loan, in a segregated bank account apart from other cash assets of
the Company which account shall be subject to an account control agreement in
favor of the Lenders, and shall use such Five Million Closing Date Loan proceeds
only after it has expended all of the Company's other cash and cash equivalents
including any investments or other liquid assets; provided, however that the
Company shall not be required to so expend 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 approval of the Majority Lenders.

          (m) Additional Subsidiaries. (i) Promptly after the date the Company
incorporates, creates or acquires any additional Subsidiary, and, in any event,
within two


                                       23



Business Days following receipt by the Company from the Lenders of a security
agreement and a guaranty of the Obligations each in form and substance
satisfactory to the Majority Lenders, the Company shall cause such Subsidiary to
execute and deliver such guaranty and security agreement to the Lenders; (ii)
within five days after the date such Subsidiary becomes a Subsidiary, the
Company shall (A) deliver to Lenders 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 Lenders in each jurisdiction in which such filing is necessary to perfect
the security interest of the Lenders in the Collateral of such Subsidiary and in
which the Majority Lenders request that such filing be made; (iii) additionally,
the Company and such Subsidiary shall have executed and delivered to the Lenders
such other items as reasonably requested by the Majority Lenders in connection
with the foregoing, including resolutions, incumbency and officers'
certificates, opinions of counsel, search reports and other certificates and
documents; and (iv) the Majority Lenders may elect in their 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 Lenders
agree 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 Lenders in
accordance with a Subordination Agreement. As used herein, "Specified
Indebtedness" means all Indebtedness owing to any of its Affiliates (other than
the Lenders) 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 shall not
include the Indebtedness listed on Schedule 2 (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 Majority Lenders 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 Majority Lenders shall deem necessary or reasonably
appropriate to effectuate the purposes of the Loan Documents, and promptly
provide the Lenders with evidence of the foregoing satisfactory in form and
substance to the Majority Lenders.

          (q) Third Party Consents. On or prior to the date that is 30 days
after the Closing Date, the Company will deliver to the Lenders all consents,
approvals and authorizations


                                       24



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 requested by, and in form and substance satisfactory to, the Majority
Lenders.

          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) or the Lenders shall have any Commitments, the Company agrees that:

          (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
Lenders hereunder; (ii) the existing Indebtedness listed on Schedule 2; (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; (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; and (v) Indebtedness of the Company to the extent the Net
Cash Proceeds of such Indebtedness (A) automatically reduce the Additional
Commitment in accordance with Section 2.05(b) or (B) are paid to the Lenders
within one Business Day of receipt thereof for prepayment of the Loans in
accordance with Section 2.07(b)(ii) and Section 2.07(b)(iii).

          (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.

          (d) Restrictions on Fundamental Changes. The Company will not, and
will not permit any of its Subsidiaries to, merge with or consolidate into, 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, except that any of the Company's wholly owned Subsidiaries
may merge with, consolidate into or transfer all or substantially all of its
assets to the Company and in connection therewith such Subsidiary may be
liquidated or dissolved.

          (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, each
in the


                                       25



ordinary course of business; (ii) sales or other dispositions of assets in the
ordinary course of business which have become worn out, obsolete or no longer
useful to the Company's business, or which are promptly being replaced to the
extent provided in the Budget; and (iii) any other sales or other dispositions
of assets for fair consideration outside the ordinary course of business (A) to
the extent provided in the Budget, or (B) so long as the Net Cash Proceeds of
such sale or disposition are paid to the Lenders within one Business Day of
receipt thereof for prepayment of the Loans in accordance with Section
2.07(b)(i).

          (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
2 hereto, (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.

          (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 (i) in the ordinary course of business in
a manner and to an extent consistent with past practice and necessary or
desirable for the prudent operation of its business, for fair consideration and
on terms no less favorable to it or its Subsidiaries than would be obtained in
an arm's length transaction with a non-affiliated Person, and (ii) transactions
disclosed to and approved by the Majority Lenders.

          (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
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


                                       26



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; and, in the case of clauses (i) through (v), individually or in
the aggregate, to the extent such liability (or such excess in the case of
clause (v)) exceeds $100,000.

          (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, any securities convertible into or exchangeable for its capital stock or
any warrants, except (i) 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 members of the Compensation Committee elected or
otherwise designated by Durus provided that the aggregate amount thereof issued
during any fiscal year is not in excess of $100,000 (the value of any such stock
option to be determined by multiplying the exercise price by the number of
shares subject to such stock option), and (ii) to the extent the Net Cash
Proceeds of such issuance or sale (A) automatically reduce the Additional
Commitment in accordance with Section 2.05(b) or (B) are paid to the Lenders
within one Business Day of receipt thereof for prepayment of the Loans in
accordance with Section 2.07(b)(ii).

          (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 the Budget or any
other statement, budget, forecast, projection and operating plan and report
delivered to the Lenders, unless approved by its Board of Directors and the
Majority Lenders; (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 Lenders 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


                                       27



any Material Contract, or accelerate, terminate or cancel any Material Contract
other than at the direction of the Board of Directors.

          (l) Redemption of Subordinated Debt. The Company shall not, and shall
not permit any of its Subsidiaries to (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 pursuant to
an exchange of other securities or instruments for outstanding Subordinated
Debt), except as permitted by any Subordination Agreement with respect thereto,
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, except as permitted by any
Subordination Agreement.

          (m) Other Changes. 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 or otherwise provided for in the Budget, (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 or in the aggregate or otherwise set forth
in the Budget, or (C) any other expenditures except in the ordinary course of
business consistent with past practices and set forth in the Budget, (ii) enter
into any new contract, agreement, indenture, license or instrument or enter into
any other transaction except on commercially reasonable terms, 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) 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 district established at the
direction of the Board of Directors of the Company or as contemplated in the
Budget, or (v) except as contemplated by the Budget, 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 (to the extent all such bonus, incentive compensation, service award or
other like benefit paid or awarded to employees exceed $50,000), 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.


                                       28



                                   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 Loans or any Notes, 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 Section 5.03, or clauses (a), (e), (g), (l), (m), (q) or (r) of Section
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 of 12 days from the occurrence thereof
(unless the Majority Lenders determine 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), except to the extent expressly permitted
by Section 5.03, (ii) suspend its operations,


                                       29



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 Loans) 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
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


                                       30



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 Majority Lenders
determine 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 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 Majority Lenders.

          (o) Subordination. Any Subordination Agreement shall for any reason be
revoked or invalidated, or otherwise cease to be in full force and effect, any
Person 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 a manner that has an adverse effect on the Loans
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: (i) the Additional Loan Lender may by notice to the
Company, (A) declare the Additional Commitments of the Additional Loan Lender to
be terminated, whereupon the same shall forthwith terminate, and (B) declare the
entire unpaid principal amount of the Additional Loans and any Notes related
thereto, all interest accrued and unpaid thereon and all other Obligations with
respect thereto to be forthwith due and payable, whereupon the Additional Loans
and any such Notes, all such accrued interest and all such other Obligations
shall become and be forthwith due and payable; and (ii) the Majority Lenders may
by notice to the Company,


                                       31



(A) declare the Closing Date Commitments of the Lenders to be terminated,
whereupon the same shall forthwith terminate, and (B) declare the entire unpaid
principal amount of the Closing Date Loans and any Notes related thereto, all
interest accrued and unpaid thereon and all other Obligations to be forthwith
due and payable, whereupon the Closing Date Loans 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 Additional Loan Lender
or the Majority Lenders, as the case may be, to the Company as specified in
clauses (i) and (ii) 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 in clauses (i) and (ii) have been taken, the Majority
Lenders may (A) exercise any or all of the Lenders' and/or any Collateral
Agent's rights and remedies under the Collateral Documents, and (B) proceed to
enforce all other rights and remedies available to the Lenders and any
Collateral Agent (acting on behalf of the Lenders) 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, (i) 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 Majority Lenders (or
any Collateral Agent with the written consent of the Majority Lenders); and (ii)
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 any such Collateral Agent and the Majority Lenders (or such Collateral Agent
with the consent of the Majority Lenders); provided, however, that,
notwithstanding anything to the contrary herein, any such amendment, waiver or
consent relating to the Additional Commitment and the Additional Loans shall not
require the consent of any Lender other than the Additional Loan Lender. Any
such amendment, waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given; provided, however, that,
unless in writing and signed by all of the Lenders (or by any Collateral Agent
with the written consent of all the Lenders), no amendment, waiver or consent
shall do any of the following: (i) increase the amount, or extend the stated
expiration or termination date, of the Closing Date Commitments of the Lenders;
(ii) reduce the principal of, or interest on, the Closing Date Loans or any fee
or other amount payable to the Lenders hereunder; (iii) postpone any date fixed
for any payment in respect of principal of, or interest on, the Closing Date
Loans or any fee or other amount payable to the Lenders hereunder (including the
date of any mandatory prepayment hereunder); (iv) change the definition of
"Majority Lenders" or any definition or provision of this Agreement requiring
the approval of Majority Lenders or some other specified amount of Lenders; (v)
consent to the assignment or transfer by the Company or any Guarantor of any of
its rights and obligations under the Loan Documents; (vi) release any Guaranty
or substantially all of the Collateral except as contemplated herein, in any
Guaranty and in the Collateral Documents relating thereto; (vii) amend, modify
or waive the


                                       32



provisions of Section 2.08(d), 2.10 or 2.11; or (viii) amend, modify or waive
the provisions of this Section 7.01.

          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
any 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 Lenders.

          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 Lenders, any Collateral Agent
and any of their Affiliates, and the reasonable fees and disbursements of one
counsel for the Lenders and such Collateral Agent (as designated by the Majority
Lenders) 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 and similar costs, fees and expenses incurred or
sustained by the Lender designated by the Majority Lenders to perform such
actions, any Collateral Agent or any of their Affiliates in connection with the
Loan Documents or the Collateral; (iii) all recording, filing and similar costs,
fees and expenses incurred or sustained by any Lender, any Collateral Agent or
any of their Affiliates in connection with the Loan Documents or the Collateral;
and (iv) all costs and expenses of the Lenders, any Collateral Agent and their
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 Lenders
and any Collateral Agent against and hold each of them harmless from any and all
present and future stamp, transfer, documentary and other such taxes, levies,
fees, assessments and other charges


                                       33



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 Lenders,
any Collateral Agent, 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, 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 Loans 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 Loans and the execution and delivery of any Notes, and shall
continue in full force and effect so long as any Lender has any Commitment, the
Loans 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 Loans and the
termination of the Commitments.

          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 Collateral Agent and
the 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 Lenders and thereafter shall be
binding upon, inure


                                       34



to the benefit of and be enforceable by the Company, each 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 Lenders.
Each Lender may sell, assign, transfer or grant participations in all or any
portion of such Lender's rights and obligations hereunder and under the other
Loan Documents to any Lender or other Person. In connection with any partial
assignment, upon the request of the assigning Lender or the assignee, (i) the
Company shall execute and deliver substitute Notes to the assigning Lender or
the assignee, dated the effective date of such assignment, setting forth the
principal amount of the Loans 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;
and (ii) Schedule 1 shall be deemed amended to reflect the adjustment of the
Commitments and Pro Rata Shares of the Lenders resulting therefrom.

          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 LENDERS 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 Majority Lenders)
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.


                                       35



          (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 Lenders with respect to the matters set
forth herein and 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 any Lender, or any 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.

          SECTION 7.15 Acknowledgments. This Agreement is intended to amend the
Bridge Loan Agreement, without novation, and, solely for the convenience of
reference, to restate it. All Loans outstanding under the Bridge Loan Agreement
shall be Loans outstanding hereunder, and the Company ratifies, affirms and
acknowledges all of its Obligations in respect of the Bridge Loan Agreement and
the other Loan Documents thereunder. The Company acknowledges and agrees that
any reference to the "Loan Agreement" in the other Loan Documents shall mean and
be references to the Bridge Loan Agreement as amended and restated by this
Agreement (and as further amended, amended and restated, modified, renewed,
extended or replaced from time to time in accordance with the terms hereof). The
Company hereby


                                       36



ratifies and reaffirms the validity and enforceability of all of the liens and
security interests heretofore granted to the Lenders as collateral security for
the Obligations, and acknowledges that all of such liens and security interests
and all collateral heretofore pledged as security for the Obligations under the
Bridge Loan Agreement and the Collateral Documents (as defined in the Bridge
Loan Agreement) continues to be and remains collateral for the Obligations from
and after the date hereof.


                                       37



          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: CFO

                                        Address:

                                        Two Marriot Drive
                                        Lincolnshire, IL 60069
                                        Attn: Rose Upton
                                        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



                                        THE LENDERS:

                                        DURUS LIFE SCIENCES MASTER
                                        FUND LTD.


                                        By /s/ Leslie L. Lake
                                           -------------------------------------
                                           Title: Director

                                        Address:

                                        Durus Life Sciences Master Fund Ltd.
                                        c/o International Fund Services
                                        (Ireland) Ltd.
                                        3rd Floor, Bishops Square
                                        Redmonds Hill
                                        Dublin 2, Ireland
                                        Attention:  Susan Byrne
                                        Fax: (011) 35-31-707-5013

                                        WITH A COPY TO:

                                        Gavin Grover, Esq.
                                        Morrison & Foerster LLP
                                        425 Market Street
                                        San Francisco, California 94105
                                        Fax:  415-269-7522

                                        AND WITH A COPY TO:

                                        Paul N. Roth, Esq.
                                        Schulte, Roth & Zabel
                                        919 Third Avenue
                                        New York, New York 10022
                                        Fax: 212-593-5955


                                       S-2



                                   SCHEDULE 1
                              to the Loan Agreement

                                   COMMITMENTS
                               AND PRO RATA SHARES

                                            CLOSING DATE   ADDITIONAL   PRO RATA
       LENDER                                COMMITMENT    COMMITMENT     SHARE
- --------------------------------------------------------------------------------
Durus Life Sciences
Master Fund Ltd.                             $15,858,548   $5,000,000      100%
- --------------------------------------------------------------------------------
   TOTAL                                     $15,858,548   $5,000,000      100%
- --------------------------------------------------------------------------------


                                   Schedule 1

EX-10.2

                                                                    Exhibit 10.2

     THIS NOTE AND ANY SECURITIES FOR WHICH IT MAY BE EXCHANGED HAVE NOT BEEN
     REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER
     APPLICABLE SECURITIES LAWS. IT AND SUCH SECURITIES MAY NOT BE SOLD,
     PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNDER CIRCUMSTANCES THAT
     WOULD RESULT IN A VIOLATION OF THE REGISTRATION REQUIREMENTS OF THE
     SECURITIES ACT OF 1933 OR SUCH OTHER LAWS.

                             SECURED PROMISSORY NOTE

$15,858,548                                                        June 23, 2006

          FOR VALUE RECEIVED, the undersigned, AKSYS, LTD., a Delaware
corporation (the "Company"), HEREBY UNCONDITIONALLY PROMISES TO PAY to the order
of DURUS LIFE SCIENCES MASTER FUND LTD. (the "Lender"), on December 31, 2007,
the principal sum of FIFTEEN MILLION, EIGHT HUNDRED FIFTY-EIGHT THOUSAND, FIVE
HUNDRED FORTY-EIGHT DOLLARS ($15,858,548) (or such increased principal amount as
shall result from any increase of the principal under the Loan Agreement (as
defined below)), or such principal amount as may be outstanding on such date.

          The Company further promises to pay interest on the Loan outstanding
hereunder from time to time at the interest rate, and payable on the dates, set
forth in the Loan Agreement.

          Both principal and (unless added to the principal as set forth in the
Loan Agreement) interest are payable to the Lender in lawful money of the United
States of America and in same day funds, or such other funds as shall be
separately agreed upon by the Company and the Lender as provided in the Loan
Agreement, in accordance with the Lender's payment instructions. All payments
hereunder shall be made to the Lender 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.

          The Lender shall record the date and amount of the Loan made, the
amount of principal and interest due and payable from time to time hereunder,
the increase to principal as a result of interest added thereto from time to
time in accordance with the Loan Agreement, each payment of principal and
interest thereof, and the resulting unpaid principal balance hereof, in the
Lender's internal records, and any such recordation shall be conclusive absent
manifest error of the accuracy of the information so recorded; provided,
however, that the Lender's failure so to record shall not limit or otherwise
affect the obligations of the Company hereunder and under the Loan Agreement to
repay the principal of and interest on the Loan.

          This promissory note (this "Promissory Note") is one of the Notes
referred to in, and is subject to and entitled to the benefits of, the Loan
Agreement dated as of June 23, 2006 (as


                                       1



amended, amended and restated, modified, renewed or extended from time to time,
the "Loan Agreement") between the Company and certain "Lenders" named therein,
including the Lender. Capitalized terms used herein shall have the respective
meanings assigned to them in the Loan Agreement.

          This Promissory Note is secured by the Collateral more specifically
described in the Loan Agreement and the Collateral Documents and is entitled to
the benefits of any Guaranty entered into pursuant to the Loan Agreement.

          The Loan Agreement provides, among other things, for acceleration
(which in certain cases shall be automatic) of the maturity hereof upon the
occurrence of certain stated events, in each case without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived.

          This Promissory Note is subject to prepayment in whole or in part as
provided in the Loan Agreement.

          In case this Promissory Note shall be mutilated, lost, stolen or
destroyed, the Company shall issue a new Promissory Note of like date, tenor and
denomination and deliver the same in exchange and substitution for and upon
surrender and cancellation of such mutilated Promissory Note, or in lieu of such
Promissory Note lost, stolen or destroyed, upon receipt of evidence satisfactory
to the Company of the loss, theft or destruction of such Promissory Note.

          This Note, amends and restates in full that certain Secured Promissory
Note dated March 31, 2006, made by the undersigned and payable to the order of
the Lender, in the original principal amount of $5,000,000 (the "Original
Note"), which Original Note was made pursuant to that certain Bridge Loan
Agreement dated as of March 31, 2006, between the undersigned and the Lender,
which has been amended and restated in full by the Loan Agreement.

          THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK.

                            [Signature Page Follows]


                                       2



          IN WITNESS WHEREOF, the Company has caused this Promissory Note to be
duly executed as of the date first above written.

                                        AKSYS, LTD.


                                        By: /s/
                                            ------------------------------------
                                            Title:


                                       3

EX-10.3

                                                                    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 Lenders
party (together with any Collateral Agent (as defined below) appointed
hereunder, each a "Secured Party" and, collectively, the "Secured Parties") to
the 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 otherwise
defined herein shall have the meanings assigned to them in the Loan Agreement.

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

          "Collateral" has the meaning set forth in Section 2.

          "Collateral Agent" has the meaning set forth in Section 2(e).

          "Durus" means Durus Life Sciences Master Fund Ltd., a Cayman Islands
Exempted 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 holding
at least 51% of the then aggregate unpaid principal amount of the Loans plus the
unused portion of the Additional Commitment, or, if no such principal amount is
then outstanding, Secured Parties having at least 51% of the aggregate
Commitments.

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

          "Original Agreement" means that certain Security Agreement dated as of
March 31, 2006 entered into between Debtor and Durus.


                                       1



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

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

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

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

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

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

          Section 2. Security Interest.

          (a) As security for the payment and performance of the Obligations,
Debtor hereby grants to Secured Parties a security interest in all of Debtor's
right, title and interest in, to and under the following assets, wherever
located and whether now existing or owned or hereafter acquired or arising: all
goods, accounts, chattel paper (whether tangible or electronic), software,
commercial tort claims, deposit accounts, documents, equipment (including all
fixtures), general intangibles (including intellectual property), payment
intangibles, instruments, inventory, investment property, letter-of-credit
rights, money, records, and all other personal property and all products,
proceeds and supporting obligations of any and all of the foregoing
(collectively, the "Collateral"). Notwithstanding the foregoing, "Collateral"
shall not include any rights or interests in any lease, license, contract, or
agreement, as such, if under the terms of such lease, license, contract, or
agreement, or applicable law with respect thereto, the valid grant of a security
interest or lien therein to Secured Parties is prohibited and such prohibition
has not been or is not waived or the consent of the other party to such lease,
license, contract, or agreement has not been or is not otherwise obtained or
under applicable law such prohibition cannot be waived; provided, that the
foregoing exclusion shall in no way be (i) construed to apply if any such
prohibition would be rendered ineffective under the UCC or other applicable law
(including the Bankruptcy Code) or principles of equity, (ii) construed so as to
limit, impair or otherwise affect Secured Parties' unconditional continuing
security interests in and liens upon any rights or interests of Debtor in or to
the proceeds thereof, including monies due or to become due under any such
lease, license, contract, or agreement (including any accounts), or (iii)
construed to apply at such time as the condition causing such prohibition shall
be remedied and, to the extent severable, "Collateral" shall include any portion
of such lease, license, contract, or agreement that does not result in such
prohibition; and provided, further, that Debtor shall obtain the consents with
respect to leases, licenses, contracts and agreements as set forth in the Loan
Agreement.

          (b) Debtor hereby acknowledges and agrees for the benefit of Secured
Parties that the Original Agreement is amended and restated by this Agreement,
without novation, and


                                       2



that the Original Agreement, as amended and restated by this Agreement: (i) is
and shall continue to be in full force and effect, without offset or
counterclaim; (ii) is and shall continue to be valid and enforceable; and (c) is
not and shall not be impaired or affected in any respect by the execution and
delivery of this Agreement or by the execution and delivery of, or the
consummation of the transactions contemplated by, the Loan Documents, the
execution of which shall not be deemed a satisfaction, cancellation, or novation
of any Obligation of Debtor under the Original Agreement or any other Loan
Document (as defined in the Original Agreement). Debtor further acknowledges and
agrees that any reference to the "Security Agreement" in the other Loan
documents shall mean and be references to the Original Agreement as amended and
restated by this Agreement (and as further amended, amended and restated,
modified, renewed, extended or replaced from time to time in accordance with the
terms hereof). Debtor hereby ratifies and reaffirms the validity and
enforceability of all of the liens and security interests heretofore granted to
any Secured Party as collateral security for the Obligations and acknowledges
that all such liens and security interests and all collateral heretofore granted
as security for the Obligations under the Original Agreement continues to be and
remains collateral for the Obligations from and after the date hereof pursuant
to the Original Agreement as amended and restated by this Agreement.

          (c) Anything herein to the contrary notwithstanding, (i) Debtor shall
remain liable under any Pledged Collateral Agreements and any other contracts,
agreements and other documents included in the Collateral, to the extent set
forth therein, to perform all of its duties and obligations thereunder to the
same extent as if this Agreement had not been executed, (ii) the exercise by
Secured Parties or any Collateral Agent of any of the rights hereunder shall not
release Debtor from any of its duties or obligations under any Pledged
Collateral Agreements or other such contracts, agreements and other documents,
and (iii) neither the Secured Parties nor any Collateral Agent shall have any
obligation or liability under any Pledged Collateral Agreements or other such
contracts, agreements and other documents by reason of this Agreement, nor shall
Secured Parties or any Collateral Agent be obligated to perform any of the
obligations or duties of Debtor thereunder or to take any action to collect or
enforce any Pledged Collateral Agreements or other such contract, agreement or
other document.

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

          (e) The Majority Secured Parties may appoint a Secured Party, or an
affiliate of a Secured Party, who has proposed itself available for
consideration therefor or consented thereto upon nomination by any other Secured
Party, to perform the duties and obligations set forth in subsection (f) below
(the "Collateral Agent") at any time, and whether before, during or after the
occurrence of an Event of Default. Following the appointment of Collateral
Agent, and agreement upon any fees and other arrangements required by it,
including any indemnification agreement it may require, by the Majority Secured
Parties, Collateral Agent's duties and obligations shall commence upon the date
specified in the notice of acceptance to be submitted by Collateral Agent. Each
Secured Party hereby authorizes Collateral Agent to take such action as agent on
its behalf and to exercise such powers and perform such duties under this
Agreement and the other Loan Documents as are delegated to Collateral Agent by
the terms thereof, together with such powers as are reasonably incidental
thereto. The duties and obligations of Collateral Agent are strictly limited to
those expressly provided for herein, and any additional duties and


                                       3



obligations expressly agreed upon by Collateral Agent and the Majority Secured
Parties, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or otherwise exist
against Collateral Agent. Nothing in this Agreement shall, or shall be construed
to, constitute Collateral Agent a trustee or fiduciary for any Secured Party. In
performing its functions and duties hereunder, Collateral Agent shall act solely
as the agent of Secured Parties and does not assume and shall not be deemed to
have assumed any obligation towards or relationship of agency or trust with or
for Debtor. Notwithstanding anything to the contrary contained herein,
Collateral Agent shall not be required to take any action which is contrary to
this Agreement or applicable law.

          (f) The duties and obligations of Collateral Agent hereunder shall
consist of (i) exercising or refraining from exercising any rights, remedies or
powers of Secured Parties under the Loan Documents or under applicable law in
respect of the Loans or all or any portion of any Collateral, (ii) selling,
releasing, surrendering, realizing upon or otherwise dealing with, in any manner
and in any order, all or any portion of any Collateral, (iii) making any demands
or giving any notices under Loan Documents, (iv) effecting amendments to and
granting waivers under the Loan Documents, (v) distributing payments to Secured
Parties of amounts paid to it by Debtor under any Loan Documents or received by
it in connection with the Collateral, (vi) holding on behalf of Secured Parties
any instruments or other possessory Collateral, and (vii) engaging and replacing
(in consultation with Secured Parties and with the prior approval of the
Majority Secured Parties), instructing and remunerating on behalf of Secured
Parties all consultants, experts and other Persons to be engaged by Secured
Parties, including legal counsel for Secured Parties, in each case in accordance
with 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 action
taken 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. Collateral
Agent shall use the level of care it uses with respect to its own property of a
similar nature to assure the safe custody of Collateral in its possession.
Beyond the exercise of such level of care to assure the safe custody of
Collateral in its possession as Collateral Agent, and the accounting for any
monies actually received by Collateral Agent in such capacity, Collateral Agent
shall have no duty or liability to exercise or preserve any rights, privileges
and powers pertaining to the Collateral.

          (h) Each Secured Party's interest in the Collateral shall be on a
parity with the interests of all other Secured Parties, and the interest of each
Secured Party in the Collateral shall be equal to its Pro Rata Share (except to
the extent the Secured Parties agree to any other ratable interest therein). Any
Secured Party holding any instruments, certificated investment property or other
Collateral hereunder shall do so as agent for and for the ratable benefit of all
Secured Parties.

          (i) Anything herein to the contrary notwithstanding, in no event shall
the Collateral include, and Debtor shall not be deemed to have granted a
security interest in, any of Debtor's right, title or interest in any of the
outstanding voting capital stock or other ownership interests of a Controlled
Foreign Corporation (as defined below) in excess of 65% of the voting power of
all classes of capital stock or other ownership interests of such Controlled
Foreign


                                       4



Corporation entitled to vote; provided that (A) immediately upon the amendment
of the Internal Revenue Code to allow the pledge of a greater percentage of the
voting power of capital stock or other ownership interests in a Controlled
Foreign Corporation without adverse tax consequences, the Collateral shall
include, and Debtor shall be deemed to have granted a security interest in, such
greater percentage of capital stock or other ownership interests of each
Controlled Foreign Corporation; and (B) if no adverse tax consequences to Debtor
shall arise or exist in connection with the pledge of any Controlled Foreign
Corporation, the Collateral shall include, and Debtor shall be deemed to have
granted a security interest in, such Controlled Foreign Corporation. As used
herein, "Controlled Foreign Corporation" shall mean a "controlled foreign
corporation" as defined in the Internal Revenue Code.

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

          Section 3. Financing Statements and Other Action.

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


                                       5



prior to the date hereof, and (ii) any financing statements describing the
Collateral as "all assets" or "all personal property".

          (b) Debtor will cooperate with Secured Parties and any Collateral
Agent in obtaining control (as defined in the UCC) of Collateral consisting of
such deposit accounts, investment property, letter of credit rights and
electronic chatter paper as the Majority Secured Parties or any Collateral Agent
may request.

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

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

          (e) Upon request of the Majority Secured Parties or any Collateral
Agent, Debtor will not create any chattel paper without placing a legend on the
chattel paper acceptable to the Majority Secured Parties or any Collateral Agent
indicating that Secured Parties and any Collateral Agent have a security
interest in the chattel paper.

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

          (a) This Agreement creates a security interest which is enforceable
against the Collateral in which Debtor now has rights and will create a security
interest which is enforceable against the Collateral in which Debtor hereafter
acquires rights at the time Debtor acquires any such rights; and (ii) Secured
Parties have a perfected and first priority security interest in the Collateral,
in which Debtor now has rights, and will have a perfected and first priority
security interest in the Collateral in which Debtor hereafter acquires rights at
the time Debtor acquires any such rights, in each case securing the payment and
performance of the Obligations.

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


                                       6



merger or consolidation; or (iv) acquired through asset purchase or otherwise
any business of any Person.

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

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

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

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

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

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

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

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

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


                                       7



          Section 5. Covenants. So long as any of the Obligations remain
unsatisfied, or Secured Parties shall have any Commitments, Debtor agrees that:

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

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

          (c) Debtor shall give prompt written notice to Secured Parties (and in
any event not later than ten (10) days prior to any change described below in
this subsection) of: (i) any change in the location of Debtor's chief executive
office or principal place of business; (ii) any change in the locations set
forth in Schedule 1; (iii) any change in its name; (iv) any changes in its
identity or structure in any manner which might make any financing statement
filed hereunder incorrect or misleading; and (v) any change in its jurisdiction
of organization; provided that Debtor shall not locate any Collateral outside of
the United States nor shall Debtor change its jurisdiction of organization to a
jurisdiction outside of the United States.

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


                                       8



respect of any claim in excess of $100,000. No settlement on account of any loss
covered by insurance shall be made for less than insured value without the
consent of Majority Secured Parties.

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

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

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

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

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

          (j) Upon the request of the Majority Secured Parties or any Collateral
Agent, Debtor shall (i) immediately deliver to such Secured Party or Collateral
Agent, or their designated agent, appropriately endorsed or accompanied by
appropriate instruments of transfer or assignment, all documents and
instruments, all certificated securities with respect to any Pledged Collateral,
all letters of credit and all accounts and other rights to payment at any time
evidenced by promissory notes, trade acceptances or other instruments, and (ii)
cause certificates to be issued in respect of any uncertificated Pledged
Collateral, (iii) provide such notice, obtain such acknowledgments and take all
such other action, with respect to any investment property, chattel paper,
documents and letter-of credit rights, as the Majority Secured Parties or
Collateral Agent, as the case may be, shall reasonably specify.

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


                                       9



the request of the Majority Secured Parties or any Collateral Agent (A) at any
time, notify all or any designated portion of the account debtors and other
obligors on the accounts and other rights to payment of the security interest
hereunder, and (B) upon the occurrence and during the continuance of an Event of
Default, notify the account debtors and other obligors on the accounts and other
rights to payment or any designated portion thereof that payment shall be made
directly to Secured Parties or any Collateral Agent or to such other Persons or
locations as the Majority Secured Parties or any Collateral Agent shall specify.

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

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

          (n) If and when Debtor shall obtain rights to any new patents,
trademarks, service marks, trade names or registered or material unregistered
copyrights, or otherwise acquire or become entitled to the benefit of, or apply
for registration of, any of the foregoing, Debtor (i) shall promptly notify
Secured 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 any
of the foregoing and make all necessary or appropriate filings with respect
thereto. Debtor shall promptly execute and deliver appropriate documents (in
form and substance reasonably satisfactory to the Majority Secured Parties) with
respect to any such current or future registered copyrights for recording in the
U.S. Copyright Office.

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

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


                                       10



          (q) Debtor shall give Secured Parties or any Collateral Agent, as the
case may be, immediate notice of the acquisition of any instruments or
securities, or the establishment of any new deposit account or any new
securities account with respect to any Pledged Collateral.

          (r) (i) Debtor shall comply with all of its obligations under any
Pledged Collateral Agreements to which it is a party and shall enforce all of
its rights thereunder. (ii) Debtor will take all actions necessary to cause each
Pledged Collateral Agreement relating to Collateral consisting of any and all
limited liability and general partnership interests and limited liability
company interests of any type or nature ("Partnership and LLC Collateral") to
provide specifically at all times that: (A) no Partnership and LLC Collateral
shall be a security governed by Article 8 of the applicable Uniform Commercial
Code; and (B) no consent of any member, manager, partner or other Person shall
be a condition to the admission as a member or partner of any transferee that
acquires ownership of the Partnership and LLC Collateral as a result of the
exercise by Secured Parties or any Collateral Agent of any remedy hereunder or
under applicable law. Additionally, Debtor agrees that no Partnership and LLC
Collateral (A) shall be dealt in or traded on any securities exchange or in any
securities market, (B) shall constitute an investment company security, or (C)
shall be held by Debtor in a securities account. (iii) Debtor shall not vote to
enable or take any other action to: (A) amend or terminate, or waive compliance
with any of the terms of, any Pledged Collateral Agreement, certificate or
articles of incorporation, bylaws or other organizational documents in any way
that changes the rights of Debtor with respect to any Partnership and LLC
Collateral or other Collateral constituting investment property in a manner
adverse to the Secured 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 Collateral
Agent if Debtor holds or acquires (i) any commercial tort claims, (ii) any
chattel paper, including any interest in any electronic chattel paper, other
than chattel paper arising in the ordinary course of Debtor's business in
connection with leases by Debtor to its customers of its inventory, or (iii) any
letter-of-credit rights.

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

          Section 6. Rights of Secured Parties.

          (a) Until Secured Parties exercise their rights hereunder to collect
the accounts and other rights to payment, Debtor shall endeavor in the first
instance diligently to collect all amounts due or to become due on or with
respect to the accounts and other rights to payment. At the request of the
Majority Secured Parties or any Collateral Agent, upon the occurrence and during
the continuance of any Event of Default, all remittances received by Debtor
shall be held in trust for Secured Parties and, in accordance with the Majority
Secured Parties' or any Collateral Agent's instructions, remitted to Secured
Parties or any Collateral


                                       11



Agent or deposited to an account of Secured Parties or any Collateral Agent in
the form received (with any necessary endorsements or instruments of assignment
or transfer).

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

          Section 7. Authorization; Collateral Agent Appointed Attorney-in-Fact.
Any Collateral Agent shall have the right to, in the name of Debtor, or in the
name of Secured Parties or Collateral Agent or otherwise, upon notice to but
without the requirement of assent by Debtor, and Debtor hereby constitutes and
appoints Collateral Agent (and any of Collateral Agent's officers, employees or
agents designated by Collateral Agent) as Debtor's true and lawful
attorney-in-fact, with full power and authority to: (i) sign and file any of the
financing statements and other documents and instruments which must be executed
or filed to perfect or continue perfected, maintain the priority of or provide
notice of Secured Parties' security interest in the Collateral (including any
notices to or agreements with any securities intermediary); (ii) assert, adjust,
sue for, compromise or release any claims under any policies of insurance; (iii)
give notices of control, default or exclusivity (or similar notices) under any
account control agreement or similar agreement with respect to exercising
control over deposit accounts or securities accounts; and (iv) execute any and
all such other documents and instruments, and do any and all acts and things for
and on behalf of Debtor, which Collateral Agent or the Majority Secured Parties
may deem reasonably necessary or advisable to maintain, protect, realize upon
and preserve the Collateral and Secured Parties' security interest therein and
to accomplish the purposes of this Agreement. The foregoing power of attorney is
coupled with an interest and irrevocable so long as the Obligations have not
been paid and performed in full. In the event that a Collateral Agent is not
appointed, each Secured Party, acting upon the direction of the Majority Secured
Parties, is hereby authorized to exercise the authority set forth in, and act as
attorney-in-fact as contemplated by, this Section 7. Collateral Agent and the
Secured Parties agree that, except upon and during the continuance of an Event
of Default, the power of attorney, or any rights granted to Collateral Agent or
any designated Secured Party, pursuant to clauses (ii), (iii) and (iv), shall
not be exercised. Debtor hereby ratifies, to the extent permitted by law, all
that


                                       12



Collateral Agent or any such Secured Party shall lawfully and in good faith do
or cause to be done by virtue of and in compliance with this Section 7.

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

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

          (b) Any material impairment in the value of the Collateral or any
impairment of the priority of Secured Parties' Liens hereunder.

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

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

          Section 9. Remedies.

          (a) Upon the occurrence and during the continuance of any Event of
Default, each Secured Party shall have, in addition to all other rights and
remedies granted to it in this Agreement, the Loan Agreement or any other Loan
Document, all rights and remedies of a secured party under the UCC and other
applicable laws. Without limiting the generality of the foregoing, (i) Secured
Parties or any Collateral Agent in each case as directed by Majority Secured
Parties may peaceably and without notice enter any premises of Debtor, take
possession of any the Collateral, remove or dispose of all or part of the
Collateral on any premises of Debtor or elsewhere, or, in the case of equipment,
render it nonfunctional, and otherwise collect, receive, appropriate and realize
upon all or any part of the Collateral, and demand, give receipt for, settle,
renew, extend, exchange, compromise, adjust, or sue for all or any part of the
Collateral, as the Majority Secured Parties may determine; (ii) Secured Parties
or any Collateral Agent in each case as directed by Majority Secured Parties may
require Debtor to assemble all or any part of the Collateral and make it
available to Secured Parties at any place and time designated by Secured
Parties, and may withdraw (or cause to be withdrawn) any and all funds and other
Collateral from any deposit accounts or securities accounts; (iii) Secured
Parties or any Collateral Agent in each case as directed by Majority Secured
Parties may use or transfer any of Debtor's rights and interests in any
intellectual property Collateral, by license, by sublicense (to the extent
permitted by an applicable license) or otherwise, on such conditions and in such
manner as the Majority Secured Parties may determine, (iv) Secured Parties or
any Collateral Agent in each case as directed by Majority Secured Parties may
secure the appointment of a receiver of the Collateral or any part thereof (to
the extent and in the manner provided by applicable law); and (v) Secured
Parties or any Collateral Agent, in each case as directed by Majority Secured
Parties, may sell, resell, lease, use, assign, license, sublicense, transfer or
otherwise dispose of any or all of the Collateral in its then condition or
following any


                                       13



commercially reasonable preparation or processing (utilizing in connection
therewith any of Debtor's assets, without charge or liability to Secured Parties
therefor) at public or private sale, by one or more contracts, in one or more
parcels, at the same or different times, for cash or credit, or for future
delivery without assumption of any credit risk, all as Majority Secured Parties
deem advisable; provided, however, that Debtor shall be credited with the net
proceeds of sale only when such proceeds are finally collected by Secured
Parties. Debtor recognizes that Secured Parties or any Collateral Agent may be
unable to make a public sale of any or all of the Pledged Collateral, by reason
of prohibitions contained in applicable securities laws or otherwise, and
expressly agrees that a private sale to a restricted group of purchasers for
investment and not with a view to any distribution thereof shall be considered a
commercially reasonable sale. Secured Parties or any Collateral Agent shall have
the right upon any such public sale, and, to the extent permitted by law, upon
any such private sale, to purchase the whole or any part of the Collateral so
sold, free of any right or equity of redemption, which right or equity of
redemption Debtor hereby releases, to the extent permitted by law. Any Secured
Party or any Collateral Agent shall give Debtor such notice of any private or
public sales as may be required by the UCC or other applicable law.

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

          (c) Neither Collateral Agent nor any Secured Party shall have any
obligation to clean up or otherwise prepare the Collateral for sale. Neither
Collateral Agent nor any Secured Party shall have any obligation to attempt to
satisfy the Obligations by collecting them from any other Person liable for
them, and Collateral Agent and the Majority Secured Parties may release, modify
or waive any Collateral provided by any other Person to secure any of the
Obligations, all without affecting Collateral Agent's or any Secured Party's
rights against Debtor. Debtor waives any right it may have to require Collateral
Agent or any Secured Party to pursue any third Person for any of the
Obligations. Collateral Agent and Secured Parties may comply with any applicable
state or federal law requirements in connection with a disposition of the
Collateral and compliance will not be considered adversely to affect the
commercial reasonableness of any sale of the Collateral. Collateral Agent and
Secured Parties may sell the Collateral without giving any warranties as to the
Collateral. Collateral Agent and Secured Parties may specifically disclaim any
warranties of title or the like. This procedure will not be considered adversely
to affect the commercial reasonableness of any sale of the Collateral. If
Secured Parties sell any of the Collateral upon credit, Debtor will be credited
only with payments actually made by the purchaser, received by Collateral Agent
and Secured Parties and applied to the indebtedness of the purchaser. In the
event the purchaser fails to pay for the Collateral, Collateral Agent or Secured
Parties may resell the Collateral, and Debtor shall be credited with the
proceeds of the sale.

          (d) To the extent Debtor uses the proceeds of any of the Obligations
to purchase Collateral, Debtor's repayment of the Obligations shall apply on a
"first-in, first-out"


                                       14



basis so that the portion of the Obligations used to purchase a particular item
of Collateral shall be paid in the chronological order the Debtor purchased the
Collateral.

          (e) The cash proceeds actually received from the sale or other
disposition or collection of Collateral, and any other amounts received in
respect of the Collateral the application of which is not otherwise provided for
herein, shall be applied FIRST, to the payment of the fees, costs and expenses
of any Collateral Agent and Secured Parties in exercising or enforcing its
rights hereunder and in collecting or attempting to collect any of the
Collateral, and to the payment of all other amounts payable to Secured Parties
with respect to the Loan Documents (other than principal and interest); and
SECOND, to the payment of all other Obligations in the following order unless a
specific determination is made by the Majority Lenders with respect thereto (i)
FIRST, to any other fees, costs, expenses and other amounts (other than
principal and interest) due the Lenders under the Loan Documents; (ii) SECOND,
to accrued and unpaid interest due the Lenders; (iii) THIRD, to the outstanding
principal amount of the Five Million Closing Date Loan, the Cash Closing Date
Loan and the Additional Loans, and (iv) FOURTH, to the outstanding principal
amount of the $9.3 Million Closing Date Loan. Any surplus thereof which exists
after payment and performance in full of the Obligations shall be promptly paid
over to Debtor or otherwise disposed of in accordance with the UCC or other
applicable law. Debtor shall remain liable to Secured Parties for any deficiency
which exists after any sale or other disposition or collection of Collateral.

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

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

          Section 12. No Waiver; Cumulative Remedies. No failure on the part of
any Secured Party or any Collateral Agent to exercise, and no delay in
exercising, any right, remedy, power or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial


                                       15



exercise of any such right, remedy, power or privilege preclude any other or
further exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights and remedies under this Agreement are cumulative and not
exclusive of any rights, remedies, powers and privileges that may otherwise be
available to 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, any
Collateral Agent appointed hereunder and their respective successors and
assigns. Any Collateral Agent is expressly designated to be a third party
beneficiary hereof. Debtor may not assign, transfer, hypothecate or otherwise
convey its rights, benefits, obligations or duties hereunder without the prior
express written consent of the Secured Parties. Any such purported assignment,
transfer, hypothecation or other conveyance by Debtor without the prior express
written consent of the Secured Parties shall be void. Debtor acknowledges and
agrees that in connection with an assignment of, or grant of a participation in,
the Obligations, Secured Parties may assign, or grant participations in, all or
a portion of their rights and obligations hereunder. Upon any assignment of
Secured Parties' rights hereunder, such assignee or assignees shall have, to the
extent of such assignment, all rights of Secured Parties hereunder. Debtor
agrees that, upon any such assignment, such assignee may enforce directly,
without joinder of Secured Parties, the rights of Secured Parties set forth in
this 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 an
original secured party named herein.

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

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

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

          (c) For purposes of any suit, action or other legal proceeding
relating to this Agreement or the other Loan Documents or the enforcement of any
provision of this Agreement or the Loan Documents, each party hereto hereby
expressly and irrevocably submits and consents to the exclusive jurisdiction of
the courts of the State of New York sitting in the borough of Manhattan and the
United States District Court for the Southern District of New York for the
purposes of any such suit, action or legal proceeding, including to enforce any
settlement, order or award; and agrees that such state and federal courts shall
be deemed to be a


                                       16



convenient forum; and waives and agrees not to assert (by way of motion, as a
defense or otherwise), in any such legal proceeding commenced in such court any
claim that such party is not subject personally to the jurisdiction of such
court, that such legal proceeding has been brought in an inconvenient forum,
that the venue of such proceeding is improper or that the Loan Documents or the
subject matter thereof may not be enforced in or by such court.

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

          Section 15. Entire Agreement; Amendment. This Agreement and the other
Loan Documents contain the entire agreement of the parties with respect to the
subject matter hereof and supersede any prior agreements, commitments, drafts,
communication, discussions and understandings, oral or written, with respect
thereto. No amendment to this Agreement, or any waiver of any provision hereof,
shall be effective unless it is in writing and signed by the Majority Secured
Parties (or any Collateral Agent with the written consent of the Majority
Secured Parties) and (in the case of any amendment) the Debtor; provided,
however, that without the consent of all Secured Parties, no amendment, waiver
or consent shall do any of the following: (i) subject the Secured Parties to any
additional obligations; (ii) reduce any amount payable to the Secured Parties
hereunder; (iii) postpone any date fixed for any payment in respect of any
amount payable to any Secured Parties hereunder; (iv) change the definition of
"Majority Secured Parties" or any definition or provision of this Agreement
requiring the approval of the Secured Parties or some other specified amount of
Secured Parties; or (vi) amend the provisions of this Section 15; and provided,
further, that no amendment, waiver or consent shall, unless in writing and
signed by the Collateral Agent, affect the rights, duties or obligations of the
Collateral Agent under or in respect of this Agreement. Any such amendment,
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.

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

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

          Section 18. Termination. Upon payment and performance in full of all
Obligations (other than inchoate indemnity obligations and any other obligations
which by their


                                       17



terms are to survive the termination of the Loan Documents) and termination of
the Commitments, the security interest created under this Agreement shall
terminate and each Secured Party and Collateral Agent shall promptly execute and
deliver to Debtor such documents and instruments reasonably requested by Debtor
as shall be necessary to evidence termination of all security interests given by
Debtor to such Secured Party or Collateral Agent hereunder.


                                       18



          IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, 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 Agreement

1.   Jurisdiction of Organization

2.   Organizational ID Number

3.   Chief Executive Office and Principal Place of Business

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

5.   Deposit Accounts and Security Accounts


                                 Schedule 1-1.



                                   SCHEDULE 2
                            to the Security Agreement

1.   PATENTS AND PATENT APPLICATIONS.

2.   COPYRIGHTS (REGISTERED AND UNREGISTERED) AND COPYRIGHT APPLICATIONS.

3.   TRADEMARKS, SERVICE MARKS AND TRADE NAMES AND TRADEMARK, SERVICE MARK AND
     TRADE NAME APPLICATIONS.


                                 Schedule 2-1.



                                   SCHEDULE 3
                            to the Security Agreement

                              PLEDGED SUBSIDIARIES

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

   SUBSIDIARY     NUMBER OF UNITS   DATE OF ISSUANCE OF UNITS

          2. Pledged Collateral consisting of interests in each general
partnership, limited partnership, limited liability partnership or other
partnership that is a subsidiary of Debtor as follows:

                         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 corporate
subsidiary of Debtor being represented by stock certificates as follows:

                                                       NO. AND CLASS
   SUBSIDIARY     CERTIFICATE NO.   CERTIFICATE DATE     OF SHARES


                                 Schedule 3-1.

EX-10.4

                                                                    Exhibit 10.4

                                   AKSYS, LTD.

                            INVESTOR RIGHTS AGREEMENT

                            DATED AS OF JUNE 23, 2006



                                TABLE OF CONTENTS

                                                                            PAGE

1.  Definitions                                                               2

2.  Registration of New Registrable Securities                                4
    2.1  Mandatory Registration                                               4
    2.2  Legal Counsel                                                        5
    2.3  Effect of Failure to File and Obtain and Maintain
         Effectiveness of Registration Statement                              6
    2.4  Request for Acceleration                                             7

3.  Registration Obligations With Respect to All Registrable
    Securities                                                                7
    3.1  Maintain Effectiveness of Registration Statements                    7
    3.2  Review of Registration Statements                                    8
    3.3  Copies of Registration Statements                                    9
    3.4  "Blue Sky" Laws                                                      9
    3.5  Notice of Certain Events                                             9
    3.6  Stop Orders and Ineffectiveness of Registration Statement           10
    3.7  Ineligibility for Form S-3                                          10
    3.8  Sufficient Number of Shares Registered                              11
    3.9  Underwriter Status and Related Matters                              11
    3.10 Disclosure of Information Concerning Investors                      12
    3.11 Listing of Registrable Securities                                   12
    3.12 Unlegended Certificates                                             13
    3.13 Transfer of Registrable Securities                                  13
    3.14 Governmental Agencies                                               13
    3.15 Delivery of Earnings Statement                                      13
    3.16 Compliance with Laws                                                14
    3.17 Confirmation                                                        14
    3.18 Reports Under the 1934 Act                                          14
    3.19 Blackout Period                                                     14

4.  Obligations of the Investors                                             15

5.  Expenses of Registration                                                 16

6.  Assignment of Registration Rights                                        16

7.  Company Board of Directors                                               16
    7.1  Board Representation                                                16
    7.2  Executive Committee                                                 17
    7.3  Other Committees                                                    17
    7.4  Certain Officers                                                    17
    7.5  Continuation of Rights                                              17
    7.6  Vacancies                                                           18
    7.7  Costs and Expenses                                                  18
    7.8  Directors' Indemnification                                          18


                                       i



                                                                            PAGE

    7.9  Series B Preferred Director                                         19
    7.10 Certificate of Incorporation; By-Laws                               19
    7.11 Performance                                                         19

8.  Covenants of the Company                                                 19
    8.1  Inspection                                                          19
    8.2  Delivery of Financing Statements and Other Reports                  20
    8.3  Right of First Refusal upon Sale of Company                         20
    8.4  Notice of Litigation                                                21
    8.5  Preservation of Existence, Etc                                      21
    8.6  Payment of Taxes, Etc                                               22
    8.7  Maintenance of Insurance                                            22
    8.8  Keeping of Records and Books of Account                             22
    8.9  Compliance with Requirements of Governmental Authorities            22
    8.10 Maintenance of Properties, Etc                                      22
    8.11 Licenses                                                            23
    8.12 Protection of Intellectual Property Rights                          23
    8.13 Restrictions on Certain Corporate Actions                           23
    8.14 Termination of Certain Covenants                                    24

9.  Indemnification                                                          24

10. Contribution                                                             27

11. No Inconsistent Agreements or Actions                                    27

12. Lockup                                                                   28

13. Amendment of Registration Rights                                         28

14. Entire Agreement; Termination of Existing Registration Rights
    Agreement                                                                28

15. Miscellaneous                                                            28


                                       ii



                            INVESTOR RIGHTS AGREEMENT

     This Investor Rights Agreement (this "Agreement") is entered into as of
June 23, 2006, by and among AKSYS, LTD., a Delaware corporation (the "Company"),
DURUS LIFE SCIENCES MASTER FUND LTD., a Cayman Islands company ("Durus"), and
ARTAL LONG BIOTECH PORTFOLIO LLC, a Delaware limited liability company
("Artal"). Durus and Artal are collectively referred to herein as the "Existing
Investors," and each is individually referred to as an "Existing Investor."

     WHEREAS, in connection with the Securities Purchase Agreement by and among
the Company and Durus of even date herewith (the "Purchase Agreement"), the
Company has agreed, upon the terms and subject to the conditions set forth in
the Purchase Agreement, to issue and sell to Durus at the Initial Closing, as
defined in the Purchase Agreement, (i) 5,000 shares of the Company's Series B
Convertible Preferred Stock ("Initial Preferred Shares"), the terms of which are
set forth in the certificate of designation for such series of preferred stock
in the form attached as Exhibit A to the Purchase Agreement (the "Certificate of
Designation"), and which Initial Preferred Shares shall be convertible into
shares of the Company's common stock (the "Common Stock") pursuant to the terms
of the Certificate of Designation (such shares of Common Stock to be received
upon the conversion of the Initial Preferred Shares are referred to herein as
the "Initial Conversion Shares"), and (ii) warrants (the "Initial Warrants") to
purchase 5,000,000 shares of Common Stock at an initial exercise price of $1.10
per share (the "Initial Warrant Shares" and, together with the Initial
Conversion Shares and the Initial Warrants, the "Initial Securities");

     WHEREAS, the Purchase Agreement provides that after the Initial Closing,
Durus will have the option, in its sole discretion, to purchase up to an
additional $15,000,000 of the Company's Series B Convertible Preferred Stock
(the "Additional Preferred Shares") convertible into Common Stock (the
"Additional Conversion Shares") and warrants (the "Additional Warrants") to
purchase shares of Common Stock (the "Additional Warrant Shares" and, together
with the Additional Conversion Shares and the Additional Warrants, the
"Additional Registrable Securities") from the Company at one or more Subsequent
Closings, as defined in the Purchase Agreement;

     WHEREAS, contemporaneously with the execution and delivery of the Purchase
Agreement, Durus and the Company also are executing and delivering a loan
agreement, substantially in the form attached as Exhibit D to the Purchase
Agreement (the "Loan Agreement"), pursuant to which the Company will be issuing
certain notes to Durus (the "Notes");

     WHEREAS, Durus also currently holds 21,377,274 shares of Common Stock (the
"Durus Shares") and a warrant (the "Durus Warrant") to purchase 281,454 shares
of Common Stock at an exercise price of $3.25 per share subject to adjustment
pursuant to the terms of the Durus Warrant (the "Durus Warrant Shares" and,
together with the Durus Shares and the Durus Warrants, the "Durus Securities");

     WHEREAS, Artal currently holds 501,870 shares of Common Stock (the "Artal
Shares") and an unsecured subordinated promissory note in the principal amount
of $322,000 (the "Artal



Note") issued by the Company to Artal pursuant to that certain Note Purchase
Agreement, dated as of February 23, 2004, by and among the Company and Artal,
and pursuant to the Artal Note the Company has the right to elect, in lieu of
repayment in cash of all or any portion of the principal due under the Artal
Note, to repay such amount of principal in Common Stock of the Company (the
"Note Shares"), subject to the terms and conditions of the Artal Note.

     WHEREAS, the Company has previously registered certain Durus Securities and
the Artal Shares on a registration statement on Form S-3, Registration No.
333-114396, filed by the Company with the Securities and Exchange Commission
(the "SEC") on May 13, 2004 (the "Existing Registration Statement"); and

     WHEREAS, in connection with the execution and delivery of the Purchase
Agreement and the other Transaction Documents (as defined in the Purchase
Agreement), the Company has agreed to provide rights to the Existing Investors
as provided herein.

     NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Existing
Investors hereby agree as follows:

1.   DEFINITIONS.

     Capitalized terms used herein and not otherwise defined herein shall have
the respective meanings set forth in the Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:

     (A) "Additional Registrable Securities" means the (i) Additional
Registrable Securities and (ii) any shares of capital stock issued or issuable
from time to time (with any adjustments) in exchange for or otherwise with
respect to the Additional Conversion Shares or the Additional Warrant Shares,
including as a result of any share split, share dividend, recapitalization,
exchange or similar event or otherwise, without regard to any limitations on
conversions of the Additional Preferred Shares or exercise of the Additional
Warrants.

     (B) "Affiliate" means, with respect to any Person, any other Person
directly, or indirectly through one or more intermediaries, controlling,
controlled by or under common control with such Person. For purposes of this
definition, the term "control" (and correlative terms) means the power, whether
by contract, equity ownership or otherwise, to direct the policies or management
of a Person.

     (C) "Beneficial Owner" and "Beneficially Own" mean, with respect to any
Person, any securities (i) which such Person or any of such Person's Affiliates
beneficially owns, directly or indirectly; (ii) which such Person or any of such
Person's Affiliates, directly or indirectly, has (A) the right to acquire
(whether such right is exercisable immediately or only after the passage of
time) pursuant to any agreement, arrangement or understanding (whether or not in
writing), or upon the exercise of conversion rights, exchange rights, rights,
warrants or options, or otherwise, or (B) the right to vote pursuant to any
agreement, arrangement or understanding (whether or not in writing); or (iii)
which are beneficially owned, directly or indirectly, by any other Person (or
any Affiliate thereof) with which such Person (or any of such Person's
Affiliates) has any


                                       2



agreement, arrangement or understanding (whether or not in writing) for the
purpose of acquiring, holding, voting or disposing of any voting securities of
the same issuer.

     (D) "Business Day" means any day other than Saturday, Sunday or any other
day on which commercial banks in The City of New York are authorized or required
by law to remain closed.

     (E) "Effective Date" means the date that the Registration Statement (as
defined below) has been declared effective by the SEC.

     (F) "Effectiveness Deadline" means (i) with respect to the Registration
Statement to be filed hereunder covering the New Registrable Securities (as
defined below), the date which is 60 days after the Initial Closing, or if there
is any review of such Registration Statement by the SEC, 120 days after the
Initial Closing, (ii) with respect to the Registration Statement or Registration
Statements to be filed hereunder covering the Additional Registrable Securities,
the date which is 60 days after the Subsequent Closing relating to Additional
Registrable Securities, or if there is any review of such Registration Statement
by the SEC, 120 days after such Subsequent Closing and (iii) with respect to the
Registration Statement to be filed hereunder covering the Note Shares, the date
which is 60 days after the issuance of such Note Shares, or if there is any
review of such Registration Statement by the SEC, 120 days after the issuance of
such Note Shares.

     (G) "Existing Registrable Securities" means the Durus Securities registered
on the Existing Registration Statement and the Artal Shares and any shares of
capital stock issued or issuable from time to time (with any adjustments) in
exchange for or otherwise with respect to such Durus Shares, the Artal Shares or
the Durus Warrant Shares, including as a result of any share split, share
dividend, recapitalization, exchange or similar event or otherwise, without
regard to any limitations on conversions of the Durus Warrants.

     (H) "Filing Deadline" means (i) with respect to the Registration Statement
to be filed hereunder covering the New Registrable Securities, thirty (30)
Business Days following the Initial Closing, (ii) with respect to the
Registration Statement or Registration Statements to be filed hereunder covering
the Additional Registrable Securities, within thirty (30) Business Days
following the Subsequent Closing relating to such Additional Registrable
Securities and (iii) with respect to the Registration Statement to be filed
hereunder covering the Note Shares, thirty (30) Business Days following the
issuance of the Note Shares.

     (I) "Investors" mean the Existing Investors and any of their transferees or
assignees who receive or acquire Registrable Securities and who are entitled to
the benefit of this Agreement as provided in Section 6 hereof.

     (J) "New Registrable Securities" means (i) the Initial Securities and (ii)
any shares of capital stock issued or issuable from time to time (with any
adjustments) in exchange for or otherwise with respect to the Initial Conversion
Shares or the Initial Warrant Shares, including as a result of any share split,
share dividend, recapitalization, exchange or similar event or otherwise,
without regard to any limitations on conversions of the Initial Preferred Shares
or exercise of the Initial Warrants.


                                       3



     (K) "1933 Act" means the Securities Act of 1933, as amended, and the rules
and regulations promulgated by the SEC thereunder.

     (L) "1934 Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the SEC thereunder.

     (M) "Person" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.

     (N) "register," "registered," and "registration" refer to a registration
effected by preparing and filing one or more Registration Statements (as defined
below) in compliance with the 1933 Act and pursuant to Rule 415 and the
declaration of effectiveness of such Registration Statement(s) by the SEC.

     (O) "Registrable Securities" means the New Registrable Securities, the
Additional Registrable Securities, the Existing Registrable Securities and the
Note Shares.

     (P) "Registration Statement" means a registration statement or registration
statements of the Company filed under the 1933 Act covering the Registrable
Securities.

     (Q) "Rule 415" means Rule 415 under the 1933 Act or any successor rule
providing for the offering of securities on a continuous or delayed basis.

     (R) "Warrant Shares" means the Initial Warrant Shares, the Additional
Warrant Shares and the Durus Warrant Shares.

2.   REGISTRATION OF NEW REGISTRABLE SECURITIES.

     2.1  MANDATORY REGISTRATION.

          (A) The Company shall use its best efforts to prepare, and, as soon as
practicable, but in no event later than the applicable Filing Deadline, file
with the SEC a Registration Statement on Form S-3 covering the resale of all of
the New Registrable Securities and the issuance of the Initial Warrant Shares to
be acquired upon exercise of the Initial Warrants. In the event that Form S-3 is
unavailable for such a registration, the Company shall use such other form as is
available for such a registration that is reasonably acceptable to Durus. The
Registration Statement prepared pursuant hereto shall register for resale
10,000,000 shares of Common Stock and all of the Initial Warrants, and shall
register the issuance of 5,000,000 shares of Common Stock upon exercise of the
Initial Warrants. The Registration Statement, to the extent allowable under the
1933 Act and the rules and regulations promulgated thereunder (including Rule
416), shall state that such Registration Statement also covers such
indeterminate number of additional shares of Common Stock as may become issuable
upon conversion of or otherwise pursuant to the Initial Preferred Shares and
exercise of the Initial Warrants to prevent dilution resulting from stock
splits, stock dividends or similar transactions. The Company shall use its
reasonable best efforts to have the Registration Statement declared effective by
the SEC as soon as practicable, but in no event later than the respective
Effectiveness Deadline.


                                       4



          (B) In the event of any Subsequent Closings, the Company shall use its
best efforts to prepare, and, as soon as practicable thereafter, but in no event
later than the applicable Filing Deadline, file with the SEC a Registration
Statement on Form S-3 covering the resale of all the Additional Registrable
Securities relating to each such Subsequent Closing and the issuance of the
Additional Warrant Shares to be acquired upon exercise of the Additional
Warrants issued at each such Subsequent Closing. In the event that Form S-3 is
unavailable for such a registration, the Company shall use such other form as is
available for such a registration that is reasonably acceptable to Durus. The
Registration Statement, to the extent allowable under the 1933 Act and the rules
and regulations promulgated thereunder (including Rule 416), shall state that
such Registration Statement also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon conversion of or otherwise
pursuant to the Additional Preferred Shares and exercise of the Additional
Warrants to prevent dilution resulting from stock splits, stock dividends or
similar transactions. The Company shall use its reasonable best efforts to have
each such Registration Statement declared effective by the SEC as soon as
practicable after each such Subsequent Closing, but in no event later than the
applicable Effectiveness Deadline.

          (C) In the event of the issuance of Note Shares, the Company shall use
its best efforts to prepare, and, as soon as practicable thereafter, but in no
event later than the applicable Filing Deadline, file with the SEC a
Registration Statement on Form S-3 covering the resale of all of the Note
Shares. In the event that Form S-3 is unavailable for such a registration, the
Company shall use such other form as is available for such a registration that
is reasonably acceptable to holders of a majority in interest of the Note
Shares. The Registration Statement prepared pursuant hereto shall register for
resale all of the Note Shares. The Company shall use its reasonable best efforts
to have such Registration Statement declared effective by the SEC as soon as
practicable after the issuance of the Note Shares, but in no event later than
the applicable Effectiveness Deadline.

          (D) In the event that Durus distributes or otherwise transfers any of
its Registrable Securities to its investors or members, the Company shall use
its best efforts to prepare, and, as soon as practicable, file with the SEC a
Registration Statement on Form S-3 covering the resale of all of such
Registrable Securities by such investors or members upon the written request of
Durus. In the event that Form S-3 is unavailable for such a registration, the
Company shall use such other form as is available for such a registration that
is reasonably acceptable to a majority of such investors or members. The Company
shall not be required to effect a registration pursuant to this Section 2.1(d)
if (i) the Company has previously effected two (2) registrations pursuant to
this Section 2.1(d), and such registrations have been declared or ordered
effective, or (ii) the Company receives such written request from Durus more
than five (5) years after the date hereof.

     2.2  LEGAL COUNSEL.

          (A) Subject to Section 5 hereof, Durus shall have the right to select
one legal counsel to review and oversee any registration pursuant to Sections
2.1(a) or 2.1(b), which shall be designated in writing by Durus ("Durus Legal
Counsel").


                                       5



          (B) Subject to Section 5 hereof, holders of a majority in interest of
the Artal Shares shall have the right to select one legal counsel to review and
oversee any registration pursuant to Section 2.1(c), which shall be designated
in writing by such holders ("Artal Legal Counsel" and, together with Durus Legal
Counsel, "Legal Counsel").

          (C) The Company and Legal Counsel shall reasonably cooperate with each
other in regards to the performance of the Company's obligations under this
Agreement.

     2.3 EFFECT OF FAILURE TO FILE AND OBTAIN AND MAINTAIN EFFECTIVENESS OF
REGISTRATION STATEMENT.

     If (i) a Registration Statement covering the New Registrable Securities or
the Additional Registrable Securities required to be covered thereby and
required to be filed by the Company pursuant to this Section 2 is (A) not filed
with the SEC on or before the applicable Filing Deadline (a "Filing Failure") or
(B) filed with the SEC but not declared effective by the SEC on or before the
applicable Effectiveness Deadline (an "Effectiveness Failure") or (ii) on any
day after the Effective Date sales of all of such Registrable Securities
required to be included on such Registration Statement cannot be made (other
than during an Allowable Grace Period (as defined in Section 3.19)) pursuant to
such Registration Statement (including, without limitation, because of a failure
to keep such Registration Statement effective, to disclose such information as
is necessary for sales to be made pursuant to such Registration Statement, a
suspension or delisting of the Common Stock on its principal trading market or
exchange, or to register a sufficient number of shares of Common Stock) (a
"Maintenance Failure") then, as partial relief for the damages to any holder by
reason of any such delay in or reduction of its ability to sell the underlying
shares of Common Stock (which remedy shall not be exclusive of any other
remedies available at law or in equity), the Company shall pay to each holder of
New Registrable Securities or Additional Registrable Securities, as applicable,
relating to such Registration Statement an amount in cash equal to one percent
(1%) of the aggregate purchase price of such Investor's Initial Preferred Shares
and Initial Warrants or Additional Preferred Shares and Additional Warrants,
respectively, on each of the following dates: (i) on every thirtieth day (pro
rated for periods totaling less than thirty days) after a Filing Failure until
such Filing Failure is cured; (ii) on every thirtieth day (pro rated for periods
totaling less than thirty days) after an Effectiveness Failure until such
Effectiveness Failure is cured; and (iii) on every thirtieth day (pro rated for
periods totaling less than thirty days) after a Maintenance Failure until such
Maintenance Failure is cured; provided, that the maximum amount payable by the
Company pursuant to this Section 2.3 with respect to such Registration Statement
shall not exceed 10% of the aggregate purchase price of such Investor's
Registrable Securities included in such Registration Statement. The payments to
which a holder shall be entitled pursuant to this Section 2.3 are referred to
herein as "Registration Delay Payments." Registration Delay Payments shall be
paid on the earlier of (I) the last day of each calendar month during which such
Registration Delay Payments are incurred and (II) the third Business Day after
the event or failure giving rise to the Registration Delay Payments is cured. In
the event the Company fails to make Registration Delay Payments in a timely
manner, such Registration Delay Payments shall bear interest, from the date the
Registration Delay Payment was due until the date such Registration Delay
Payment is paid in full, at the rate of ten percent (10%) per annum.
Notwithstanding anything to the contrary herein, the Company shall not be
required to pay any Registration Delay Payments to the extent that such
registration is required to be made pursuant


                                       6



to a Registration Statement on Form S-1 for the sole reason that Form S-3 is
unavailable to such registration.

     2.4  REQUEST FOR ACCELERATION.

     The Company shall submit to the SEC, within two (2) Business Days after the
later of the date that (i) the Company learns that no review of the Registration
Statement will be made by the staff of the SEC or that the staff has no further
comments on the Registration Statement, as the case may be, and (ii) the
approval of Legal Counsel in accordance with Section 3.2 (which approval shall
be immediately sought), a request for acceleration of effectiveness of such
Registration Statement to a time and date not later than 48 hours after the
submission of such request.

3.   REGISTRATION OBLIGATIONS WITH RESPECT TO ALL REGISTRABLE SECURITIES.

     The Company shall have the following obligations with respect to the
registration of the Registrable Securities:

     3.1  MAINTAIN EFFECTIVENESS OF REGISTRATION STATEMENTS.

          (A) The Company shall keep the Registration Statements covering the
Registrable Securities, including the Existing Registration Statement, effective
pursuant to Rule 415 at all times until the earlier of (i) the date as of which
all of the Investors may sell all of the Registrable Securities covered by all
of the Registration Statements in any period of three months pursuant to Rule
144 (or any successor thereto) promulgated under the 1933 Act and (ii) the date
on which the Investors shall have sold all of the Registrable Securities covered
by all Registration Statements (or, in the case of the Warrants, the date on
which each such Warrant shall have otherwise terminated pursuant to its terms)
(the "Registration Period"); provided, however, that the Registration Period
with respect to any Registration Statement filed pursuant to Section 2.1(d)
shall be until the earlier of (i) the date as of which all investors and members
of Durus that own Registrable Securities covered by such Registration Statement
may sell all of the Registrable Securities covered by such Registration
Statement in any period of three months pursuant to Rule 144 (or any successor
thereto) promulgated under the 1933 Act and (ii) the date on which all investors
and members of Durus that own Registrable Securities covered by such
Registration Statement shall have sold all of the Registrable Securities covered
by such Registration Statement. The Company shall ensure that each Registration
Statement (including any amendments or supplements thereto and prospectuses
contained therein) shall not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein, or necessary to
make the statements therein (in the case of prospectuses, in the light of the
circumstances in which they were made) not misleading.

          (B) Subject to Section 3.19 of this Agreement, the Company shall
prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to a Registration Statement and the prospectus used
in connection with such Registration Statement, which prospectus is to be filed
pursuant to Rule 424 promulgated under the 1933 Act, or prepare and file with
the SEC a new Registration Statement, as may be necessary to effect the
provisions of Section 3.1 and to otherwise keep such Registration Statement
effective at all times during the


                                       7



Registration Period, and, during such period, comply with the provisions of the
1933 Act with respect to the disposition of all Registrable Securities of the
Company covered by such Registration Statement until such time as all of such
Registrable Securities shall have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof as set forth in
such Registration Statement. The Company shall use its best efforts to prepare
and file with the SEC a prospectus supplement or, if required, a post-effective
amendment to the Existing Registration Statement as soon as practicable
following the Initial Closing to effect the provisions of Section 3.1. In the
case of amendments and supplements to a Registration Statement which are
required to be filed pursuant to this Agreement (including pursuant to this
Section 3.1(b)) by reason of the Company filing a report on Form 10-Q, Form 10-K
or any analogous report under the 1934 Act, the Company shall have incorporated
such report by reference into such Registration Statement, if applicable, or
shall file such amendments or supplements with the SEC within two Business Days
of the day on which the 1934 Act report is filed which created the requirement
for the Company to amend or supplement such Registration Statement.

     3.2  REVIEW OF REGISTRATION STATEMENTS.

          (A) To the extent applicable, the Company shall (A) permit Durus Legal
Counsel to review and comment upon (i) Registration Statements covering the New
Registrable Securities, the Additional Registrable Securities or the Existing
Registrable Securities at least five (5) Business Days prior to its filing with
the SEC (and for at least two (2) Business Days after any final, material
changes are made to any draft thereof) (provided that the Filing Deadline shall
be extended by the time taken by Durus Legal Counsel beyond such specified
periods in exercising its right to review such Registration Statements pursuant
to this Section 3) and (ii) all amendments and supplements to such Registration
Statements within a reasonable number of days prior to their filing with the
SEC, and (B) not file any such Registration Statement or amendment or supplement
thereto in a form to which such Durus Legal Counsel reasonably objects. The
Company shall not submit a request for acceleration of the effectiveness of any
such Registration Statement or any amendment or supplement thereto without the
prior approval of Durus Legal Counsel, which consent shall not be unreasonably
withheld. The Company shall furnish to Durus Legal Counsel, without charge, (i)
copies of any correspondence from the SEC or the staff of the SEC to the Company
or its representatives relating to any such Registration Statement, (ii)
promptly after the same is prepared and filed with the SEC, one copy of any such
Registration Statement and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference, if
requested by an Investor, and all exhibits and (iii) upon the effectiveness of
any such Registration Statement, one copy of the prospectus included in such
Registration Statement and all amendments and supplements thereto. The Company
shall reasonably cooperate with Durus Legal Counsel in performing the Company's
obligations pursuant to this Section 3.

          (B) To the extent applicable, the Company shall (A) permit Artal Legal
Counsel to review and comment upon (i) a Registration Statement cover the Artal
Shares at least five (5) Business Days prior to its filing with the SEC (and for
at least two (2) Business Days after any final, material changes are made to any
draft thereof) (provided that the Filing Deadline shall be extended by the time
taken by Artal Legal Counsel beyond such specified periods in exercising its
right to review such Registration Statement pursuant to this Section 3) and (ii)
all


                                       8



amendments and supplements to such Registration Statement within a reasonable
number of days prior to their filing with the SEC, and (B) not file any such
Registration Statement or amendment or supplement thereto in a form to which
Artal Legal Counsel reasonably objects. The Company shall not submit a request
for acceleration of the effectiveness of such Registration Statement or any
amendment or supplement thereto without the prior approval of Artal Legal
Counsel, which consent shall not be unreasonably withheld. The Company shall
furnish to Artal Legal Counsel, without charge, (i) copies of any correspondence
from the SEC or the staff of the SEC to the Company or its representatives
relating to any such Registration Statement, (ii) promptly after the same is
prepared and filed with the SEC, one copy of any such Registration Statement and
any amendment(s) thereto, including financial statements and schedules, all
documents incorporated therein by reference, if requested by an Investor, and
all exhibits and (iii) upon the effectiveness of any such Registration
Statement, one copy of the prospectus included in such Registration Statement
and all amendments and supplements thereto. The Company shall reasonably
cooperate with Artal Legal Counsel in performing the Company's obligations
pursuant to this Section 3.

     3.3  COPIES OF REGISTRATION STATEMENTS.

     To the extent applicable, the Company shall furnish to each Investor whose
Registrable Securities are included in any Registration Statement, without
charge, (i) promptly after the same is prepared and filed with the SEC, at least
one copy of any Registration Statement and any amendment(s) thereto, including
financial statements and schedules, all documents incorporated therein by
reference, if requested by the Investor, all exhibits and each preliminary
prospectus, (ii) upon the effectiveness of any Registration Statement, one (1)
copy of the prospectus included in such Registration Statement and all
amendments and supplements thereto (or such other number of copies as such
Investor may reasonably request) and (iii) such other documents, including
copies of any preliminary or final prospectus, as such Investor may reasonably
request from time to time in order to facilitate the disposition of the
Registrable Securities owned by such Investor.

     3.4  "BLUE SKY" LAWS.

     The Company shall use its reasonable best efforts to (i) register and
qualify, unless an exemption from registration and qualification applies, the
resale by Investors of the Registrable Securities covered by a Registration
Statement and the issuance of the Warrant Shares upon exercise of the Warrants
under such other securities or "blue sky" laws of all applicable jurisdictions
in the United States, (ii) prepare and file in those jurisdictions, such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such other
actions, including preparing and filing new registrations and qualifications in
applicable jurisdictions, as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3.4, (y) subject itself to
general taxation in any such jurisdiction, or (z) file a general consent to
service of process in any such jurisdiction. The


                                       9



Company shall promptly notify each Investor who holds Registrable Securities and
the Legal Counsel for such Investor pursuant to Section 2.2 of the receipt by
the Company of any notification with respect to the suspension of the
registration or qualification of such Registrable Securities for sale under the
securities or "blue sky" laws of any jurisdiction in the United States or its
receipt of actual notice of the initiation or threatening of any proceeding for
such purpose.

     3.5  NOTICE OF CERTAIN EVENTS.

     The Company shall notify each Investor (and such Investor's Legal Counsel
pursuant to Section 2.2) in writing of the happening of any event, as promptly
as practicable after becoming aware of such event, as a result of which (i) the
prospectus included in a Registration Statement covering such Investor's
Registrable Securities includes an untrue statement of a material fact or
omission to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading (provided that in no event shall such notice contain
any material, nonpublic information), or (ii) the representations and warranties
made by the Company herein or in connection with a Registration Statement cease
to be true and correct in all material respects, and in each such case, subject
to Section 3.19, promptly prepare a supplement or amendment to such Registration
Statement to correct such untrue statement or omission and deliver one (1) copy
of such supplement or amendment to such Legal Counsel and each Investor (or such
other number of copies as such Legal Counsel or such Investor may reasonably
request). The Company shall also promptly notify such Legal Counsel and each
Investor in writing (i) when a prospectus or any prospectus supplement or
post-effective amendment has been filed, and when a Registration Statement or
any post-effective amendment has become effective (notification of such
effectiveness shall be delivered to such Legal Counsel and each Investor by
facsimile or e-mail on the same day of such effectiveness and by overnight
mail), (ii) of any request by the SEC for amendments or supplements to a
Registration Statement or related prospectus or related information, and (iii)
of the Company's reasonable determination that a post-effective amendment to a
Registration Statement would be appropriate.

     3.6  STOP ORDERS AND INEFFECTIVENESS OF REGISTRATION STATEMENT

          (A) The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of a Registration Statement,
or the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction and, if such an order or suspension is issued, to
obtain the withdrawal of such order or suspension at the earliest possible
moment and to notify each Investor who holds Registrable Securities being sold
pursuant to such Registration Statement and such Investor's Legal Counsel
pursuant to Section 2.2 of the issuance of such order and the resolution thereof
or its receipt of actual notice of the initiation or threat of any proceeding
for such purpose.

          (B) If a Registration Statement ceases to be effective for more than
30 days for any reason at any time during the Registration Period, the Company
shall file with the SEC an additional Registration Statement (the "Subsequent
Registration Statement") covering all of the Registrable Securities not sold
under the Registration Statement that has ceased to be effective (the "Initial
Registration Statement"). If a Subsequent Registration Statement is filed with
the SEC, the Company shall use reasonable best efforts to cause the Subsequent
Registration


                                       10



Statement to be declared effective by the SEC as soon as practicable after such
filing and to keep such Subsequent Registration Statement continuously effective
for the duration of the Registration Period in accordance with the terms of this
Agreement.

     3.7  INELIGIBILITY FOR FORM S-3.

     In the event that Form S-3 is not available for the continued registration
of the resale of Registrable Securities hereunder or the issuance of the Warrant
Shares upon exercise of the Warrants, the Company shall (i) register the resale
of the Registrable Securities and the issuance of the Warrant Shares on another
appropriate form reasonably acceptable to holders of a majority in interest of
the Registrable Securities prior to the time at which such Form S-3 will no
longer be available for such continued registration or, if later, as soon as
practicable following the determination by the Company's outside legal counsel
that such Form S-3 is no longer available for such continued registration, and
(ii) undertake to register such Registrable Securities and Warrant Shares on
Form S-3 as soon as such form is available, provided that the Company shall
maintain the effectiveness of the Registration Statement then in effect until
such time as a Registration Statement on Form S-3 covering the Registrable
Securities has been declared effective by the SEC. Notwithstanding the
foregoing, the Company shall use its best efforts to take any actions reasonably
necessary to maintain its eligibility to use Form S-3 to permit the resale of
the Registrable Securities and the issuance of the Warrant Shares.

     3.8  SUFFICIENT NUMBER OF SHARES REGISTERED.

     In the event the number of shares available under a Registration Statement
is insufficient to cover all of the Registrable Securities required to be
covered by such Registration Statement, the Company shall amend the applicable
Registration Statement, or file a new Registration Statement (on the short form
available therefor, if applicable), or both, so as to cover all of such
Registrable Securities as of the trading day immediately preceding the date of
the filing of such amendment or new Registration Statement. Such amendment or
new Registration Statement shall be filed as soon as practicable, but in any
event not later than fifteen (15) days after the necessity therefor arises. The
Company shall use its reasonable best efforts to cause such amendment and/or new
Registration Statement to become effective as soon as practicable following the
filing thereof. The calculation set forth above in this Section 3.8 shall be
made without regard to any limitations on the conversion of the Initial
Preferred Shares or Additional Preferred Shares or the exercise of the Warrants,
and such calculation shall assume that the Initial Preferred Shares and the
Additional Preferred Shares are then convertible into shares of Common Stock at
the then prevailing conversion rate of such shares and that the Warrants are
then exercisable for shares of Common Stock at the then prevailing exercise
price therein.

     3.9  UNDERWRITER STATUS AND RELATED MATTERS.

          (A) At the reasonable request of any Existing Investor, or at the
reasonable request of any other Investor that may be required under applicable
securities laws to be described in the Registration Statement as an underwriter,
the Company shall furnish to such Investor, on the date of the effectiveness of
the Registration Statement and thereafter from time to time on such dates as an
Investor may reasonably request (i) a letter, dated such date, from the
Company's independent certified public accountants in form and substance as is
customarily


                                       11



given by independent certified public accountants to underwriters in an
underwritten public offering, addressed to the Investor, and (ii) an opinion,
dated as of such date, of counsel representing the Company for purposes of such
Registration Statement, in customary form, scope and substance for similar
offerings, addressed to the Investors.

          (B) At the reasonable request of any Existing Investor, or at the
reasonable request of any other Investor that may be required under applicable
securities laws to be described in the Registration Statement as an underwriter,
the Company shall make available for inspection by (i) such Investor, (ii) such
Investor's Legal Counsel pursuant to Section 2.2 and (iii) one firm of
accountants or other agents retained by the Investors (collectively, the
"Inspectors"), all pertinent financial and other records, and pertinent
corporate documents and properties of the Company (collectively, the "Records"),
as shall be reasonably deemed necessary by each Inspector, and cause the
Company's officers, directors and employees to supply all information which any
Inspector may reasonably request; provided, however, that each Inspector shall
agree in writing to hold in strict confidence and not to make any disclosure
(except to such Investor) or use of any Record or other information which the
Company determines in good faith to be confidential, and of which determination
the Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement or is otherwise required under the 1933 Act, (b) the release of such
Records is ordered pursuant to a final, non-appealable subpoena or order from a
court or government body of competent jurisdiction, or (c) the information in
such Records has been made generally available to the public other than by
disclosure in violation of this or any other agreement of which the Inspector
has knowledge. Each Investor agrees that it shall, upon learning that disclosure
of such Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein (or in any other confidentiality agreement between
the Company and any Investor) shall be deemed to limit the Investors' ability to
sell Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.

          (C) Any underwriters and broker-dealers entering into underwriting or
distribution agreements with the Existing Investors in connection with any
Registration Statement or sale, transfer or other distribution in connection
therewith may be selected only by the Existing Investors, subject to approval by
the Company, which shall not be unreasonably withheld. The Company agrees that
it shall enter into such underwriting or distribution agreement, provided the
terms of such agreement are commercially reasonable.

     3.10 DISCLOSURE OF INFORMATION CONCERNING INVESTORS.

     The Company shall hold in confidence and not make any disclosure of
information concerning an Investor provided to the Company unless (i) disclosure
of such information is necessary to comply with federal or state securities
laws, (ii) the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation


                                       12



of this Agreement or any other agreement. The Company agrees that it shall, upon
learning that disclosure of such information concerning an Investor is sought in
or by a court or governmental body of competent jurisdiction or through other
means, give prompt written notice to such Investor and allow such Investor, at
the Investor's expense, to undertake appropriate action to prevent disclosure
of, or to obtain a protective order for, such information.

     3.11 LISTING OF REGISTRABLE SECURITIES.

     The Company shall use its best efforts either to (i) cause all of the
Registrable Securities covered by a Registration Statement to be listed on each
securities exchange on which securities of the same class or series issued by
the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) secure
designation and quotation of all of the Registrable Securities covered by a
Registration Statement on the NASDAQ National Market or NASDAQ Capital Market,
or (iii) if, despite the Company's best efforts to satisfy the preceding clause
(i) or (ii) the Company is unsuccessful in satisfying the preceding clause (i)
or (ii), to secure the inclusion for quotation on the OTC Bulletin Board for
such Registrable Securities and, without limiting the generality of the
foregoing, to use its best efforts to arrange for at least two market makers to
register with the National Association of Securities Dealers, Inc. ("NASD") as
such with respect to such Registrable Securities. The Company shall pay all fees
and expenses in connection with satisfying its obligation under this Section
3.11.

     3.12 UNLEGENDED CERTIFICATES.

     To the extent applicable, the Company shall cooperate with the Investors
who hold Registrable Securities being offered and, to the extent applicable,
facilitate the timely preparation and delivery of certificates (not bearing any
restrictive legend) representing the Registrable Securities to be offered
pursuant to a Registration Statement and enable such certificates to be in such
denominations or amounts, as the case may be, as the Investors may reasonably
request and registered in such names as the Investors may request.

     3.13 TRANSFER OF REGISTRABLE SECURITIES.

     If requested by an Investor, the Company shall as soon as practicable after
receipt of notice from such Investor and subject to Section 3.19 hereof, (i)
incorporate in a prospectus supplement or post-effective amendment such
information as an Investor reasonably requests to be included therein relating
to the sale and distribution of Registrable Securities, including, without
limitation, information with respect to the number of Registrable Securities
being offered or sold, the purchase price being paid therefor and any other
terms of the offering of the Registrable Securities to be sold in such offering;
(ii) make all required filings of such prospectus supplement or post-effective
amendment after being notified of the matters to be incorporated in such
prospectus supplement or post-effective amendment; and (iii) supplement or make
amendments to any Registration Statement if reasonably requested by an Investor
holding any Registrable Securities.


                                       13



     3.14 GOVERNMENTAL AGENCIES.

     The Company shall use its best efforts to cause the Registrable Securities
covered by a Registration Statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to consummate the
disposition of such Registrable Securities.

     3.15 DELIVERY OF EARNINGS STATEMENT.

     The Company shall make generally available to its security holders as soon
as practical, but not later than ninety (90) days after the close of the period
covered thereby, an earnings statement (in form complying with, and in the
manner provided by, the provisions of Rule 158 under the 1933 Act) covering a
twelve-month period beginning not later than the first day of the Company's
fiscal quarter next following the effective date of the Registration Statement.

     3.16 COMPLIANCE WITH LAWS.

     The Company shall otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC in connection with any registration
hereunder.

     3.17 CONFIRMATION.

     To the extent applicable, within two (2) Business Days after a Registration
Statement which covers Registrable Securities is ordered effective by the SEC,
the Company shall deliver, and shall cause legal counsel for the Company to
deliver, to the transfer agent for such Registrable Securities (with copies to
the Investors whose Registrable Securities are included in such Registration
Statement) confirmation that such Registration Statement has been declared
effective by the SEC.

     3.18 REPORTS UNDER THE 1934 ACT.

     With a view to making available to the Investors the benefits of Rule 144
promulgated under the 1933 Act or any other similar rule or regulation of the
SEC that may at any time permit the Investors to sell securities of the Company
to the public without registration ("Rule 144"), the Company agrees to:

          (A) make and keep public information available, as those terms are
understood and defined in Rule 144;

          (B) file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4.2 of the
Purchase Agreement) and the filing of such reports and other documents is
required for the applicable provisions of Rule 144; and

          (C) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company, if
true, that it has complied with the reporting requirements of Rule 144, the 1933
Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and


                                       14



documents so filed by the Company, and (iii) such other information as may be
reasonably requested to permit the Investors to sell such securities pursuant to
Rule 144 without registration.

     3.19 BLACKOUT PERIOD.

     Notwithstanding anything to the contrary herein, at any time after a
Registration Statement has been declared effective by the SEC, the Company may
delay the disclosure of material, non-public information concerning the Company
the disclosure of which at the time is not, in the good faith opinion of the
Board (as defined in Section 7.1), in the best interest of the Company and, in
the opinion of counsel to the Company, otherwise required (a "Grace Period");
provided, that the Company shall promptly (i) notify the Investors in writing of
the existence of material, non-public information giving rise to a Grace Period
(provided that in each notice the Company will not disclose the content of such
material, non-public information to the Investors) and the date on which the
Grace Period will begin, and (ii) notify the Investors in writing of the date on
which the Grace Period ends; and, provided further, that no Grace Period shall
exceed thirty (30) consecutive days and during any three hundred sixty five
(365) day period such Grace Periods shall not exceed an aggregate of
seventy-five (75) days and the first day of any Grace Period must be at least
five (5) trading days after the last day of any prior Grace Period (each, an
"Allowable Grace Period"). For purposes of determining the length of a Grace
Period above, the Grace Period shall begin on and include the date the Investors
receive the notice referred to in clause (i) and shall end on and include the
later of the date the Investors receive the notice referred to in clause (ii)
and the date referred to in such notice. The provisions of Section 3.6(a) hereof
shall not be applicable during the period of any Allowable Grace Period. Upon
expiration of the Grace Period, the Company shall again be bound by the first
sentence of Section 3.5 with respect to the information giving rise thereto
unless such material, non-public information is no longer applicable.

4.   OBLIGATIONS OF THE INVESTORS.

          (A) At least seven (7) Business Days prior to the first anticipated
filing date of a Registration Statement, the Company shall notify each Investor
in writing of the information the Company requires from each such Investor if
such Investor elects to have any of such Investor's Registrable Securities
included in such Registration Statement. It shall be a condition precedent to
the obligations of the Company to complete the registration pursuant to this
Agreement with respect to the Registrable Securities of a particular Investor
that such Investor shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it, as shall be reasonably
required to effect and maintain the effectiveness of the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request.

          (B) Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of any Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from such Registration Statement.


                                       15



          (C) Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Sections 3.6(a)
or 3.19 or the first sentence of Section 3.5, such Investor will immediately
discontinue disposition of Registrable Securities pursuant to any Registration
Statement(s) covering such Registrable Securities until such Investor's receipt
of the copies of the supplemented or amended prospectus contemplated by Section
3.6(a) or the first sentence of Section 3.5 or receipt of notice that no
supplement or amendment is required. Notwithstanding anything to the contrary,
the Company shall cause its transfer agent to deliver unlegended shares of
Common Stock to a transferee of an Investor in accordance with the terms of the
Purchase Agreement in connection with any sale of Registrable Securities with
respect to which an Investor has entered into a contract for sale prior to the
Investor's receipt of a notice from the Company of the happening of any event of
the kind described in Section 3.6(a) or the first sentence of Section 3.5 and
for which the Investor has not yet settled.

5.   EXPENSES OF REGISTRATION.

     All reasonable expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Sections 2 and 3, including, without limitation, all registration, listing and
qualifications fees, printers and accounting fees, and fees and disbursements of
counsel for the Company shall be paid by the Company. The Company shall also
reimburse the Existing Investors for the fees and disbursements of Legal Counsel
in connection with registration, filing or qualification pursuant to Sections 2
and 3 of this Agreement. In addition, the Company shall pay the Existing
Investors' reasonable costs (include legal fees) incurred in connection with the
successful enforcement of the Existing Investors' rights hereunder.

6.   ASSIGNMENT OF REGISTRATION RIGHTS.

     The rights under this Agreement to cause the Company to register
Registrable Securities pursuant to Sections 1 through 4 of this Agreement shall
be automatically assignable by any Investor to any transferee of all or any
portion of such Investor's Registrable Securities if: (i) such Investor agrees
in writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company; (ii) the Company is furnished with
written notice of (a) the name and address of such transferee or assignee, and
(b) the securities with respect to which such registration rights are being
transferred or assigned; (iii) the transferee or assignee agrees in writing with
the Company to be bound by the provisions contained herein to the same extent as
such Investor; and (iv) such transfer shall have been conducted in accordance
with all applicable federal and state securities laws.

7.   COMPANY BOARD OF DIRECTORS

     7.1  BOARD REPRESENTATION.

     The Company shall take all corporate action necessary to appoint to the
Board of Directors of the Company (the "Board"), promptly upon the Initial
Closing of the sale of the Initial Securities to Durus pursuant to the Purchase
Agreement, four individuals designated by Durus (each, an "Investor Designee"),
one of which shall also be designated to serve as the


                                       16



Chairman of the Board. Subject to Section 7.5 hereof, from and after the Initial
Closing, Durus shall have the continuing right to designate such number of
Investor Designees as necessary to constitute a majority of the members of the
Board and to designate the Chairman of the Board. Each Investor Designee shall
serve until the annual meeting of the Company's stockholders at which the term
of the class to which such Investor Designee has been appointed expires, and
until his or her respective successor is elected and qualified or until his or
her earlier death, resignation or removal from office. Unless Durus advises the
Board in writing of one or more replacement Investor Designees for the Company's
next annual or special meeting of stockholders at which directors are elected
and the term of one or more of the Investor Designees expires, then the Investor
Designee(s) for any such meeting shall be deemed to be the incumbent Investor
Designee(s). Such written notice by Durus shall be provided to the Board at
least seven (7) days prior to the date of the filing with the SEC of the proxy
statement relating to such meeting. The Company shall provide to Durus in
writing the filing date of such proxy statement at least thirty (30) days prior
to such filing date.

     7.2  EXECUTIVE COMMITTEE.

     At the Initial Closing, an executive committee of the Board (the "Executive
Committee") comprised of three directors shall be created and the Company shall
take all actions so that three Investor Designees are appointed to serve on the
Executive Committee. The Chief Executive Officer of the Company shall serve as
an advisory member of the Executive Committee. The Executive Committee shall
have and may exercise all the powers and authority of the Board in the
management of the business and affairs of the Company when (a) the Executive
Committee reasonably determines that action on a particular matter requires
immediate attention and that a meeting of the whole Board could not be arranged
within the period of time required to fully address such matter or (b) the
Executive Committee is otherwise prescribed such power with respect to one or
more matters by resolution of the whole Board; provided, however, that the
Executive Committee shall not have any power or authority over matters which by
law need whole Board approval or approval of the Audit Committee, Compensation
Committee or Nominating Committee of the Board. The affirmative vote of a
majority of the members of the Executive Committee must approve a particular
matter for it to be the act of the Executive Committee. If the affirmative vote
of a majority of the members of the Executive Committee on a particular matter
submitted to the Executive Committee for approval cannot be obtained, such
matter shall be submitted to the whole Board for approval. Notwithstanding the
foregoing, whole Board approval shall be required to approve (i) any operating
or capital expenditure or series of related expenditures exceeding $1,000,000,
unless such expenditure or expenditures were specifically approved by the Board
as a part of the Company's annual budget, (ii) the nomination of members for
election to the Board upon the recommendation of the Nominating Committee, and
(iii) transactions between the Company, on the one hand, and Durus or any
Affiliate of Durus, on the other hand. Written or printed notice stating the
place, day and hour of any meeting of the Executive Committee and the purpose or
purposes for which the meeting is called shall be delivered to each member of
the Executive Committee so that it is received by such member not less than one
day before the date of the meeting. Any action required or permitted to be taken
at a meeting of the Executive Committee may be taken without a meeting if a
consent in writing, setting forth the action so taken, is signed by all the
members of the Executive Committee.


                                       17



     7.3 OTHER COMMITTEES.

     At the Initial Closing, the Company shall take all necessary action so that
the Investor Designees selected by Durus are appointed to serve as members
constituting at least a majority of each other committee of the Board, including
the Audit Committee, the Compensation Committee and the Nominating Committee,
subject to applicable law and NASDAQ requirements.

     7.4 CERTAIN OFFICERS.

     Subject to Section 7.5 hereof, at and after the Initial Closing, the
Company shall not, without the approval of Durus, make any nominations of
individuals for election to the offices of Chief Executive Officer and Chief
Financial Officer of the Company.

     7.5 CONTINUATION OF RIGHTS.

          (A) So long as Durus Beneficially Owns at least fifty percent (50%) or
more of the Company's outstanding shares of Common Stock (including shares owned
by Durus prior to the Initial Closing), (A) Durus shall be entitled to, in
accordance with the provisions hereof, (i) designate such number of Investor
Designees as necessary to constitute a majority of the members of the Board,
(ii) designate three Investor Designees to serve on the Executive Committee, and
(iii) designate Investor Designees to serve as members constituting a majority
of the members of each other committee of the Board, and (B) the Company shall
not, without Durus' approval, (i) appoint or designate a person to serve as the
Chairman of the Board or (ii) nominate the Chief Executive Officer and the Chief
Financial Officer.

          (B) As long as Durus is entitled to designate Investor Designees in
accordance with this Section 7, the Company agrees to continue to cause such
Investor Designees (or their respective successors designated by Durus) to be
nominated for election to the Board at each annual or special meeting of
stockholders at which directors are elected after the Initial Closing when the
term of office of any Investor Designee expires. To the extent the Company's
proxy statement for any meeting of stockholders includes a recommendation
regarding the election of any other nominees to the Board, the Company agrees to
include a recommendation that the stockholders also vote in favor of the
Investor Designee(s) that are nominated for election to the Board in accordance
with this Section 7.

     7.6 VACANCIES.

     If, following an election or appointment to the Board or committee thereof
pursuant to this Section 7, any Investor Designee shall resign or be removed or
be unable to serve for any reason prior to the expiration of his or her term as
a director of the Company, a member of the Executive Committee and any other
applicable committee, then Durus shall have the right to fill such vacancy with
a replacement Investor Designee, and the Company shall cause such replacement
Investor Designee to be appointed to the Board and the Executive Committee and
any other applicable committee to fill the unexpired term of the Investor
Designee who such new Investor Designee is replacing.


                                       18



     7.7 COSTS AND EXPENSES.

     The Investor Designees shall be entitled to receive the same compensation
and reimbursement of expenses, and to participate in the same benefit and
incentive plans, as the Company provides members of the Board generally and, to
the extent applicable to such Investor Designee, non-employee members of the
Board generally. In addition, the Company will pay all reasonable out-of-pocket
expenses incurred by Investor Designees in connection with their participation
in meetings of the Board (and committees thereof) and the Boards of Directors
(and committees thereof) of the subsidiaries of the Company.

     7.8 DIRECTORS' INDEMNIFICATION.

          (A) The Corporation shall obtain and cause to be maintained in effect,
with financially sound insurers, a policy of directors and officers' liability
insurance in such amount and upon such terms as are reasonably acceptable to
Durus until at least six years following the date on which (i) Durus is no
longer entitled to nominate a director pursuant to Section 7.5 and (ii) no
Investor Designees serve as directors of the Company.

          (B) The Company's Restated Certificate of Incorporation ("Certificate
of Incorporation") or Amended and Restated By-Laws ("By-Laws"), or both, shall
to the fullest extent permitted by law provide for indemnification of, and
advancement of expenses to, and limitation of the personal liability of, (i)
Durus and the Investor Designees for, in each case, the actions of such
Investors Designees as directors of the Company, and (ii) the other directors of
the Company for their actions as directors of the Company, which provisions
shall not be amended, repealed or otherwise modified in any manner adverse to
the directors until at least six years following the date on which (i) Durus is
no longer entitled to nominate a director pursuant to Section 7.5 and (ii) no
Investor Designees serve as directors of the Company.

     7.9 SERIES B PREFERRED DIRECTOR.

     Notwithstanding anything herein to the contrary, the Company and the Board
shall approve of and shall take all actions as may be necessary to elect the
director that the holders of the Series B Preferred Stock of the Company are
entitled to cause the nomination and election of pursuant to Article III.5(b) of
the Certificate of Designation. In addition, for so long as Durus or its
Affiliates own at least fifty percent (50%) of the outstanding shares of Series
B Preferred Stock and the holders of Series B Preferred Stock of the Company are
entitled to elect a director pursuant to Article III.5(b) of the Certificate of
Designation, (i) one of the Investor Designees shall be the director elected by
the holders of the Series B Preferred Stock pursuant to Article III.5(b) of the
Certificate of Designation, and (ii) Durus or its Affiliates, as the case may
be, shall have the right to designate such Investor Designee elected by the
holders of the Series B Preferred Stock as a member of any or all committees of
the Board, subject to applicable law and NASDAQ requirements.

     7.10 CERTIFICATE OF INCORPORATION; BY-LAWS.

     To the fullest extent permitted by law, the Company shall ensure that the
Company's Certificate of Incorporation and By-Laws as in effect immediately
following the Initial Closing do not, at any time thereafter, conflict in any
respect with the provisions of this Agreement. In


                                       19



addition, the Company agrees that it will not amend its By-Laws or adopt a
resolution in accordance with its By-Laws to change the size of the Board to a
size other than seven members without the approval of a majority of the Investor
Designees.

     7.11 PERFORMANCE

     Notwithstanding anything to the contrary set forth in this Section 7, the
Board shall be entitled to act in accordance with its fiduciary obligations to
the Company under applicable law, and shall be entitled to take such actions as
are necessary to comply with applicable law, with respect to the performance of
the Company's obligations under this Agreement

8. COVENANTS OF THE COMPANY

     8.1 INSPECTION.

          (A) The Company shall permit each Existing Investor holding any shares
of Registrable Securities, at such Existing Investor's expense, to visit and
inspect the Company's properties, to examine its books of account and records
and to discuss the Company's affairs, finances and accounts with its officers,
all at such reasonable times as may be reasonably requested by the Existing
Investor; provided, however, that the Company shall not be obligated pursuant to
this Section 8.1 to provide access to any information that it reasonably
considers to be a trade secret or similar confidential information, unless such
Existing Investor executes a confidentiality and nondisclosure agreement prior
to any such visit and inspection.

          (B) The Company shall provide Durus at least five (5) Business Days'
notice of any regular meeting of the Board and, if requested by Durus, the
agenda items for such meeting.

     8.2 DELIVERY OF FINANCING STATEMENTS AND OTHER REPORTS.

     The Company shall deliver to Durus the following:

          (A) Unless filed with the SEC through the EDGAR system and 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, 10-KSB, 10-Q or 10-QSB, 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;

          (B) As soon as available and in any event not later than 30 days prior
to the end of each fiscal year of the Company, a budget approved by the Board,
prepared on a monthly and quarterly basis, such budget to be prepared in
accordance with U.S. generally accepted accounting principles, consistently
applied ("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


                                       20



          (C) Promptly from time to time, such other information relating to the
financial condition, business, prospects or corporate affairs of the Company as
Durus may from time to time reasonably request, or promptly after transmission
or occurrence (but in any event within 10 days) other reports, press releases
and non-routine communications with stockholders or the financial community
generally, any reports filed by the Company or its officers, directors and
representatives with any securities exchange or the SEC and notice of any event
which would have a material adverse effect on the Company's results of
operations, business, prospects or financial condition or on Durus' investment,
provided, however, that the Company shall not be obligated under this Section
8.2(c) to provide information that it deems in good faith to be a trade secret
or similar confidential information, and provided, further, that the Company may
require Durus to execute a confidentiality and nondisclosure agreement prior to
disclosure of any information.

     8.3 RIGHT OF FIRST REFUSAL UPON SALE OF COMPANY.

          (A) Before the Company proposes to sell the Company or greater than
thirty percent (30%) of the fully diluted capital stock of the Company (the
"Offered Shares") to a third party (a "Proposed Acquirer") or the Company
otherwise accepts a bona fide offer from a Proposed Acquirer to acquire the
Company or the Offered Shares, whether such sale or acquisition is by sale of
stock, merger, sale of substantially all of the Company's assets or otherwise,
the Company shall transmit such proposal or offer (the "Offer Notice") to Durus
who shall have the right, as described herein, to acquire the Company or the
Offered Shares on terms and conditions, including price, at least as favorable
to Durus as the terms and conditions applying to the Proposed Acquirer. The
Offer Notice shall disclose the identity of the Proposed Acquirer, the terms and
conditions, including price, of the proposed sale, and any other material facts
relating to the proposed sale. If the consideration is readily marketable, the
fair market value thereof shall be determined on the date of the Offer.
Otherwise, the value shall be determined by mutual agreement of the Company and
Durus, and, if no agreement is reached, then the value shall be determined by a
third party mutually agreeable to the Company and Durus. Notwithstanding the
foregoing, the rights described in this Section 8.3(a) shall not apply to any
transaction in which the Company will acquire another business entity, by merger
or otherwise, and in which the stockholders of the Company immediately prior to
the acquisition will hold a majority of the voting securities of the resulting
entity immediately after the acquisition.

          (B) If Durus elects to purchase the Offered Shares, Durus shall
communicate such election in writing ("Written Election") to the Company within
thirty (30) days of the date that Durus received the Offer Notice. The Written
Election shall, when taken in conjunction with the Offer Notice, be deemed to
constitute a valid, legally binding and enforceable agreement for the sale and
purchase of such Offered Shares. The closing of the sale of the Offered Shares
to Durus pursuant to this Section 8.3 shall be made at the offices of the
Company on the thirtieth (30th) day following receipt by the Company of the
Written Election (or if such 30th day is not a Business Day, then on the next
succeeding Business Day).

          (C) If the Company has not received a Written Election from Durus
within thirty (30) days of the date that Durus receives the Offer Notice, or if
at any time during that period Durus indicates in writing its decision not to
purchase the Offered Shares, the Company


                                       21



may accept the offer of the Proposed Acquirer. Any such sale shall be to the
Proposed Acquirer at not less than the price, and upon other terms and
conditions, if any, not more favorable to the Proposed Acquirer than those
specified in the Offer Notice. In the event the Company has not sold the Offered
Shares within ninety (90) days of the date of the Offer Notice, the Company
shall not thereafter sell the Offered Shares without first offering such Offered
Shares to Durus in the manner provided in this Section 8.3.

     8.4 NOTICE OF LITIGATION

     The Company will provide notice to each Existing Investor upon the filing
of any material action, suit or proceeding by or against the Company.

     8.5 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, 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.

     8.6 PAYMENT OF TAXES, ETC.

     The Company will promptly pay and discharge, or cause to be paid and
discharged, when due and payable, all lawful taxes, assessments and governmental
charges or levies imposed upon the income, profits, property or business of the
Company or any subsidiary; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall have
set aside on its books adequate reserves with respect thereto, and provided,
further, that the Company will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose to be paid
when due, or in conformance with customary trade terms or otherwise in
accordance with policies related thereto adopted by the Board.

     8.7 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, 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.


                                       22



     8.8 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.

     8.9 COMPLIANCE WITH REQUIREMENTS OF GOVERNMENTAL AUTHORITIES.

     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.

     8.10 MAINTENANCE OF PROPERTIES, ETC.

     The Company will, and will cause each of its subsidiaries to, 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.

     8.11 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 in
connection the operation and proper conduct of its business and ownership of its
properties.

     8.12 PROTECTION OF INTELLECTUAL PROPERTY RIGHTS.

     The Company will, and will cause each of its subsidiaries to, protect,
defend and maintain the validity and enforceability of its intellectual
property. The Company shall require all employees and consultants to enter into
the Company's standard form of proprietary information and inventions agreement.

     8.13 RESTRICTIONS ON CERTAIN CORPORATE ACTIONS.

     The Company shall not, and shall not permit any of its subsidiaries to,
directly or indirectly, take any of the following actions without the approval
of the Board, including a majority of the Investor Designees:

          (A) change the size of the Board to a number of directors other than
seven (7) or otherwise alter or change the Company's By-Laws;

          (B) declare or pay dividends or make other distributions on the
capital stock of the Company;

          (C) redeem, purchase or otherwise acquire (or pay into or set aside
for a sinking fund for such purpose) any share or shares of Common Stock or any
series of Preferred


                                       23



Stock; provided, however, that this restriction does not apply to the repurchase
of shares of Common Stock from employees, officers, directors, consultants or
other persons performing services for the Company or any subsidiary pursuant to
agreements under which the Company has the option to repurchase such shares at
cost upon the occurrence of certain events, such as the termination of
employment or other provision of services to the Company;

          (D) approve any material change in the Company's principal line of
business or business plan;

          (E) approve or enter into any agreement to which any officer,
director, employee or stockholder of the Company is directly or indirectly a
party or beneficiary (other than the payment of salary or related compensation
in the ordinary course of business or any compensation approved by the
Compensation Committee of the Board), including any employee benefit, bonus or
stock plan if such will provide more benefits than are then provided to such
person;

          (F) grant any individual options in excess of 1% of the issued and
outstanding shares of Common Stock of the Company or change the Company's stock
option plan to increase the number of options thereunder to an amount greater
than 10% of the outstanding shares of Common Stock;

          (G) terminate or approve the hiring or termination of the Company's
Chief Executive Officer or the Chief Financial Officer or any other officer of
equivalent or senior status;

          (H) approve the Company's annual and periodic budgets and business
plans;

          (I) incur any indebtedness in excess of $500,000 individually or
$2,000,000 in the aggregate

          (J) enter into any agreement, contract or other financial commitment
in excess of $1,000,000 individually or in the aggregate;

          (K) permit to exist any mortgage, deed of trust, pledge, security
interest, assignment, charge, encumbrance, lien or other type of preferential
arrangement on any property of the Company with a value in excess of $1,000,000;

          (L) effect any transaction described in Section 2(b) of the Company's
Certificate of Designation, or effect any reclassification or recapitalization
of the outstanding capital stock of the Company; and

          (M) issue any press releases or marketing materials or make any other
written public announcement or disclosure concerning the Company, except where
not practicable if immediate disclosure is required under applicable law.


                                       24



     8.14 TERMINATION OF CERTAIN COVENANTS.

     Sections 8.3 through 8.14 of this Agreement shall terminate and be of no
further force or effect at such time at which Durus Beneficially Owns less than
fifty percent (50%) or more of the Company's outstanding shares of Common Stock.

9. INDEMNIFICATION.

     In the event any Registrable Securities are included in a Registration
Statement under this Agreement:

          (A) To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Investor, the directors,
officers, stockholders, members, partners, managers, employees, agents,
representatives of, and each Person, if any, who controls any Investor within
the meaning of the 1933 Act or the 1934 Act (each, an "Indemnified Person"),
against any losses, claims, damages, liabilities, judgments, fines, penalties,
charges, costs, reasonable attorneys' fees, amounts paid in settlement or
expenses, joint or several, (collectively, "Claims") incurred in investigating,
preparing or defending any action, claim, suit, inquiry, proceeding,
investigation or appeal taken from the foregoing by or before any court or
governmental, administrative or other regulatory agency, body or the SEC,
whether pending or threatened, whether or not an indemnified party is or may be
a party thereto ("Indemnified Damages"), to which any of them may become subject
insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or any post-effective amendment thereto or in any filing made in
connection with the qualification of the offering under the securities or other
"blue sky" laws of any jurisdiction in which Registrable Securities are offered
("Blue Sky Filing"), or the omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus if used prior to the
effective date of such Registration Statement, or contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading, (iii) any violation or alleged violation by the Company of
the 1933 Act, the 1934 Act, any other law, including, without limitation, any
state securities law, or any rule or regulation thereunder relating to the offer
or sale of the Registrable Securities pursuant to a Registration Statement or
(iv) any violation of this Agreement (the matters in the foregoing clauses (i)
through (iv) being, collectively, "Violations"). Subject to Section 9(c), the
Company shall reimburse the Indemnified Persons, promptly as such expenses are
incurred and are due and payable, for any legal fees or other reasonable
expenses incurred by them in connection with investigating or defending any such
Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 9(a): (i) shall not apply to
a Claim by an Indemnified Person arising out of or based upon a Violation which
occurs in reliance upon and in conformity with information furnished in writing
to the Company by such Indemnified Person for such Indemnified Person expressly
for use in connection with the preparation of the Registration Statement or any
such amendment thereof or supplement thereto;


                                       25



(ii) shall not be available to the extent such Claim is based on a failure of
the Investor to deliver or to cause to be delivered the prospectus made
available by the Company, including a corrected prospectus, if such prospectus
or corrected prospectus was timely made available by the Company pursuant to
Section 3.3; and (iii) shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of the
Company, which consent shall not be unreasonably withheld or delayed. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 6.

          (B) In connection with any Registration Statement in which an Investor
is participating, each such Investor agrees to severally and not jointly
indemnify, hold harmless and defend, to the same extent and in the same manner
as is set forth in Section 9(a), the Company, each of its directors, each of its
officers who signs the Registration Statement and each Person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act (each,
an "Indemnified Party"), against any Claim or Indemnified Damages to which any
of them may become subject, under the 1933 Act, the 1934 Act or otherwise,
insofar as such Claim or Indemnified Damages arise out of or are based upon any
Violation, in each case to the extent, and only to the extent, that such
Violation occurs in reliance upon and in conformity with written information
furnished to the Company by such Investor expressly for use in connection with
such Registration Statement; and, subject to Section 9(c), such Investor will
reimburse any legal or other expenses reasonably incurred by an Indemnified
Party in connection with investigating or defending any such Claim; provided,
however, that the indemnity agreement contained in this Section 9(b) and the
agreement with respect to contribution contained in Section 10 shall not apply
to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of such Investor, which consent shall not be
unreasonably withheld or delayed; provided further, however, that the Investor
shall be liable under this Section 9(b) for only that amount of a Claim or
Indemnified Damages as does not exceed the net proceeds to such Investor as a
result of the sale of Registrable Securities pursuant to such Registration
Statement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Indemnified Party and shall
survive the transfer of the Registrable Securities by the Investors pursuant to
Section 6. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 9(b) with respect to any
preliminary prospectus shall not inure to the benefit of any Indemnified Party
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented.

          (C) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 9 of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving a Claim,
such Indemnified Person or Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 9,
deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one counsel for all such
Indemnified Person or Indemnified


                                       26



Party to be paid by the indemnifying party, if (i) in the reasonable opinion of
counsel retained by the indemnifying party, the representation by such counsel
of the Indemnified Person or Indemnified Party and the indemnifying party would
be inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding or (ii) the indemnifying party shall have failed
promptly to assume the defense of such proceeding or shall have failed to employ
counsel reasonably satisfactory to such Indemnified Person or Indemnified Party;
provided further, that the indemnifying party shall not be responsible for the
reasonable fees and expenses of more than one (1) separate legal counsel for all
such Indemnified Persons or Indemnified Parties, respectively. In the case of an
Indemnified Person, legal counsel referred to in the immediately preceding
sentence shall be selected by the Investors holding at least a majority in
interest of the Registrable Securities included in the Registration Statement to
which the Claim relates. The Indemnified Party or Indemnified Person shall
cooperate reasonably with the indemnifying party in connection with any
negotiation or defense of any such action or Claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the Indemnified Party or Indemnified Person which relates to such action or
Claim. The indemnifying party shall keep the Indemnified Party or Indemnified
Person fully apprised at all times as to the status of the defense or any
settlement negotiations with respect thereto. No indemnifying party shall be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent, provided, however, that the indemnifying party shall
not unreasonably withhold, delay or condition its consent. No indemnifying party
shall, without the prior written consent of the Indemnified Party or Indemnified
Person, consent to entry of any judgment or enter into any settlement or other
compromise which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party or Indemnified Person of a
release from all liability in respect to such Claim or litigation. Following
indemnification as provided for hereunder, the indemnifying party shall be
subrogated to all rights of the Indemnified Party or Indemnified Person with
respect to all third parties, firms or corporations relating to the matter for
which indemnification has been made. The failure to deliver written notice to
the indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 9, except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action.

          (D) No Person involved in the sale of Registrable Securities who is
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) in connection with such sale shall be entitled to
indemnification from any Person involved in such sale of Registrable Securities
who is not guilty of fraudulent misrepresentation.

          (E) The indemnification required by this Section 9 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or Indemnified Damages are incurred.

          (F) The indemnity agreements contained herein shall be in addition to
(i) any cause of action or similar right of the Indemnified Party or Indemnified
Person against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.


                                       27



10. CONTRIBUTION.

     To the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under Section
9 to the fullest extent permitted by law; provided, however, that: (i) no
contribution shall be made under circumstances where the maker would not have
been liable for indemnification under the fault standards set forth in Section 9
of this Agreement, (ii) no Person involved in the sale of Registrable Securities
which Person is guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) in connection with such sale shall be entitled to
contribution from any Person involved in such sale of Registrable Securities who
was not guilty of fraudulent misrepresentation; and (iii) contribution by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities
pursuant to such Registration Statement.

11. NO INCONSISTENT AGREEMENTS OR ACTIONS.

     The Company agrees that it shall not hereafter enter into any agreement or
take any action that conflicts with the rights granted to the Investors in this
Agreement, and the Company shall not effect the registration of any shares of
its capital stock other than Registrable Securities at any time during the first
year of the Registration Period without the prior written consent of Durus.
Notwithstanding the foregoing, nothing herein shall prevent or limit the
Company's ability to effect the registration of its capital stock relating to
any employee benefit plan on Form S-8 (or any substitute form that may be
adopted by the SEC).

12. LOCKUP

     To the extent timely requested by an underwriter or broker-dealer in an
offering by the Existing Investors pursuant to a Registration Statement, the
Company agrees not to effect any offer, sale or other distribution of any of its
capital stock, including any private placement, or to pledge, contract or
otherwise obligate itself to do so, during the period beginning 30 days before
the ending of the number of days reasonably requested by such underwriter or
broker-dealer (but not to exceed 180 days) after such offering (except as part
of such offering, if permitted, or pursuant to one or more registration
statements relating to any employee benefit plan on Form S-8 or any substitute
form that may be adopted by the SEC).

13. AMENDMENT OF REGISTRATION RIGHTS.

     Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with the written consent of the Company, Durus and the
holders of a majority in interest of the Registrable Securities; provided,
however, that any such amendment or waiver that would have an adverse and
disproportionate effect on the holders of the Note Shares must be approved by a
majority of the holders in interest of the Note Shares. Any amendment or waiver
effected in accordance with this Section 13 shall be binding upon each Existing
Investor and the Company. No consideration shall be offered or paid to any
Person to amend or consent to a waiver or modification of any provision of any
of this Agreement unless the same consideration also is


                                       28



offered to all of the parties to this Agreement. Notwithstanding the foregoing,
the rights specifically granted in this Agreement to Durus under Section 7 and
Section 8.3 shall not be assignable by Durus without the prior written consent
of the Company.

14. ENTIRE AGREEMENT; TERMINATION OF EXISTING REGISTRATION RIGHTS AGREEMENT.

     This Agreement, the other Transaction Documents (as defined in the Purchase
Agreement) and the instruments referenced herein and therein constitute the
entire agreement among the parties hereto with respect to the subject matter
hereof and thereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and therein. This
Agreement, the other Transaction Documents and the instruments referenced herein
and therein supersede and terminate all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and thereof,
including the Registration Rights Agreement dated as of February 23, 2004 by and
among Durus, Artal and the Company.

15. MISCELLANEOUS.

          (A) A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from such record owner of such Registrable Securities.

          (B) Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one Business Day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:


                                       29



          If to the Company:

               Aksys, Ltd.
               Two Marriott Drive
               Lincolnshire, Illinois 60069
               Attn: ______________
               Telecopy: (847) ___-____
               Telephone: (847) ___-____

          With a copy to:

               Kirkland & Ellis LLP
               200 East Randolph Drive
               Chicago, Illinois 60601
               Attn: Keith S. Crow, P.C.
               Telecopy: (312) ___-____
               Telephone: (312) ___-____

          If to Durus, to:

               Durus Life Sciences Master Fund Ltd.
               c/o International Fund Services (Ireland) Limited
               3rd Floor, Bishops Square
               Redmonds Hill
               Dublin 2, Ireland
               Attn: Susan Byrne
               Telecopy: (011) 35-31-707-5113
               Telephone: (011) 35-31-707-5013

          With copies to:

               Morrison & Foerster, LLP
               425 Market Street
               San Francisco, CA 94105
               Attn: Gavin B. Grover
               Telecopy: (415) 268-7522
               Telephone: (415) 268-7113

               -and-

               Schulte Roth & Zabel LLP
               919 Third Avenue
               New York, NY 10022
               Attn: Paul N. Roth
               Telecopy: (212) 593-5955
               Telephone: (212) 756-2000


                                       30



          If to Artal, to:

               Artal Long Biotech Portfolio LLC
               c/o Artal Alternative Treasury Management
               19A Rue de la Croix-d'or
               Geneva
               Switzerland
               Attn: _________________

          With a copy to:

               Shartsis, Friese & Ginsburg LLP
               One Maritime Plaza, 18th Floor
               San Francisco, CA 94111
               Attn: Carolyn Gorman, Esq.
               Telecopy: (415) 421-2922
               Telephone: (415) 421-6500

     If to any Investor other than Durus or Artal, to such address as may
hereafter be designated in writing by such Investor to the other parties hereto.

     Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender's facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission or (C)
provided by a courier or overnight courier service shall be rebuttable evidence
of personal service, receipt by facsimile or receipt from a nationally
recognized overnight delivery service in accordance with clause (i), (ii) or
(iii) above, respectively.

          (C) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.

          (D) In order to attract and retain the most qualified individuals who
are involved in the Company's industry and who understand the Company's
business, the parties hereto agree that Durus may designate as Investor
Designees pursuant to Section 7 hereof individuals who (i) may participate or
will participate, directly or through Durus and its Affiliates, in businesses
that compete with, or are substantially the same as the business of the Company
or its subsidiaries, (ii) may have an interest in, participate with, and serve
as directors, officers or employees of other Persons engaged in businesses that
compete with, or are substantially the same as, the business of the Company or
its subsidiaries and (iii) may develop business opportunities for Durus, Durus'
Affiliates or the Investor Designees, other than in each case individuals who
are also employees of the Company or any of its subsidiaries. Although the
parties hereto do not anticipate any overlap in terms of corporate opportunities
of the businesses in which Durus or the Investor Designees are or will be
involved and the business of the Company and its subsidiaries, in order to
enable the Company to attract the most qualified individuals as members of the
Board, the Company wishes to, and hereby does, renounce any interest or
expectancy of the Company in, or in being offered an opportunity to participate
in,


                                       31



any Excluded Opportunity. An "Excluded Opportunity" is any matter, transaction
or interest that is presented to, or acquired, created or developed by, or which
otherwise comes into the possession of, (i) an Investor Designee who is not an
employee of the Company or any of its subsidiaries, or (ii) Durus or any
partner, member, director, stockholder, employee, Affiliate or agent of Durus,
other than an individual who is an employee of the Company or any of its
subsidiaries (collectively, "Covered Persons"), unless such matter, transaction
or interest is presented to, or acquired, created or developed by, or otherwise
comes into the possession of, a Covered Person expressly and solely in such
Covered Person's capacity as a director of the Corporation.

          (E) Subject to Section 15(d), the Investor Designees, Durus and Durus'
Affiliates may engage or invest independently or with others, in any business
activity of any type or description, including without limitation those that
might be the same as or similar to the businesses of the Company or its
subsidiaries, and neither the Company, any subsidiary of the Company, nor any
other stockholder of the Company shall have any right in or to such business
activities or ventures or to receive or share in any income or proceeds derived
therefrom.

          (F) All questions concerning the construction, validity, enforcement
and interpretation of this Agreement shall be governed by the internal laws of
the State of New York, without giving effect to any choice of law or conflict of
law provision or rule (whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of New York. Each party hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in The City of
New York, Borough of Manhattan, for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.

          (G) Subject to the requirements of Section 6, this Agreement shall
inure to the benefit of and be binding upon the permitted successors and assigns
of each of the parties hereto.

          (H) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.


                                       32



          (I) This Agreement may be executed in identical counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.

          (J) Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents as any other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.

          (K) All consents and other determinations required to be made by the
Investors pursuant to this Agreement shall be made, unless otherwise specified
in this Agreement, by the holders of a majority in interest of the Registrable
Securities; provided, however, that any consent or other determination the
result of which would have an adverse and disproportionate effect on the
Existing Investors must be consented to or determined by, as the case may be,
the Existing Investors.

          (L) The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent and no rules of
strict construction will be applied against any party.

          (M) This Agreement is intended for the benefit of the parties hereto
and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.

          (N) The parties hereto acknowledge that money damages would not be an
adequate remedy at law if any party fails to perform in any material respect any
of its obligations hereunder, and accordingly agree that each party, in addition
to any other remedy to which it may be entitled at law or in equity, shall be
entitled to specific performance of the obligations of any other party under
this Agreement, without the posting of any bond, in accordance with the terms
and conditions of this Agreement, and if any action should be brought in equity
to enforce any of the provisions of this Agreement, none of the parties hereto
shall raise the defense that there is an adequate remedy at law. Except as
otherwise provided by law, a delay or omission by a party hereto in exercising
any right or remedy accruing upon any such breach shall not impair the right or
remedy or constitute a waiver of or acquiescence in any such breach. No remedy
shall be exclusive of any other remedy. All available remedies shall be
cumulative.

          (O) The obligations of each Investor hereunder are several and not
joint with the obligations of any other Investor, and no provision of this
Agreement is intended to confer any obligations on any Investor vis-a-vis any
other Investor. Nothing contained herein, and no action taken by any Investor
pursuant hereto, shall be deemed to constitute the Investors as a partnership,
an association, a joint venture or any other kind of entity, or create a
presumption that the Investors are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated herein.


                                       33



     IN WITNESS WHEREOF, the Existing Investors and the Company have caused
their respective signature page to this Investor Rights Agreement to be duly
executed as of the date first written above.

                                        AKSYS, LTD.


                                        By: /s/ Larry Birch
                                            ------------------------------------
                                            Name: L. Birch
                                            Title: CFO


                                        DURUS LIFE SCIENCES MASTER FUND LTD.


                                        By: /s/ Leslie L. Lake
                                            ------------------------------------
                                            Name: Leslie L. Lake
                                            Title: Director


                                        ARTAL LONG BIOTECH PORTFOLIO LLC


                                        By: Artal Alternative Treasury
                                            Management
                                        Its: Managing Member


                                        By: /s/ Christian Tedeschi
                                            ------------------------------------
                                            Name: Christian Tedeschi
                                            Title: Managing Director


                                       34

EX-10.5

                                                                    Exhibit 10.5

                                WARRANT AGREEMENT

                                     Between

                                   AKSYS, LTD.

                                       And

                   CONTINENTAL STOCK TRANSFER & TRUST COMPANY

                            Dated as of June 23, 2006



     This Agreement, dated as of June 23, 2006, is between Aksys, Ltd., a
Delaware corporation (the "Company"), and Continental Stock Transfer & Trust
Company, as warrant agent (the "Warrant Agent").

                                    RECITALS

     WHEREAS, the Company has entered into a Securities Purchase Agreement (the
"Purchase Agreement") dated as of March 31, 2006 by and between the Company and
Durus Life Sciences Master Fund Ltd. (the "Investor");

     WHEREAS, pursuant to the Purchase Agreement, the Company has agreed to sell
to the Investor, and the Investor has agreed to acquire from the Company, (i)
five thousand (5,000) shares of the Company's Series B Convertible Preferred
Stock (the "Preferred Shares"), each of which Preferred Share is 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 (ii) warrants (the
"Warrants") to purchase at an initial exercise price of $1.10 per share five
million (5,000,000) shares of Common Stock (the "Warrant Shares");

     WHEREAS, pursuant to the Purchase Agreement, the Company has agreed to sell
to the Investor or other persons or entities designated by the Investor (such
other persons or entities designated by the Investor herein are collectively
referred to with the Investor as the "Investors"), and the Investors have the
option to purchase, in one or more installments, for an aggregate purchase price
of up to $15,000,000, additional preferred shares and warrants containing
substantially the same terms and conditions as the Preferred Shares and the
Warrants except that the expiration date of such later issued warrants shall be
five years from their original date of issue (any such later acquired preferred
shares and warrants are herein collectively referred to with the initially
issued Preferred Shares and Warrants as the "Preferred Shares" and the
"Warrants", respectively, and the initially issued Warrants under the Purchase
Agreement are sometimes referred to herein as the "Initial Warrants");

     WHEREAS, the Company wishes to retain the Warrant Agent to act on behalf of
the Company, and the Warrant Agent is willing so to act, in connection with the
issuance, transfer, exchange and replacement of the certificates evidencing the
Warrants to be issued under this Agreement (the "Warrant Certificates") and the
exercise of the Warrants;

     WHEREAS, the Company and the Warrant Agent wish to enter into this
Agreement to set forth the terms and conditions of the Warrants and the rights
of the holders thereof ("Warrantholders") and to set forth the respective rights
and obligations of the Company and the Warrant Agent; and

     WHEREAS, each Warrantholder is an intended beneficiary of this Agreement
with respect to the rights of Warrantholders herein.

     NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth and for the purpose of defining the terms and provisions of the
Warrants and the


                                       1



Warrant Certificates and the respective rights and obligations thereunder of the
Company, the Warrantholders and the Warrant Agent, the parties hereto agree as
follows:

     SECTION 1. APPOINTMENT OF WARRANT AGENT

     The Company appoints the Warrant Agent to act as agent for the Company in
accordance with the instructions in this Agreement and the Warrant Agent accepts
such appointment.

     SECTION 2. DATE, DENOMINATION AND EXECUTION OF WARRANT CERTIFICATES

     The Warrant Certificates (and the Form of Election to Purchase and the Form
of Assignment to be printed on the reverse thereof) shall be in registered form
only and shall be substantially in the form attached hereto as Exhibit A (the
provisions of which are hereby incorporated herein), and may have such letters,
numbers or other marks of identification or designation and such legends,
summaries or endorsements printed, lithographed or engraved thereon as the
Company may deem appropriate and as are not inconsistent with the provisions of
this Agreement, or as may be required to comply with any law, or with any rule
or regulation made pursuant thereto, or with any rule or regulation of any stock
exchange or automated quotation system on which the Common Stock (or other
securities issuable upon exercise of the Warrants) or the Warrants may be
listed, or to conform to usage. Each Warrant Certificate for the Initial
Warrants shall entitle the registered holder thereof, subject to the provisions
of this Agreement and of the Warrant Certificate, to purchase, on or before the
close of business on June 23, 2011 (the "Expiration Date"), and each Warrant
Certificate for any later issued series of Warrants shall entitle the registered
holder thereof, subject to the provisions of this Agreement and the Warrant
Certificate, to purchase, on or before the date that is the first business day
falling five years after the initial date of issuance of such later issued
Warrants (and such date shall be the "Expiration Date" for such later issued
series of Warrants), one fully paid and non-assessable share of Common Stock for
each Warrant evidenced by such Warrant Certificate for $1.10 (the "Exercise
Price), in each case subject to the adjustments provided in Section 6 hereof.
Each Warrant Certificate issued to the Investors as described in the recitals,
above, shall be dated the date of issuance thereof; and each other Warrant
Certificate shall be dated the date on which the Warrant Agent receives valid
issuance instructions from the Company or a transferring holder of a Warrant
Certificate or, if such instructions specify another date, such other date.

     For purposes of this Agreement, the term "close of business" on any given
date shall mean 5:00 p.m., New York Time, on such date; provided, however, that
if such date is not a business day, it shall mean 5:00 p.m., New York Time, on
the next succeeding business day. For purposes of this Agreement, the term
"business day" shall mean any day other than a Saturday, Sunday, or a day on
which the New York Stock Exchange (or banking institutions in the state in which
the Warrant Agent maintains the principal office in which it conducts business
related to the Warrants) are authorized or obligated by law to be closed.

     Each Warrant Certificate shall be executed on behalf of the Company by its
Chief Executive Officer or Chief Financial Officer, either manually or by
facsimile signature printed thereon, and have affixed thereto the Company's seal
or a facsimile thereof which shall be attested by the Secretary or an Assistant
Secretary of the Company, either manually or by


                                       2



facsimile signature. Each Warrant Certificate shall be manually or by facsimile
signature printed thereon countersigned by the Warrant Agent and shall not be
valid for any purpose unless so countersigned. In case any officer of the
Company who shall have signed any Warrant Certificate shall cease to be such
officer of the Company before countersignature by the Warrant Agent and issue
and delivery thereof by the Company, such Warrant Certificate, nevertheless, may
be countersigned by the Warrant Agent, issued and delivered with the same force
and effect as though the person who signed such Warrant Certificate had not
ceased to be such officer of the Company.

     Except as otherwise permitted by this Agreement, each Warrant (including
each Warrant issued upon the transfer of any Warrant) shall be stamped or
otherwise imprinted with a legend in substantially the following form:


          "THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS
     WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
     AMENDED, OR APPLICABLE SECURITIES LAWS. THIS WARRANT AND SUCH 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, AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT
     TO AN APPLICABLE 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."


     SECTION 3. SUBSEQUENT ISSUE OF WARRANT CERTIFICATES

     Subsequent to their original issuance, no Warrant Certificates shall be
reissued except (i) Warrant Certificates issued upon transfer thereof in
accordance with Section 4 hereof, (ii) Warrant Certificates issued upon any
combination, split-up or exchange of Warrant Certificates pursuant to Section 4
hereof, (iii) Warrant Certificates issued in replacement of mutilated,
destroyed, lost or stolen Warrant Certificates pursuant to Section 5 hereof,
(iv) Warrant Certificates issued upon the partial exercise of Warrant
Certificates pursuant to Section 7 hereof, and (v) Warrant Certificates issued
to reflect any adjustment or change in the Exercise Price or the number or kind
of shares or securities purchasable thereunder pursuant to Section 22 hereof.
The Warrant Agent is hereby irrevocably authorized to countersign and deliver,
in accordance with the provisions of Sections 4, 5, 7 and 22, the new Warrant
Certificates required for purposes thereof, and the Company, whenever required
by the Warrant Agent, will supply the Warrant Agent with Warrant Certificates
duly executed on behalf of the Company for such purposes.

     SECTION 4. TRANSFERS AND EXCHANGES OF WARRANT CERTIFICATES; COMPLIANCE WITH
                THE SECURITIES ACT

               The Warrant Agent will keep or cause to be kept at its stock
transfer office in New York, New York ("Stock Transfer Office") books for
registration of ownership and transfer


                                       3



of the Warrant Certificates issued hereunder. Such registers shall show the
names and addresses of the respective holders of the Warrant Certificates and
the number of Warrants evidenced by each such Warrant Certificate.

     The Warrant Agent shall, from time to time, promptly register the transfer
of any outstanding Warrants in whole or in part in the books to be maintained by
the Warrant Agent for that purpose, upon surrender of the Warrant Certificate
evidencing such Warrants, with the Form of Assignment duly filled in and
executed with such signature guaranteed by a financial institution that is a
member of a Securities Transfer Association approved medallion program, such as
STAMP, SEMP or MSP and such supporting documentation as the Warrant Agent or the
Company may reasonably require, to the Warrant Agent at its Stock Transfer
Office at any time on or before the Expiration Date, and upon payment to the
Warrant Agent for the account of the Company of an amount equal to any
applicable transfer tax. Payment of the amount of such tax may be made in cash,
or by certified or official bank check, payable in lawful money of the United
States of America to the order of the Company.

     Upon receipt of a Warrant Certificate, with the Form of Assignment duly
filled in and executed, accompanied by payment of an amount equal to any
applicable transfer tax, the Warrant Agent shall promptly cancel the surrendered
Warrant Certificate and countersign and deliver to the transferee a new Warrant
Certificate for the number of full Warrants transferred to such transferee;
provided, however, that in case the registered holder of any Warrant Certificate
shall elect to transfer fewer than all of the Warrants evidenced by such Warrant
Certificate, the Warrant Agent in addition shall promptly countersign and
deliver to such registered holder a new Warrant Certificate or Certificates for
the number of full Warrants not so transferred.

     Any Warrant Certificate or Certificates may be exchanged at the option of
the holder thereof for another Warrant Certificate or Certificates of different
denominations, of like tenor and representing in the aggregate the same kind and
number of Warrants, upon surrender of such Warrant Certificate or Certificates,
with the Form of Assignment duly filled in and executed, to the Warrant Agent,
at any time or from time to time after the close of business on the date hereof
and prior to the close of business on the applicable Expiration Date. The
Warrant Agent shall promptly cancel the surrendered Warrant Certificate and
deliver the new Warrant Certificate pursuant to the provisions of this Section.

     Upon transfer of any Warrant, such Warrant shall be transferred free of any
restrictive legend and registered in such name and in such denominations as
specified by the transferor in question provided:

     (i) The Warrant Agent receives written notice from Company counsel that a
registration statement covering re-sales of the Warrants has been declared
effective by the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Securities Act"), and written confirmation from the
transferor in question that the resale of such Warrant was made pursuant to such
effective registration statement; or

     (ii) The Warrant Agent receives written notice from Company counsel that
the re-sale of such Warrants may be effected under Rule 144 of the Securities
Act or otherwise pursuant to an exemption from registration under the Securities
Act.


                                       4



     Unless and until the Warrant Agent receives written notice from the Company
that a registration statement covering resales of the Warrants has been declared
effective by the Securities and Exchange Commission under the Securities Act,
the Warrant Agent shall promptly notify the Chief Financial Officer of the
Company in writing of any request that the Warrant Agent receives pertaining to
the proposed transfer of any Warrant.

     SECTION 5. MUTILATED, DESTROYED, LOST OR STOLEN WARRANT CERTIFICATES

     Upon receipt by the Company and the Warrant Agent (i) of evidence
reasonably satisfactory to them of the ownership of and the loss, theft,
destruction or mutilation of any Warrant Certificate, and (ii) in the case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
them, and reimbursement to them of all reasonable expenses incidental thereto,
and, (iii) in the case of mutilation, upon surrender and cancellation of the
Warrant Certificate, then: the Warrant Agent shall countersign and deliver a new
Warrant Certificate of like tenor for the same number of Warrants.

     SECTION 6. ADJUSTMENTS AND LIMITATION OF NUMBER AND KIND OF SHARES
                PURCHASABLE AND EXERCISE PRICE

     The number and kind of securities or other property purchasable upon
exercise of a Warrant shall be subject to adjustment from time to time upon the
occurrence, after the date hereof, of any of the following events:

A. COMMON STOCK DIVIDENDS AND DISTRIBUTIONS, SUBDIVISIONS, COMBINATIONS AND
RECLASSIFICATIONS. In the event that the Company shall (i) pay a dividend or
make a distribution on its outstanding shares of Common Stock using shares of
Common Stock, (ii) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock or (iv) increase or
decrease the number of shares of Common Stock outstanding by reclassification of
its Common Stock, then the Exercise Price in effect immediately prior to such
dividend, distribution, subdivision, combination or reclassification shall be
adjusted to equal the product obtained by multiplying the Exercise Price by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately prior to such dividend, distribution, subdivision,
combination or reclassification and the denominator of which is the number of
shares of Common Stock outstanding after giving effect to such dividend,
distribution, subdivision, combination or reclassification. Likewise, the number
of shares of Common Stock issuable upon exercise of each Warrant immediately
prior to such Exercise Price adjustment shall be adjusted, effective
simultaneously with the Exercise Price adjustment, to equal the product obtained
by multiplying such number of shares of Common Stock by a fraction, the
numerator of which is the Exercise Price per share immediately prior to such
Exercise Price adjustment and the denominator of which is the Exercise Price per
share in effect upon such Exercise Price adjustment, which adjusted number of
shares of Common Stock shall be the number of shares of Common Stock issuable
upon exercise of the Warrant until further adjusted as provided herein. An
adjustment made pursuant to this Section 6A shall become effective immediately
after the dividend or distribution date retroactive to the record date in the


                                       5



case of a dividend or distribution of shares of Common Stock, and shall become
effective immediately after the effective date in the case of a subdivision,
combination or reclassification.

B. DIVIDENDS AND OTHER DISTRIBUTIONS. In the event that the Company shall pay on
its outstanding shares of Common Stock (i) any dividend or other distribution
(including any dividend or distribution made in connection with a consolidation
or merger in which the Company is the continuing corporation) of cash, evidences
of its indebtedness, shares of its capital stock or any other properties or
securities or (ii) any options, warrants or other rights to subscribe for or
purchase any of the foregoing (other than, in the case of clause (i) and (ii)
above, (x) any dividend or distribution described in Section 6A, and (y) any
rights, options, warrants or securities described in Section 6C or Section 6D),
then the number of shares of Common Stock issuable upon the exercise of each
Warrant immediately prior to the record date for any such dividend or
distribution shall be increased to a number determined by multiplying the number
of shares of Common Stock issuable upon the exercise of such Warrant immediately
prior to such record date by a fraction, the numerator of which shall be the
Market Price (as defined below) per share of Common Stock on such record date,
and the denominator of which shall be such Market Price per share of Common
Stock on such record date less the sum of (x) the amount of cash, if any,
dividended or distributed per share of Common Stock and (y) the then fair value
(as reasonably determined in good faith by the Company's Board of Directors,
whose determination shall be evidenced by a board resolution filed with the
Warrant Agent, a copy of which will be sent to Warrantholders upon request) per
share of Common Stock of the dividend or distribution consisting of evidences of
indebtedness, shares of stock, securities, other property, warrants, options or
subscription or purchase rights. In the case of any such dividend or
distribution, subject to Section 6H, the Exercise Price shall be adjusted to a
number determined by dividing the Exercise Price immediately prior to the record
date for such dividend or distribution by the fraction set forth in the
preceding sentence. As used herein, "Market Price" shall be the arithmetic mean
of the last reported sale prices of the Common Stock for the ten (10)
consecutive trading days ending on the date for which the Market Price is being
calculated, such sale prices as reported by the primary exchange on which the
Common Stock is traded, if the Common Stock is traded on a national securities
exchange, or by Nasdaq, if the Common Stock is traded on a Nasdaq automated
quotation system, or, if not listed on Nasdaq or traded on any such exchange,
the average of the bid and asked price per share on Nasdaq or, if such
quotations are not available, the fair market value per share of the Common
Stock as reasonably determined in good faith by the Board of Directors of the
Company. Such adjustments shall be made, and shall only become effective,
whenever any dividend or distribution is made. Notwithstanding the foregoing,
the Company shall not be required to make an adjustment pursuant to this Section
6B, if at the time of any such dividend or distribution, the Company makes the
same distribution to Warrantholders as it makes to holders of Common Stock pro
rata based on the number of shares of Common Stock for which a Warrantholder's
Warrants are exercisable (whether or not currently exercisable). No adjustment
shall be made pursuant to this Section 6B which shall have the effect of
decreasing the number of shares of Common Stock issuable upon exercise of a
Warrant or increasing the Exercise Price thereof.

C. ISSUANCE OF COMMON STOCK OR RIGHTS OR OPTIONS. In the event that the Company
shall issue shares of Common Stock, or rights, options or warrants to acquire
shares of Common Stock, or securities convertible or exchangeable into shares of
Common Stock, for consideration per share of Common Stock that is less than the
Market Price per share of Common Stock as of


                                       6



the issuance date of such shares, or entitling the holders of such rights,
options, warrants or convertible or exchangeable securities to subscribe for or
purchase shares of Common Stock at a price that is less than the Market Price
per share of Common Stock as of the issuance date of such rights, options,
warrants or convertible or exchangeable securities, the number of shares of
Common Stock issuable upon the exercise of each Warrant immediately after such
issuance date shall be adjusted by multiplying the number of shares of Common
Stock issuable upon exercise of such Warrant immediately prior to such issuance
date by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately preceding the issuance of such shares,
rights, options, warrants or convertible or exchangeable securities plus the
number of additional shares of Common Stock to be issued in such transaction or
which may be issued upon exercise of such rights, options or warrants or
conversion of such convertible or exchangeable securities, and the denominator
of which shall be the number of shares of Common Stock outstanding immediately
preceding the date for the issuance of such shares or rights, options, warrants
or convertible or exchangeable securities plus the total number of shares of
Common Stock which the aggregate consideration expected to be received by the
Company upon the issuance of such shares of Common Stock and the exercise,
conversion or exchange of such rights, options, warrants or convertible or
exchangeable securities (as reasonably determined in good faith by the Company's
Board of Directors, whose determination shall be evidenced by a board resolution
filed with the Warrant Agent, a copy of which will be sent to Warrantholders
upon request) would purchase at the Market Price per share of Common Stock as of
the date of such issuance. Subject to Section 6H, in the event of any such
adjustment, the Exercise Price of each Warrant shall be adjusted to a number
determined by dividing the Exercise Price immediately prior to such date of
issuance by the fraction set forth in the foregoing sentence. No adjustment to
the number of Warrant Shares issuable upon the exercise of a Warrant or to the
Exercise Price shall be made as a result of (i) the issuance of any Warrants (or
the later exercise thereof) in accordance with the terms of the Purchase
Agreement as the same may be amended from time to time, (ii) the exercise,
conversion or exchange of any right, option, warrant or convertible or
exchangeable security, in accordance with its terms at the time of the issuance
of such right, option, warrant or convertible or exchangeable security, whether
or not the issuance thereof previously resulted in an adjustment to the number
of Warrant Shares issuable upon the exercise of the Warrants or to the Exercise
Price pursuant to this Section 6C, (iii) the issuance of any Preferred Shares
(or the later conversion thereof) in accordance with the terms of the Purchase
Agreement as the same may be amended from time to time, or (iv) the issuance,
award, exercise, conversion or exchange of shares of Common Stock or options to
acquire shares of Common Stock under any employee or director benefit plan of
the Company approved by the Company's Board of Directors if such issuance,
award, exercise, conversion or exchange is made to, by, or for the benefit of
officers, directors, employees or consultants of the Company in accordance with
such employee or director benefit plan. Such adjustment shall be made, and shall
only become effective, whenever such shares or such rights, options, warrants or
convertible or exchangeable securities are issued. No adjustment shall be made
pursuant to this Section 6C which shall have the effect of decreasing the number
of shares of Common Stock issuable upon exercise of each Warrant or increasing
the Exercise Price.

D. FUNDAMENTAL TRANSACTIONS; LIQUIDATION.

     (a) Except as provided in Section 6D(b), in the event of a Fundamental
Transaction (as defined in the next sentence), each Warrantholder shall have the
right to receive upon


                                       7



exercise of the Warrants the kind and amount of shares of capital stock or other
securities or property which such Warrantholder would have been entitled to
receive upon completion of or as a result of such Fundamental Transaction had
such Warrant been exercised immediately prior to such event or prior to the
relevant record date for any such entitlement (regardless of whether the
Warrants are then exercisable). "Fundamental Transaction" shall mean any
transaction or series of related transactions by which the Company consolidates
with or merges with or into another corporation or entity or sells, assigns,
transfers, leases, conveys or otherwise disposes of all or substantially all of
its properties and assets to any other person or entity or group of affiliated
persons or entities or is a party to a merger or binding share exchange which
reclassifies or changes its outstanding Common Stock. Unless Section 6D(b) is
applicable to a Fundamental Transaction, the Company shall provide that the
surviving or acquiring person, corporation or entity (the "Successor Company")
in such Fundamental Transaction will enter into an agreement (a "Supplemental
Warrant Agreement") with the Warrant Agent confirming the Warrantholders' rights
pursuant to this Section 6D(a) and providing for adjustments, which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Section 6. Any such Supplemental Warrant Agreement shall further provide that
such Successor Company will succeed to and be substituted for every right and
obligation of the Company in respect of this Agreement and the Warrants. The
provisions of this Section 6D(a) shall similarly apply to successive Fundamental
Transactions involving any Successor Company.

     (b) In the event of (i) a Fundamental Transaction with another person,
corporation or entity (other than a subsidiary of the Company) where
consideration to the holders of Common Stock in exchange for their shares is
payable solely in cash or (ii) the dissolution, liquidation or winding-up of the
Company, the Warrantholders of the Warrants shall be entitled to receive, upon
surrender of their Warrant Certificates, such cash distributions on an equal
basis with the holders of Common Stock or other securities issuable upon
exercise of the Warrants, as if the Warrants had been exercised immediately
prior to such event, less the Exercise Price. In the event of any Fundamental
Transaction described in this Section 6D(b), the Successor Company and, in the
event of any dissolution, liquidation or winding-up of the Company, the Company,
shall deposit promptly with the Warrant Agent the funds, if any, necessary to
pay the Warrantholders of the Warrants the amounts to which they are entitled as
described above. After such funds and the surrendered Warrant Certificates are
received, the Warrant Agent shall make payment to the Warrantholders by
delivering a check in such amount as is appropriate (or, in the case of
consideration other than cash, such other consideration as is appropriate) to
such party as it may be directed in writing by the Warrantholders surrendering
such Warrant Certificates.

E. OTHER EVENTS. If any event occurs as to which the foregoing provisions of
this Section 6 are not strictly applicable or, if strictly applicable, would
not, in the good faith judgment of the Company's Board of Directors, fairly and
adequately protect the purchase rights of the Warrants in accordance with the
essential intent and principles of such provisions, then the Board of Directors
shall make such adjustments in the application of such provisions, in accordance
with such essential intent and principles, as shall be reasonably necessary, in
the good faith opinion of the Board of Directors, to protect such purchase
rights as aforesaid, but in no event shall any such adjustment have the effect
of increasing the Exercise Price or decreasing the number of shares of Common
Stock issuable upon exercise of the Warrants.


                                       8



F. SUPERSEDING ADJUSTMENT. Upon the expiration of any rights, options, warrants
or conversion or exchange privileges which resulted in adjustments pursuant to
this Section 6, if any thereof shall not have been exercised, the number of
Warrant Shares issuable upon the exercise of each Warrant shall be readjusted
pursuant to the applicable section of Section 6 as if (i) the only shares of
Common Stock issuable upon exercise of such rights, options, warrants,
conversion or exchange privileges were the shares of Common Stock, if any,
actually issued upon the exercise of such rights, options, warrants or
conversion or exchange privileges and (ii) shares of Common Stock actually
issued, if any, were issuable for the consideration actually received by the
Company upon such exercise plus the aggregate consideration, if any, actually
received by the Company for the issuance, sale or grant of all such rights,
options, warrants or conversion or exchange privileges whether or not exercised
and the Exercise Price shall be readjusted inversely; provided, however, that no
such readjustment (except by reason of an intervening adjustment under Section
6A) shall have the effect of decreasing the number of Warrant Shares issuable
upon the exercise of each Warrant, or increasing the Exercise Price, by an
amount in excess of the amount of the adjustment initially made in respect of
the issuance, sale or grant of such rights, options, warrants or conversion or
exchange privileges.

G. MINIMUM ADJUSTMENT. The adjustments required by the preceding sections of
this Section 6 shall be made whenever and as often as any specified event
requiring an adjustment shall occur, except that no adjustment of the Exercise
Price or the number of shares of Common Stock issuable upon exercise of the
Warrants that would otherwise be required shall be made unless and until such
adjustment either by itself or with other adjustments not previously made
increases or decreases by at least 1% of the Exercise Price or the number of
shares of Common Stock issuable upon exercise of the Warrants immediately prior
to the making of such adjustment. Any adjustment representing a change of less
than such minimum amount shall be carried forward and made as soon as such
adjustment, together with other adjustments required by this Section 6 and not
previously made, would result in a minimum adjustment. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at the close of
business on the date of its occurrence. In computing adjustments under this
Section 6, fractional interests in Common Stock shall be taken into account to
the nearest one-hundredth of a share.

H. NOTICE OF ADJUSTMENT. Whenever the Exercise Price or the number of shares of
Common Stock and other property, if any, issuable upon exercise of the Warrants
is adjusted, as herein provided, the Company shall deliver to the Warrant Agent
a certificate of a firm of independent accountants selected by the Board of
Directors (who may be the regular accountants employed by the Company) setting
forth, in reasonable detail, the event requiring the adjustment and the method
by which such adjustment was calculated (including a description of the basis on
which (i) the Board of Directors determined the then fair value of any evidences
of indebtedness, other securities or property or warrants, options or other
subscription or purchase rights and (ii) the Market Price of the Common Stock
was determined, if either of such determinations were required), and specifying
the Exercise Price and the number of shares of Common Stock issuable upon
exercise of the Warrants after giving effect to such adjustment. The Company
shall promptly cause the Warrant Agent, at the Company's expense, to mail a copy
of such certificate to each Warrantholder in accordance with Section 23. The
Warrant Agent shall be entitled to rely on such certificate and shall be under
no duty or responsibility with respect to any such certificate, except to
exhibit the same from time to time, to any Warrantholder desiring an inspection
thereof during reasonable business hours. The Warrant Agent shall not at any
time be


                                       9



under any duty or responsibility to any Warrantholder to determine whether any
facts exist which may require any adjustment of the Exercise Price or the number
of shares of Common Stock or other stock or property issuable on exercise of the
Warrants, or with respect to the nature or extent of any such adjustment when
made, or with respect to the method employed in making such adjustment or the
validity or value of any shares of Common Stock, evidences of indebtedness,
warrants, options, or other securities or property.

I. ADJUSTMENT TO WARRANT CERTIFICATE. The form of Warrant Certificate need not
be changed because of any adjustment made pursuant to this Section 6, and
Warrant Certificates issued after such adjustment may state the same Exercise
Price and the same number of shares of Common Stock issuable upon exercise of
the Warrants as are stated in the Warrant Certificates initially issued pursuant
to this Agreement. The Company, however, may at any time in its sole discretion
make any change in the form of Warrant Certificate that it may deem appropriate
to give effect to such adjustments and that does not affect the substance of the
Warrant Certificate, and any Warrant Certificate thereafter issued or
countersigned, whether in exchange or substitution for an outstanding Warrant
Certificate or otherwise, may be in the form as so changed.

J. LIMITATION ON NUMBER OF WARRANT SHARES. The Company shall not be obligated to
issue any shares of Common Stock upon the exercise of any Warrants after the
aggregate number of shares of Common Stock previously issued by the Company upon
(i) the exercise of Warrants and (ii) the conversion of Preferred Shares issued
by the Company and purchased by holders of Warrants has exceeded the Nasdaq
Conversion Limitation (as defined below), except that such limitation shall not
apply from and after such time as the Company obtains Shareholder Approval (as
defined below) for issuances of Warrant Shares upon the exercise of Warrants in
excess of such amount. In the event the Company receives on the same date a
notice requesting the exercise of Warrants from more than one holder of Warrants
and the Company can exercise some, but not all, of the Warrants presented for
exercise, the Company shall exercise from each holder electing to exercise
Warrants at such time a pro rata amount of such holder's Warrants submitted for
exercise based on the number Warrants submitted for exercise on such date by
such holder relative to the number of all Warrants submitted for exercise on
such date. The Nasdaq Conversion Limitation shall mean 6,425,476 shares of
Common Stock or such other amount as Nasdaq shall determine is the applicable
limitation under Marketplace Rule 4350(i)(1)(D). Shareholder Approval shall mean
the approval of the Company's stockholders as may be required by the applicable
rules and regulations of Nasdaq, including Marketplace Rule 4350(i)(1)(D).

     SECTION 7. EXERCISE OF WARRANTS

The registered holder of any Warrant Certificate may exercise the Warrants
evidenced thereby, in whole or in part from time to time at or prior to the
close of business on the Expiration Date, subject to the provisions of Section
9, at which time the Warrant Certificates shall be and become wholly void and of
no value. Warrants may be exercised by their holders as follows:

A. Exercise of Warrants shall be accomplished upon surrender of the Warrant
Certificate evidencing such Warrants, with the Form of Election to Purchase on
the reverse side thereof duly filled in and executed, to the Warrant Agent at
its Stock Transfer Office, together with payment


                                       10



to the Company of the Exercise Price (as of the date of such surrender) of the
Warrants then being exercised and an amount equal to any applicable transfer tax
and, if requested by the Company, any other taxes or governmental charges which
the Company may be required by law to collect in respect of such exercise.
Payment of the Exercise Price and other amounts may be made by wire transfer of
same day funds to an account in a bank designated by the Company for such
purpose, or by certified or bank cashier's check, payable in lawful money of the
United States of America to the order of the Company, or by any combination of
such methods. No adjustment shall be made for any cash dividends, whether paid
or declared, on any securities issuable upon exercise of a Warrant. At the
request of the Company or otherwise in accordance with the instructions of the
Company, the Warrant Agent shall remit any funds held by it as a result of the
exercise of the Warrants to the Company.

B. Upon receipt of a Warrant Certificate, with the Form of Election to Purchase
duly filled in and executed, accompanied by payment of the Exercise Price of the
Warrants being exercised (and an amount equal to any applicable transfer tax
and, if requested by the Company, any other taxes or governmental charges which
the Company may be required by law to collect in respect of such exercise), the
Warrant Agent shall promptly request from the Company's transfer agent with
respect to the securities to be issued and shall promptly, and in any event
within five (5) business days thereof, deliver to or upon the order of the
registered holder of such Warrant Certificate, in such name or names as such
registered holder may designate, a certificate or certificates for the number of
full shares of the securities to be purchased, together with cash made available
by the Company pursuant to Section 8 hereof in respect of any fraction of a
share of such securities otherwise issuable upon such exercise. If the Warrant
is then exercisable to purchase property other than securities, the Warrant
Agent shall take appropriate steps to cause such property to be delivered as
soon as practicable to or upon the order of the registered holder of such
Warrant Certificate. In addition, if it is required by law and upon instruction
by the Company, the Warrant Agent will deliver to each Warrantholder a
prospectus which complies with the provisions of Section 10 of the Securities
Act of 1933, as amended, and the Company agrees to supply the Warrant Agent with
a sufficient number of prospectuses to effectuate that purpose.

C. In case the registered holder of any Warrant Certificate shall exercise fewer
than all of the Warrants evidenced by such Warrant Certificate, the Warrant
Agent shall promptly countersign and deliver to the registered holder of such
Warrant Certificate, or to his duly authorized assigns, a new Warrant
Certificate or Certificates evidencing the number of Warrants that were not so
exercised.

D. Each person in whose name any certificate for securities is issued upon the
exercise of Warrants shall for all purposes be deemed to have become the holder
of record of the securities represented thereby as of, and such certificate
shall be dated, the date upon which the Warrant Certificate was duly surrendered
in proper form and payment of the Exercise Price (and of any applicable taxes or
other governmental charges) was made; provided, however, that if the date of
such surrender and payment is a date on which the stock transfer books of the
Company are closed, such person or entity shall be deemed to have become the
record holder of such shares as of, and the certificate for such shares shall be
dated, the next succeeding business day on which the stock transfer books of the
Company are open (whether before, on or after the Expiration Date) and the
Warrant Agent shall be under no duty to deliver the certificate for such shares
until


                                       11



such date. The Company covenants and agrees that it shall not cause its stock
transfer books to be closed for a period of more than twenty (20) consecutive
business days except upon consolidation, merger, sale of all or substantially
all of its assets, dissolution or liquidation or as otherwise required by law.

     SECTION 8. FRACTIONAL INTERESTS

     The Company shall not be required to issue any Warrant Certificate
evidencing a fraction of a Warrant or to issue fractions of shares of securities
on the exercise of the Warrants. If any fraction (calculated to the nearest
one-hundredth) of a Warrant or a share of securities would, except for the
provisions of this Section, be issuable on the exercise of any Warrant, the
Company shall, at its option, either purchase such fraction for an amount in
cash equal to the current value of such fraction computed on the basis of the
Market Price, except that for all purposes of this Section 8, the time periods
set forth in the definition thereof shall be the trading day immediately
preceding the day upon which such Warrant Certificate was surrendered for
exercise in accordance with Section 7 hereof or issue the required, fractional
Warrant or share. By accepting a Warrant Certificate, the holder thereof
expressly waives any right to receive a Warrant Certificate evidencing any
fraction of a Warrant or to receive any fractional share of securities upon
exercise of a Warrant, except as expressly provided in this Section 8.

     SECTION 9. RESERVATION AND LISTING OF EQUITY SECURITIES

     The Company covenants that it will at all times reserve and keep available,
free from any pre-emptive rights, out of its authorized and unissued equity
securities, solely for the purpose of issuance upon exercise of the Warrants,
120% of such number of shares of equity securities of the Company, including the
Common Stock, as shall then be issuable upon the exercise of all outstanding
Warrants ("Equity Securities"). The Company covenants that all Equity Securities
which shall be so issuable shall, upon such issue, be duly authorized, validly
issued, fully paid and non-assessable.

     The Company covenants and agrees that from and after the date hereof: (a)
it will use its best efforts to prepare and file with the Securities and
Exchange Commission a registration statement and the prospectuses used in
connection therewith as may be necessary to keep such registration statement
effective with respect to the resale of the Warrants and Equity Securities and
the issuance of the Equity Securities to be delivered upon the exercise of the
Warrants and, to the extent required under applicable law, to keep such
registration statement current from the date of issuance thereof through the
final Expiration Date or until such earlier time as no Warrants remain
outstanding; (b) as expeditiously as possible, it will register or qualify the
Equity Securities to be delivered upon exercise of the Warrants under the
securities or Blue Sky laws of each jurisdiction in which such registration or
qualification is necessary and use its best efforts to maintain all such
registrations or qualifications in effect from the date of issuance thereof
through the final Expiration Date or until such earlier time as no Warrants
remain outstanding; provided, that in no event shall the Company be obligated to
qualify to do business in any jurisdiction where it is not now so qualified or
to take any action which would subject it to general service of process in any
jurisdiction where it is not now so subject; (c) it will pay all expenses
incurred by the Company in complying with this Section 9, including, without


                                       12



limitation, (i) all registration and filing fees, (ii) all printing expenses,
(iii) all fees and disbursements of counsel for the Company and independent
public accountants, (iv) all NASD and Blue Sky fees and expenses (including fees
and expenses of counsel in connection with any Blue Sky surveys), and (v) the
entire expense of any special audits incident to or required by any such
registration; and (d) it will use its best efforts to list for quotation on the
Nasdaq Capital Market, or such other over-the-counter quotation system on which
the Common Stock may at any time be listed, or on any national securities
exchange on which the Common Stock may at any time be listed, the Equity
Securities, and will maintain such listing so long as any other shares of Equity
Securities are so listed; and the Company shall use its best efforts to so list
on the Nasdaq Capital Market, or such other over-the-counter quotation system,
or each national securities exchange, and shall maintain such listing of, any
other shares of capital stock of the Company issuable upon the exercise of the
Warrants if and so long as any shares of capital stock of the same class are
traded on the Nasdaq Capital Market or such over-the-counter quotation system or
listed on such national securities exchange, and any such quotation or listing
will be at the Company's expense; provided, however, that in no event shall such
Equity Securities be issued, and the Company is authorized to refuse to honor
the exercise of any Warrant, if such exercise would result, in the opinion of
the Company's Board of Directors, upon advice of counsel, in the violation of
any law; provided, however, that the foregoing proviso shall not affect or in
any way limit the obligations of the Company pursuant to clauses (a) and (b) of
this paragraph.

     SECTION 10. REDUCTION OF EXERCISE PRICE BELOW PAR VALUE

     The Company shall not take any action that would cause an adjustment
pursuant to Section 6 hereof to reduce the Exercise Price required to purchase
one share of capital stock below the then par value (if any) of a share of such
capital stock, unless and until the Company shall have taken any corporate
action which, in the opinion of its counsel, is necessary in order that the
Company may validly and legally issue fully paid and non-assessable shares of
such capital stock.

     SECTION 11. PAYMENT OF CERTAIN TAXES

     The Company covenants and agrees that it will pay when due and payable any
and all federal and state documentary stamp and other original issue taxes which
may be payable in respect of the original issuance of the Warrant Certificates,
or any shares of Common Stock or other securities upon the exercise of Warrants.
The Company shall not, however, be required (i) to pay any tax which may be
payable in respect of the transfer and delivery of Warrant Certificates or the
issuance or delivery of certificates for Common Stock or other securities in a
name other than that of the registered holder of the Warrant Certificate
surrendered for purchase or (ii) to issue or deliver any certificate for shares
of Common Stock or other securities upon the exercise of any Warrant Certificate
until any such tax shall have been paid, all such taxes being payable by the
holder of such Warrant Certificate at the time of surrender.


                                       13



     SECTION 12. NOTICE OF CERTAIN CORPORATE ACTION

     In case the Company after the date hereof shall propose (i) to take a
record of the holders of any class of securities for the purpose of determining
the holders thereof that are entitled to receive any dividend or other
distribution, rights to subscribe for or to purchase any shares of any class of
its capital stock or any other securities or property, any evidences of its
indebtedness or assets, or any other rights, warrants or options, (ii) to issue
any shares of its capital stock or rights, options or warrants entitling to
subscribe for shares of such capital stock or securities convertible or
exchangeable or exercisable for shares of such capital stock (other than any
such issuances under any employee or director benefit plan of the Company
approved by the Company's Board of Directors), (iii) to effect any capital
reclassification or reorganization, or any consolidation or merger to which the
Company is a party and for which approval of any stockholders of the Company is
required, or any sale, lease, transfer or other disposition of all or
substantially all of its property and assets, or the liquidation, voluntary or
involuntary dissolution or winding-up of the Company, or (iv) the commencement
by any "person" or "group" (within the meaning of Section 13(d) and Section
14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")) of a bona
fide tender offer or exchange offer in accordance with the rules and regulations
of the Exchange Act to purchase shares of Common Stock of the Company, then, in
each such case, the Company shall file with the Warrant Agent, and the Company,
or the Warrant Agent on its behalf and at the Company's request, shall provide
to all registered holders of the Warrant Certificates notice of such proposed
action or event, which notice shall specify the date on which the books of the
Company shall close or a record be taken for such dividend, distribution or
offer of rights or options, or the date on which such issuance,
reclassification, reorganization, consolidation, merger, sale, lease, transfer,
other disposition, liquidation, voluntary or involuntary dissolution, winding-up
or tender offer shall take place, commence, or be completed, as the case may be,
and which shall also specify any record date for determination of holders of
Common Stock entitled to vote thereon or participate therein, and as of which
the holders of record of the Company's Common Stock (or other securities) shall
be entitled to exchange their shares of such Common Stock (or other securities)
for the securities or other property deliverable upon such reorganization,
reclassification, recapitalization, consolidation, merger, sale, lease,
transfer, other disposition, dissolution, liquidation, winding-up, tender offer
or other event, and shall set forth such facts with respect thereto as shall be
reasonably necessary to indicate any adjustments in the Exercise Price and the
number or kind of shares or other securities, cash or property purchasable upon
exercise of Warrants which will be required as a result of such action, if
applicable. Such notice shall be filed and provided in the case of any action
covered by clause (i) above, at least ten (10) days prior to the record date for
determining holders of the Common Stock for purposes of such action or, if a
record is not to be taken, the date as of which the holders of shares of Common
Stock of record are to be entitled to such offering; and, in the case of any
action covered by clauses (ii) through (iv) above, at least twenty (20) days
prior to the earlier of the date on which such issuance, reclassification,
reorganization, consolidation, merger, sale, lease, transfer, other disposition,
liquidation, voluntary or involuntary dissolution or winding-up, exchange or
tender offer is expected to become effective or be completed and the date on
which it is expected that holders of shares of Common Stock of record shall be
entitled to exchange their shares for securities or other property deliverable
upon such reclassification, reorganization, consolidation, merger, sale,
transfer, other disposition, liquidation, voluntary or involuntary dissolution
or winding-up, exchange or tender offer. Notwithstanding the foregoing, the
Company's obligation to provide notice under this Section 12


                                       14



is subject and subordinate to the Company's legal obligations regarding the
handling and dissemination of material non-public information under the
Securities Act, the rules and regulations of the quotation system or securities
exchange on which the Common Stock may at any time be listed and other
applicable law.

     Failure to give any notice or any defect therein shall not affect the
legality or validity of any transaction listed in this Section 12.

     SECTION 13. DISPOSITION OF PROCEEDS ON EXERCISE OF WARRANT CERTIFICATES,
                 ETC.

     The Warrant Agent shall account promptly to the Company with respect to
Warrants exercised and concurrently pay to the Company all moneys received by
the Warrant Agent for the purchase of securities or other property through the
exercise of such Warrants.

     The Warrant Agent shall keep copies of this Agreement available for
inspection by Warrantholders during normal business hours at its Stock Transfer
Office. Copies of this Agreement may be obtained upon written request addressed
to the Warrant Agent at its Stock Transfer Office.

     SECTION 14. WARRANTHOLDER NOT DEEMED A STOCKHOLDER

     No Warrantholder, as such, shall be entitled to vote, receive dividends or
be deemed the holder of Common Stock or any other securities of the Company
which may at any time be issuable on the exercise of the Warrants represented
thereby for any purpose whatsoever, nor shall anything contained herein or in
any Warrant Certificate be construed to confer upon any Warrantholder, as such,
any of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issuance of stock, reclassification of stock, change
of par value or change of stock to no par value, consolidation, merger,
conveyance or otherwise), or to receive notice of meetings or other actions
affecting stockholders (except as provided in Section 12 hereof), or to receive
dividends or subscription rights, or otherwise, until such Warrant Certificate
shall have been exercised in accordance with the provisions hereof and the
receipt by the Warrant Agent of the Exercise Price and any other amounts payable
upon such exercise.

     SECTION 15. RIGHTS OF ACTION

     All rights of action in respect to this Agreement are vested in the
respective registered holders of the Warrant Certificates; and any registered
holder of any Warrant Certificate, without the consent of the Warrant Agent or
of any other holder of a Warrant Certificate, may, on its own behalf for its own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company suitable to enforce, or otherwise in respect of, its right
to exercise the Warrants evidenced by such Warrant Certificate, for the purchase
of shares of the Common Stock in the manner provided in the Warrant Certificate
and in this Agreement.


                                       15



     SECTION 16. AGREEMENT OF HOLDERS OF WARRANT CERTIFICATES

     Every holder of a Warrant Certificate by accepting the same consents and
agrees with the Company, the Warrant Agent and with every other holder of a
Warrant Certificate that:

A. The Warrant Certificates are transferable on the registry books of the
Warrant Agent only upon the terms and conditions set forth in this Agreement;
and

B. The Company and the Warrant Agent may deem and treat the person in whose name
the Warrant Certificate is registered as the absolute and lawful owner of the
Warrant (notwithstanding any notation of ownership or other writing thereon made
by anyone other than the Company or the Warrant Agent) for all purposes
whatsoever and neither the Company nor the Warrant Agent shall be affected by
any notice to the contrary.

     SECTION 17. CANCELLATION OF WARRANT CERTIFICATES

     In the event that the Company shall purchase or otherwise acquire any
Warrant Certificate or Certificates after the issuance thereof, such Warrant
Certificate or Certificates shall thereupon be delivered to the Warrant Agent
and be canceled by it and retired. The Warrant Agent shall also cancel any
Warrant Certificate delivered to it for exercise, in whole or in part, or
delivered to it for transfer, split-up, combination or exchange. Warrant
Certificates so canceled shall be delivered by the Warrant Agent to the Company
from time to time, or disposed of in accordance with the instructions of the
Company.

     SECTION 18. CONCERNING THE WARRANT AGENT

     The Company agrees to pay to the Warrant Agent from time to time, on demand
of the Warrant Agent, reasonable compensation for all services rendered by it
hereunder and also its reasonable expenses, including counsel fees, and other
disbursements incurred in the administration and execution of this Agreement and
the exercise and performance of its duties hereunder. The Company also agrees to
indemnify the Warrant Agent for, and to hold it harmless against, any loss,
liability or expense, incurred without gross negligence, bad faith or willful
misconduct on the part of the Warrant Agent, arising out of or in connection
with the acceptance and administration of this Agreement.

     SECTION 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF WARRANT AGENT

     Any corporation into which the Warrant Agent may be merged or with which it
may be consolidated, or any corporation resulting from any merger or
consolidation to which the Warrant Agent shall be a party, or any corporation
succeeding to the corporate trust business of the Warrant Agent, shall be the
successor to the Warrant Agent hereunder without the execution or filing of any
paper or any further act on the part of any of the parties hereto, provided that
such corporation would be eligible for appointment as a successor warrant agent
under the provisions of Section 21 hereof. In case at the time such successor to
the Warrant Agent shall succeed to the agency created by this Agreement, any of
the Warrant Certificates shall have been countersigned but not delivered, any
such successor to the Warrant Agent may adopt the


                                       16



countersignature of the original Warrant Agent and deliver such Warrant
Certificates so countersigned; and in case at that time any of the Warrant
Certificates shall not have been countersigned, any successor to the Warrant
Agent may countersign such Warrant Certificates either in the name of the
predecessor Warrant Agent or in the name of the successor Warrant Agent; and in
all such cases such Warrant Certificates shall have the full force provided in
the Warrant Certificates and in this Agreement.

     In case at any time the name of the Warrant Agent shall be changed and at
such time any of the Warrant Certificates shall have been countersigned but not
delivered, the Warrant Agent may adopt the countersignature under its prior name
and deliver Warrant Certificates so countersigned; and in case at that time any
of the Warrant Certificates shall not have been countersigned, the Warrant Agent
may countersign such Warrant Certificates either in its prior name or in its
changed name; and in all such cases such Warrant Certificates shall have the
full force provided in the Warrant Certificates and in this Agreement.

     SECTION 20. DUTIES OF WARRANT AGENT

     The Warrant Agent undertakes the duties and obligations imposed by this
Agreement upon the following terms and conditions, by all of which the Company
and the holders of Warrant Certificates, by their acceptance thereof, shall be
bound:

A. The Warrant Agent may consult with counsel satisfactory to it (who may be
counsel for the Company or the Warrant Agent's in-house counsel), and the
opinion of such counsel shall be full and complete authorization and protection
to the Warrant Agent as to any action taken, suffered or omitted by it in good
faith and in accordance with such opinion; provided, however, that the Warrant
Agent shall have exercised reasonable care in the selection of such counsel.
Fees and expenses of such counsel, to the extent reasonable, shall be paid by
the Company.

B. Whenever in the performance of its duties under this Agreement, the Warrant
Agent shall deem it necessary or desirable that any fact or matter be proved or
established by the Company prior to taking or suffering any action hereunder,
such fact or matter (unless other evidence in respect thereof be herein
specifically prescribed) may be deemed to be conclusively proved and established
by a certificate signed by the Chief Executive Officer or the Chief Financial
Officer of the Company and delivered to the Warrant Agent; and such certificate
shall be full authorization to the Warrant Agent for any action taken or
suffered in good faith by it under the provisions of this Agreement in reliance
upon such certificate.

C. The Warrant Agent shall be liable hereunder only for its own gross
negligence, bad faith or willful misconduct.

D. The Warrant Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Warrant
Certificates (except its countersignature on the Warrant Certificates and such
statements or recitals as describe the Warrant Agent or action taken or to be
taken by it or its obligations hereunder) or be required to verify the same, but
all such statements and recitals are and shall be deemed to have been made by
the Company only.

E. The Warrant Agent shall not be under any responsibility in respect of the
validity of this Agreement or the execution and delivery hereof (except the due
execution and delivery hereof by


                                       17



the Warrant Agent) or in respect of the validity or execution of any Warrant
Certificate (except its countersignature thereof); nor shall it be responsible
for any breach by the Company of any covenant or condition contained in this
Agreement or in any Warrant Certificate; nor shall it be responsible for the
making of any change in the number of shares of Common Stock for which a Warrant
is exercisable required under the provisions of Section 6 or responsible for the
manner, method or amount of any such change or the ascertaining of the existence
of facts that would require any such adjustment or change (except with respect
to the exercise of Warrant Certificates after actual notice of any adjustment of
the Exercise Price); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any shares
of Common Stock to be issued pursuant to this Agreement or any Warrant
Certificate or as to whether any shares of Common Stock will, when issued, be
validly issued, fully paid and non-assessable.

F. The Warrant Agent shall be under no obligation to institute any action, suit
or legal proceeding or take any other action likely to involve expense unless
the Company or one or more registered holders of Warrant Certificates shall
furnish the Warrant Agent with reasonable security and indemnity for any costs
and expenses which may be incurred. All rights of action under this Agreement or
under any of the Warrants may be enforced by the Warrant Agent without the
possession of any of the Warrants or the production thereof at any trial or
other proceeding relative thereto, and any such action, suit or proceeding
instituted by the Warrant Agent shall be brought in its name as Warrant Agent,
and any recovery of judgment shall be for the ratable benefit of the registered
holders of the Warrant Certificates, as their respective rights or interests may
appear.

G. The Warrant Agent and any stockholder, director, officer or employee of the
Warrant Agent may buy, sell or deal in any of the Warrants or other securities
of the Company or become pecuniarily interested in any transaction in which the
Company may be interested, or contract with or lend money to or otherwise act as
fully and freely as though it were not Warrant Agent under this Agreement.
Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.

H. The Warrant Agent is hereby authorized and directed to accept instructions
with respect to the performance of its duties hereunder from the Chief Executive
Officer or the Chief Financial Officer of the Company, and to apply to such
officers for advice or instructions in connection with the Warrant Agent's
duties, and it shall not be liable for any action taken or suffered or omitted
by it in good faith in accordance with instructions of any such officer.

I. The Warrant Agent will not be responsible for any failure of the Company to
comply with any of the covenants contained in this Agreement or in the Warrant
Certificates to be complied with by the Company.

J. The Warrant Agent may execute and exercise any of the rights or powers hereby
vested in it or perform any duty hereunder either itself or by or through its
attorneys, agents or employees and the Warrant Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys,
agents or employees or for any loss to the Company resulting from such neglect
or misconduct; provided, however, that reasonable care shall have


                                       18



been exercised in the selection and continued employment of such attorneys,
agents and employees.

K. The Warrant Agent will not incur any liability or responsibility to the
Company or to any holder of any Warrant Certificate for any action taken, or any
failure to take action, in reliance on any notice, resolution, waiver, consent,
order, certificates or other paper, document or instrument reasonably believed
by the Warrant Agent to be genuine and to have been signed, sent or presented by
the proper party or parties.

L. The Warrant Agent will act hereunder solely as agent of the Company in a
ministerial capacity, and its duties will be determined solely by the provisions
hereof. The Warrant Agent will not be liable for anything which it may do or
refrain from doing in connection with this Agreement except for its own gross
negligence, bad faith or willful misconduct.

     SECTION 21. CHANGE OF WARRANT AGENT

     The Warrant Agent may resign and be discharged from all further duties and
liabilities under this Agreement (except liabilities arising as a result of the
Warrant Agent's own negligence, bad faith or willful misconduct) upon thirty
(30) days prior notice in writing mailed, by registered or certified mail, to
the Company. The Company may remove the Warrant Agent or any successor warrant
agent upon thirty (30) days prior notice in writing, mailed to the Warrant Agent
or successor warrant agent, as the case may be, by registered or certified mail.
If the Warrant Agent shall resign or be removed or shall otherwise become
incapable of acting, the Company shall appoint a successor to the Warrant Agent
and shall, within fifteen (15) days following such appointment, give notice
thereof in writing to each registered holder of the Warrant Certificates. If the
Company shall fail to make such appointment within a period of fifteen (15) days
after giving notice of such removal or after it has been notified in writing of
such resignation or incapacity by the resigning or incapacitated Warrant Agent,
then the holder of any Warrant Certificate may apply to any court of competent
jurisdiction for the appointment of a new Warrant Agent. Any new Warrant Agent,
whether appointed by the Company or by such a court, shall be a bank or trust
company having capital and surplus of not less than $10,000,000 or a stock
transfer company that is a registered transfer agent under the Exchange Act.
After appointment and execution of a copy of this Agreement in effect at that
time, the successor Warrant Agent shall be vested with the same powers, rights,
duties and responsibilities as if it had been originally named as Warrant Agent
without further act or deed; but the former Warrant Agent shall deliver and
transfer to the successor Warrant Agent, within a reasonable time, any property
at the time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Failure to give any notice
provided for in this Section, however, or any defect therein shall not affect
the legality or validity of the resignation or removal of the Warrant Agent or
the appointment of the successor warrant agent, as the case may be.

     SECTION 22. ISSUANCE OF NEW WARRANT CERTIFICATES

     Notwithstanding any of the provisions of this Agreement or the several
Warrant Certificates to the contrary, the Company may, at its option, issue new
Warrant Certificates in such form as may be approved by its Board of Directors
to reflect any adjustment or change in


                                       19



the Exercise Price or the number or kind of shares purchasable under the several
Warrant Certificates made in accordance with the provisions of this Agreement.

     SECTION 23. NOTICES

     Notice or demand pursuant to this Agreement to be given or made on the
Company by the Warrant Agent or by the registered holder of any Warrant
Certificate shall be sufficiently given or made (A) upon delivery if sent by
personal delivery or courier, (B) when sent, if sent by confirmed facsimile
during normal business hours of the recipient, if not, then on the next business
day, or (C) by first-class certified or registered mail, postage prepaid, return
receipt requested, in each case addressed (until another address is filed in
writing by the Company with the Warrant Agent) as follows: Aksys, Ltd., Two
Marriott Drive, Lincolnshire, Illinois 60069, Attention: Chief Financial Office,
Tel: 847-229-2020, Fax: 847-229-2080.

     Subject to the provisions of Section 21, any notice pursuant to this
Agreement to be given or made by the Company or by the holder of any Warrant
Certificate to or on the Warrant Agent shall be sufficiently given or made (A)
upon delivery if sent by personal delivery or courier, (B) when sent, if sent by
confirmed facsimile during normal business hours of the recipient, if not, then
on the next business day, or (C) by first-class certified or registered mail,
postage prepaid, return receipt requested, in each case addressed (until another
address is filed in writing by the Warrant Agent with the Company) as follows:
Continental Stock Transfer, 17 Battery Place, New York, New York 10004.

     Any notice or demand authorized to be given or made to the registered
holder of any Warrant Certificate under this Agreement shall be sufficiently
given or made (A) upon delivery if sent by personal delivery or courier, (B)
when sent, if sent by confirmed facsimile during normal business hours of the
recipient, if not, then on the next business day, or (C)by first-class certified
or registered mail, postage prepaid, return receipt requested, in each case
addressed to the last address of such holder as it shall appear on the registers
maintained by the Warrant Agent (until another address is filed in writing by
such holder with the Warrant Agent).

     SECTION 24. MODIFICATION OF AGREEMENT

     The Company and the Warrant Agent, without the consent of any Warrant
holder, may supplement this Agreement in order to make any changes in this
Agreement which the Warrant Agent has been advised by counsel (i) are required
to cure any ambiguity or to correct any defective or inconsistent provision or
clerical omission or mistake or manifest error contained herein, (ii) add to the
covenants and agreements of the Company or the Warrant Agent in the Warrants
such further covenants and agreements thereafter to be observed or (iii) result
in the surrender of any right or power reserved to or conferred upon the Company
or the Warrant Agent in the Warrants, but which changes or corrections do not or
will not adversely affect, alter or change the rights, privileges or immunities
of the registered holders of Warrants. In addition, this Agreement may be
modified, supplemented or altered with the consent in writing of the holders of
Warrants representing not less than 50% of the Warrants then outstanding, except
that no change in the number or nature of the securities purchasable upon the
exercise of any Warrant, or increase in the applicable Exercise Price therefor,
or acceleration of the Expiration Date shall be made without the consent in
writing of the registered holder of each Warrant. For


                                       20



the purposes of any amendment, modification or waiver hereunder, Warrants held
by the Company shall be disregarded.

     Any modification or amendment made in accordance with this Agreement will
be conclusive and binding on all present and future holders of Warrant
Certificates whether or not they have consented to such modification or
amendment or waiver and whether or not notation of such modification or
amendment is made upon such Warrant Certificates. Any instrument given by or on
behalf of any holder of a Warrant Certificate in connection with any consent to
any modification or amendment made in accordance with this Agreement will be
conclusive and binding on all subsequent holders of such Warrant Certificate.

     As of the date hereof, this Agreement contains the entire and only
agreement, understanding, representation, condition, warranty or covenant
between the parties hereto with respect to the matters herein, supersedes any
and all other agreements between the parties hereto relating to such matters,
and may be modified or amended only by a written agreement signed by both
parties hereto pursuant to the authority granted by the first sentence of this
Section.

     SECTION 25. SUCCESSORS

     All the covenants and provisions of this Agreement by or for the benefit of
the Company or the Warrant Agent shall bind and inure to the benefit of their
respective successors and assigns hereunder.

     SECTION 26. GOVERNING LAW

     This Agreement and each Warrant Certificate issued hereunder shall be
governed by and construed in accordance with the laws of the State of New York,
without reference to principles of conflict of laws.

     SECTION 27. TERMINATION

     This Agreement shall terminate as of the close of business on the final
Expiration Date, or such earlier date upon which all Warrants shall have been
exercised or redeemed, except that the Warrant Agent shall account to the
Company as to all Warrants outstanding and all cash held by it as of the close
of business on the final Expiration Date.

     SECTION 28. NO IMPAIRMENT

     The Company will not, by amendment of its governing documents or through
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Agreement and
the Warrants, but will at all times in good faith assist in the carrying out of
all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Warrantholders against
impairment. The Company will take such further action as may be necessary or
appropriate to effectuate the purposes and intent of this Agreement and the
Warrants including execution and delivery of such further documents and,
instruments and agreements as may be required to carry out the purposes and
intention of this Agreement and the Warrants. In furtherance and not in
limitation of the foregoing, the


                                       21



Company (i) will not increase the par value of any Warrant Shares above the
amount payable therefore on such exercise, (ii) will take all such action as may
be reasonably necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable Warrant Shares on the exercise of the
Warrants, (iii) will not close its shareholder books or records in any manner
which interferes with the timely exercise of the Warrants and (iv) will, to the
extent that the Warrantholder is not able to exercise any Warrants for the full
number of shares subject to such Warrants for any reason, then the Company shall
take such further action as may be necessary to facilitate such exercise, and
failing the ability of the Warrantholder to exercise in full, the Company shall
take such further action as may be necessary to give the Warrantholder the
economic benefit of the Warrants including payment to the Warrantholder of the
value of the Warrants upon the expiration of the Warrant or at the time of any
merger, acquisition or other Fundamental Transaction in an amount equal to the
value of the Common Stock that the Warrantholder would have received upon such
exercise of the Warrants in full less the applicable Exercise Price.

     SECTION 29. BENEFITS OF THIS AGREEMENT

     Nothing in this Agreement or in the Warrant Certificates shall be construed
to give to any person or entity other than the Company, the Warrant Agent, the
registered holders of the Warrant Certificates and their respective successors
and assigns hereunder, any legal or equitable right, remedy or claim under this
Agreement; but this Agreement shall be for the sole and exclusive benefit of the
Company, the Warrant Agent, the registered holders of the Warrant Certificate
and their respective successors and assigns hereunder.

     SECTION 30. DESCRIPTIVE HEADINGS

     The descriptive headings of the several sections of this Agreement are
inserted for convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof


                                       22



     SECTION 31. COUNTERPARTS

     This Agreement may be executed in any number of counterparts, each of which
shall be an original, but such counterparts shall together constitute one and
the same instrument.

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, all as of the day and year first above written.

                                        AKSYS, LTD.


                                        By: /s/ Larry Birch
                                            ------------------------------------
                                        Name: L. Birch
                                        Title: CF0


                                        CONTINENTAL STOCK TRANSFER & TRUST
                                        COMPANY


                                        By: /s/ Felix Orihuela
                                            ------------------------------------
                                        Name: Felix Orihuela
                                        Title: Vice President


                                       23



                                    EXHIBIT A

THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
    NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
  SECURITIES LAWS OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
 DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION
          TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.

VOID AFTER 5:00 P.M. NEW YORK TIME ON __________, 20__

                        WARRANTS TO PURCHASE COMMON STOCK

W___ ____                                                     _________ Warrants

AKSYS, LTD.

                             CUSIP [INSERT NUMBER]

     THIS CERTIFIES THAT FOR VALUE RECEIVED ____________________ or its
registered assigns, is the registered holder of the number of Warrants
("Warrants") set forth above. Each Warrant initially entitles the registered
holder thereof to purchase from Aksys, Ltd., a corporation incorporated under
the laws of the State of Delaware (the "Company"), subject to the terms and
conditions set forth hereinafter and in the Warrant Agreement (as hereinafter
defined), one fully paid and non-assessable share of Common Stock, $0.001 par
value, of the Company ("Common Stock") upon presentation and surrender of this
Warrant Certificate with the Subscription Form on the reverse hereof duly
executed, at any time prior to 5:00 p.m., New York Time, on ________, 20__, at
the stock transfer office of _________________________, Warrant Agent of the
Company (the "Warrant Agent"), or of its successor warrant agent or, if there be
no successor warrant agent, at the corporate offices of the Company, and upon
payment of the Exercise Price (as defined in the Warrant Agreement) paid either
in cash, or by certified or official bank check, payable in lawful money of the
United States of America to the order of the Company. Each Warrant initially
entitles the holder to purchase one share of Common Stock for $1.10. In the
event of certain contingencies provided for in the Warrant Agreement, the
Exercise Price or the number and kind of securities or other property for which
the Warrants are exercisable are subject to adjustment or modification.

     This Warrant Certificate is subject to all of the terms, provisions and
conditions of the Warrant Agreement, dated as of ____________, 2006 ("Warrant
Agreement"), between the Company and the Warrant Agent, to all of which terms,
provisions and conditions the registered holder of this Warrant Certificate
consents by acceptance hereof. The Warrant Agreement is incorporated herein by
reference and made a part hereof and reference is made to the Warrant Agreement
for a full description of the rights, limitations of rights, obligations, duties
and


                                       1



immunities of the Warrant Agent, the Company and the holders of the Warrant
Certificates. Copies of the Warrant Agreement are available for inspection at
the stock transfer office of the Warrant Agent or may be obtained upon written
request addressed to the Company at Two Marriott Drive, Lincolnshire, IL 60069,
Attention: President and Chief Executive Officer.

     The Company shall not be required upon the exercise of the Warrants
evidenced by this Warrant Certificate to issue fractions of Warrants, Common
Stock or other securities, but shall make adjustment therefor in cash on the
basis of the current market value of any fractional interest as provided in the
Warrant Agreement.

     The Company has agreed in the Warrant Agreement that, among other things:
it will use its best efforts to prepare and file with the Securities and
Exchange Commission a registration statement and the prospectuses used in
connection therewith as may be necessary to keep such registration statement
effective with respect to the resale of the Warrants and Equity Securities and
the issuance of the Equity Securities to be delivered upon the exercise of the
Warrants and, to the extent required under applicable law, to keep such
registration statement current from the date of issuance thereof through the
final Expiration Date (as defined in the Warrant Agreement) or until such
earlier time as no Warrants remain outstanding; and (b) as expeditiously as
possible, it will register or qualify the Equity Securities to be delivered upon
exercise of the Warrants under the securities or Blue Sky laws of each
jurisdiction in which such registration or qualification is necessary and use
its best efforts to maintain all such registrations or qualifications in effect
from the date of issuance thereof through the final Expiration Date or until
such earlier time as no Warrants remain outstanding; provided, that in no event
shall the Company be obligated to qualify to do business in any jurisdiction
where it is not now so qualified or to take any action which would subject it to
general service of process in any jurisdiction where it is not now so subject.
However, the Company will not be required to honor the exercise of Warrants if,
in the opinion of the Board of Directors upon advice of counsel, the sale of
securities upon such exercise would be unlawful; provided, further, that the
foregoing provisos shall not affect or in any way limit the obligations of the
Company pursuant to clauses (a) and (b) of this paragraph.

     This Warrant Certificate, with or without other Certificates, upon
surrender to the Warrant Agent, any successor warrant agent or, in the absence
of any successor warrant agent, at the corporate offices of the Company, may be
exchanged for another Warrant Certificate or Certificates evidencing in the
aggregate the same number of Warrants as the Warrant Certificate or Certificates
so surrendered. If the Warrants evidenced by this Warrant Certificate shall be
exercised in part, the holder hereof shall be entitled to receive upon surrender
hereof another Warrant Certificate or Certificates evidencing the number of
Warrants not so exercised.

     No holder of this Warrant Certificate, as such, shall be entitled to vote,
receive dividends or be deemed the holder of Common Stock or any other
securities of the Company which may at any time be issuable on the exercise
hereof for any purpose whatsoever, nor shall anything contained in the Warrant
Agreement or herein be construed to confer upon the holder of this Warrant
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof or give or withhold consent to any corporate
action (whether upon any recapitalization, issuance of stock, reclassification
of stock, change of par value or change of stock to no par


                                       2



value, consolidation, merger, conveyance or otherwise) or to receive notice of
meetings or other actions affecting stockholders (except as provided in the
Warrant Agreement) or to receive dividends or subscription rights or otherwise
until the Warrants evidenced by this Warrant Certificate shall have been
exercised and the receipt by the Warrant Agent of the Exercise Price.

     The Company shall not be required to issue or deliver any certificate for
shares of Common Stock or other securities upon the exercise of Warrants
evidenced by this Warrant Certificate until any tax which may be payable in
respect thereof by the holder of this Warrant Certificate pursuant to the
Warrant Agreement shall have been paid, such tax being payable by the holder of
this Warrant Certificate at the time of surrender.

     This Warrant Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Warrant Agent.

     This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York.

     IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or by facsimile signatures of the proper officers of the
Company and a facsimile of its corporate seal to be imprinted hereon.

Dated:  __________ __________, 2006.

                                       AKSYS, LTD.


                                       By:
                                           -------------------------------------
                                           President and Chief Executive Officer

                                       Attest:
                                               ---------------------------------
                                                       Secretary

Countersigned

- ------------------------------------

____________, as Warrant Agent


By:
    --------------------------------
    Authorized Officer


                                       3



                    [FORM OF REVERSE OF WARRANT CERTIFICATE]

                                SUBSCRIPTION FORM

                     To Be Executed by the Registered Holder
                          in Order to Exercise Warrants

         The undersigned Registered Holder hereby irrevocably elects to
exercise _____________ of the Warrants represented by this Warrant Certificate,
and to purchase the securities issuable upon the exercise of such Warrants, and
 requests that certificates for such securities shall be issued in the name of:

            PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER

                                   _________

                                   _________

                                   _________

                                   _________

                    [please print or type name and address]

     and be delivered to

                                   _________

                                   _________

                                   _________

                                   _________

                     [please print or type name and address]

     and if such number of Warrants shall not be all the Warrants evidenced by
this Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.


                                       1



     If applicable, the undersigned represents that the exercise of the Warrants
evidenced hereby was solicited by a member of the National Association of
Securities Dealers, Inc. If not solicited by an NASD member, please leave blank
or write "unsolicited" in the space below.

                                        ________________________________________
                                                  (Name of NASD Member)

                                        Dated: ________________

                                        ________________________________________

                                        ________________________________________

                                        ________________________________________

                                                         Address

                                        ________________________________________

                                        Taxpayer Identification Number

                                        ----------------------------------------

                                                  Signature Guaranteed

     THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO
THE NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST
BE GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.


                                       2



                                   ASSIGNMENT

                     To Be Executed by the Registered Holder
                           in Order to Assign Warrants

FOR VALUE RECEIVED,____________________ hereby sells, assigns and transfers unto

            PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER

                                   _________

                                   _________

                                   _________

                                   _________

                     [please print or type name and address]

     _____________ of the Warrants represented by this Warrant Certificate, and
hereby irrevocably constitutes and appoints _____________ Attorney to transfer
this Warrant Certificate on the books of the Company, with full power of
substitution in the premises.

                                        Dated: ___________________

                                        ________________________________________

                                               Signature Guaranteed

                                        ----------------------------------------

     THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO
THE NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST
BE GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.


                                       3

EX-10.6

                                                                    Exhibit 10.6

                                RELEASE AGREEMENT

     This Release Agreement (this "Agreement") is entered into as of June 23,
2006, by and among AKSYS, LTD., a Delaware corporation (the "Company"), DURUS
LIFE SCIENCES MASTER FUND LTD., a Cayman Islands company ("Durus"), ARTAL LONG
BIOTECH PORTFOLIO LLC, a Delaware limited liability company ("Artal") and
certain members of the Company's Board of Directors as set forth on the
signature page hereof (each, a "Director" and, collectively, the "Directors").
Durus and Artal are collectively referred to herein as the "Investors," and each
is individually referred to herein as an "Investor."

     WHEREAS, the Company and Durus have entered into a Securities Purchase
Agreement by and among the Company and Durus, dated as of March 31, 2006 (the
"Purchase Agreement"), pursuant to which, among other things, the Company has
agreed, upon the terms and subject to the conditions set forth in the Purchase
Agreement, to issue and sell to Durus at the "Initial Closing," as defined in
the Purchase Agreement, (i) 5,000 shares of the Company's Series B Convertible
Preferred Stock, and (ii) warrants to purchase 5,000,000 shares of Common Stock
of the Company at an initial exercise price of $1.10 per share;

     WHEREAS, contemporaneously with the execution and delivery of the Purchase
Agreement, (i) Durus made a bridge loan to the Company in an aggregate principal
amount of $5,000,000, pursuant to which the Company issued a note to Durus (the
"Bridge Loan"), (ii) the Company and Computershare Trust Company, Inc., as
successor Rights Agent under the Company's Rights Agreement, dated as of October
28, 1996, as amended (the "Rights Agreement"), executed and delivered an
amendment to the Rights Agreement in the form attached as Exhibit G to the
Purchase Agreement, and (iii) the Company and the Investors executed and
delivered an Amendment to the Settlement Agreement (as defined below)
substantially in the form attached as Exhibit H to the Purchase Agreement (the
"Settlement Agreement Amendment");

     WHEREAS, contemporaneously with the Initial Closing, (i) Durus and the
Company will execute and deliver a loan agreement, substantially in the form
attached as Exhibit D to the Purchase Agreement (the "Loan Agreement"), pursuant
to which the Company will issue certain notes to Durus, (ii) the Investors and
the Company will execute and deliver an investor rights agreement, substantially
in the form attached as Exhibit E to the Purchase Agreement (the "Investor
Rights Agreement" and, together with the Purchase Agreement, the Bridge Loan,
the Settlement Agreement Amendment, the Loan Agreement and the other agreements
and documents entered into among the Company, Durus and/or Artal in connection
with the transactions contemplated in such agreements, the "Financing
Documents"), and (iii) certain of the Directors are resigning from their
positions as members of the Board of Directors of the Company and members of
certain committees thereof;

     WHEREAS, the Company and the Investors have previously entered into certain
agreements with respect to the Investors' acquisition, ownership, trading and
disposition of shares of Common Stock of the Company and certain other matters,
including (i) a Settlement Agreement and Mutual Release dated as of February 23,
2004 (the "Settlement Agreement") by and among the Company, the Investors, Durus
Capital Management, LLC ("Durus LLC"), Durus



Capital Management (N.A.), LLC ("Durus NA") and Scott Sacane ("Sacane" and,
together with Durus LLC and Durus NA, the "Sacane Parties"), (ii) a First
Amendment to Rights Agreement by and between the Company and EquiServe Trust
Company, N.A., as successor Rights Agent, dated as of February 23, 2004 (the
"First Rights Agreement Amendment"), (iii) the Registration Rights Agreement by
and among the Company and the Investors dated as of February 23, 2004 (the
"Registration Rights Agreement"), (iv) the Note Purchase Agreement by and among
the Company and the Investors dated as of February 23, 2004 (the "Note Purchase
Agreement"), pursuant to which the Company issued to the Investors unsecured
subordinated promissory notes (the "Notes" and, together with the Settlement
Agreement, the Rights Agreement, the First Rights Agreement Amendment, the
Registration Rights Agreement and the Note Purchase Agreement, the "Prior
Agreements");

     WHEREAS, in connection with the execution and delivery of the Financing
Documents, it is the desire and intent of the Investors to fully and completely
waive, release and relinquish certain claims and rights that they may have
against the Company as set forth below, and it is the desire and intent of the
Company to fully and completely waive, release and relinquish certain claims and
rights that it may have against the Investors as set forth below; and

     WHEREAS, it is the intent of each of the Directors to fully and completely
waive, release and relinquish certain claims and rights that such Director may
have against the Investors as set forth below.

     NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:

1.   RELEASE OF THE COMPANY.

     As of the date hereof, each Investor for (i) itself and its affiliates
(other than the Company to the extent the Company might otherwise be deemed to
be an affiliate of such Investor) and subsidiaries, predecessor and successor
corporations or entities, (ii) any and all of their respective past, present and
future officers, directors, employees, agents, representatives and attorneys,
and (iii) any and all other persons, firms, corporations and entities that could
or might act on its behalf, does hereby fully, finally and forever release,
remise, discharge and acquit the Company, its affiliates and subsidiaries,
predecessor and successor corporations or entities, any and all of their
respective past, present and future managers, partners, officers, directors
(including the Directors), employees, agents, representatives and attorneys,
permitted assigns and transferees, and any and all other persons, firms,
corporations and entities that could or might act on its behalf (collectively,
the "Company Released Parties"), from and against any and all claims, actions,
causes of action, debts, damages, demands, offsets, payments, costs, attorneys'
fees, obligations of every kind and nature, rights, liabilities, charges,
expenses, contracts, promises and agreements (collectively, "Claims") arising
out of conduct to date, whether direct or indirect, regardless of the legal
theory upon which they are based, whether known or unknown, now existing or
arising at any time in the future, and whether liquidated or unliquidated,
including, but not limited to, (i) all Claims arising out of conduct to date
relating to or arising from the acquisition, ownership, trading or disposition
of shares of the Company's Common Stock, (ii) all Claims arising out of conduct
to date relating to breach of good faith or fair dealing or breach of


                                       2



the duty of care or any other similar fiduciary duty, and (iii) all Claims
arising out of conduct to date relating to or arising under any agreement,
contract or other arrangement, whether verbal or written, entered into prior to
the Initial Closing, including the Prior Agreements. Notwithstanding the
foregoing, it is further expressly agreed that the terms of this Section 1 shall
not (i) release or otherwise discharge the obligations of the Company Released
Parties under or pursuant to the Financing Documents, (ii) apply to any Claims
such Investor (or any of its affiliates or other parties on whose behalf such
Investor is releasing Claims) may have against the Sacane Parties or (iii) apply
to any Claims such Investor (or any of its affiliates or other parties on whose
behalf such Investor is releasing Claims) may have relating to (A) any breach by
a Company Released Party of his or her duty of loyalty to the Company or its
stockholders, (B) any acts or omissions by a Company Released Party which
involve intentional misconduct or a knowing violation of law by him or her or
(C) any transaction from which an improper personal benefit was derived by a
Company Released Party.

2.   RELEASE OF THE INVESTORS.

     As of the date hereof, (1) each Director and (1) the Company for (i) itself
and its affiliates (other than the Investors to the extent the Investors might
otherwise be deemed to be affiliates of the Company) and subsidiaries,
predecessor and successor corporations or entities, (ii) any and all of their
respective past, present and future officers, directors, employees, agents,
equityholders, representatives, attorneys and joint venturers, and (iii) any and
all other persons, firms, corporations and entities that could or might act on
its behalf, does hereby fully, finally and forever release, remise, discharge
and acquit each of the Investors, their affiliates and subsidiaries, predecessor
and successor corporations or entities, any and all of their respective past,
present and future managers, investors, members, partners, officers, directors,
employees, agents, representatives and attorneys, permitted assigns and
transferees, and any and all other persons, firms, corporations and entities
that could or might act on its behalf, including, without limitation, Durus Life
Sciences Fund, LLC and Durus Life Sciences International Fund Ltd.
(collectively, the "Investor Released Parties"), from and against any and all
Claims arising out of conduct to date, whether direct or indirect, regardless of
the legal theory upon which they are based, whether known or unknown, now
existing or arising at any time in the future, and whether liquidated or
unliquidated, including, but not limited to (i) all Claims arising out of
conduct to date relating to or arising from the acquisition, ownership, trading
or disposition of shares of the Company's Common Stock, (ii) all Claims arising
out of conduct to date relating to breach of good faith or fair dealing or
breach of the duty of care or any other fiduciary duty, and (iii) all Claims
arising out of conduct to date relating to or arising under any agreement,
contract or other arrangement, whether verbal or written, entered into prior to
the Initial Closing, including the Prior Agreements. Notwithstanding the
foregoing, it is further expressly agreed that the terms of this Section 2 shall
not (i) release or otherwise discharge the obligations of the Investor Released
Parties under or pursuant to the Financing Documents, (ii) apply to any Claims
that the Company (or any of its affiliates or other parties on whose behalf the
Company is releasing Claims) or any Director may have may have against the
Sacane Parties, or (iii) apply to any Claims the Company (or any of its
affiliates or other parties on whose behalf the Company is releasing Claims) or
any Director may have relating to (A) a breach of any duty of loyalty that the
Investor Released Parties may have to the Company or its stockholders, (B) any
acts or omissions of the Investor Released Parties which involve intentional
misconduct or a knowing violation of law or (C) any


                                       3



transaction from which an Investor Released Party derived an improper personal
benefit in breach of a duty to the Company or its stockholders.

3.   FURTHER ASSURANCES.

     (A) Subject to obligations under Applicable Law (as defined in Section 3(c)
below), each party hereto agrees that neither such party nor, as applicable, (i)
any of such party's affiliates and subsidiaries, predecessor and successor
corporations or entities, (ii) any of such party's past, present and future
officers, directors, employees, agents, representatives and attorneys, or (iii)
any other private person or private entity, including any individual, limited
liability company, partnership, joint venture, corporation, trust,
unincorporated organization but excluding any Governmental Body (as defined
below) (each, a "Private Person"), that such party controls or that could or
might act on its behalf, will assist, directly or indirectly, any other Private
Person in investigating, preparing or asserting any private action, suit,
litigation, arbitration, proceeding, contest, hearing, inquiry, inquest, audit
or examination (collectively, "Private Proceedings") against any person, party
or entity released hereunder arising out of conduct to date or any transaction
contemplated by this Agreement; provided, that nothing contained in this Section
3 shall preclude any such Private Person from producing documents or other
information or providing truthful testimony in response to a subpoena, court
order, regulatory request or other legal process believed in good faith to be
valid.

     (B) Each party hereto agrees not to pursue any claim, right or defense
against any other party hereto under this Agreement that is inconsistent with
the obligations of such party under this Agreement. Each party hereto agrees
that it will not make any representation or argument or take any position
inconsistent with the agreements made by it in this Agreement, in any Private
Proceeding, including in any negotiation with any Private Person threatening to
make any claims or commence any Private Proceeding, and no party hereto shall
initiate or encourage in any way any such Private Proceeding.

     (C) "Applicable Law" as used herein means all controlling applicable
federal, state and local statutes, regulations, ordinances and administrative
rules and orders (that have the effect of law) as well as all applicable final,
non-appealable judicial opinions.

     (D) "Governmental Body" as used herein means any governmental authority,
agency or entity of any kind whatsoever, including without limitation any
quasi-governmental agency, self-regulatory organization, arbitrator or arbitral
panel.

4.   SUFFICIENCY OF CONSIDERATION.

     Each Investor, the Company and each Director acknowledges and agrees that
sufficient consideration has passed among them by virtue of this Agreement to
render this Agreement, including the releases herein, valid and enforceable.

5.   AMENDMENTS; WAIVERS.


                                       4



     This Agreement may not be modified, amended, or terminated except by an
instrument in writing, signed by each of the parties; provided, further, that no
such modification, amendment or termination shall adversely affect the rights of
any beneficiary of this release without that beneficiary's written consent. No
failure to exercise and no delay in exercising any right, remedy, or power under
this Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, or power under this Agreement preclude
any other or further exercise thereof, or the exercise of any other right,
remedy, or power provided herein or by law or in equity.

6.   ENTIRE AGREEMENT.

     This Agreement and the Transaction Documents (as defined in the Purchase
Agreement) constitute the complete, final and exclusive embodiment of the entire
agreement among the parties hereto with regard to the subject matter hereof and
thereof. This Agreement is entered into without reliance on any promise or
representation, written or oral, other than those expressly contained or
referenced herein.

7.   HEIRS, SUCCESSORS AND ASSIGNS.

     This Agreement shall bind the heirs, personal representatives, successors,
assigns, executors and administrators of each party hereto, and inure to the
benefit of each such party, its heirs, personal representatives, successors,
assigns, executors and administrators.

8.   MISCELLANEOUS.

     (A) The execution of this Agreement shall neither constitute nor be
construed as an admission of any liability.

     (B) This Agreement shall be governed by and construed in accordance with
the law of the State of Delaware, without giving effect to the conflicts or
choice of law provisions thereof.

     (C) If any provision of this Agreement is determined to be invalid, void or
unenforceable, in whole or in part, this determination will not affect any other
provision of this Agreement, and the provision in question shall be modified so
as to be rendered valid and enforceable and to give the applicable parties
hereto the intended benefits of the provision.

     (E) The parties hereto acknowledge and agree that the provisions of this
Agreement are intended to be for the benefit of, and may be enforced by, each of
the parties and the third parties who are intended beneficiaries of the release
of claims against them contained in Sections 1 and 2 hereof.

     (F) This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original and all of which, when taken together,
will be deemed to constitute one and the same document.


                                       5



     IN WITNESS WHEREOF, the Investors, the Company and the Directors have
caused their respective signature page to this Release Agreement to be duly
executed as of the date first written above.

                                        AKSYS, LTD.


                                        By: /s/
                                            ------------------------------------
                                            Name:
                                            Title:


                                        DURUS LIFE SCIENCES MASTER FUND LTD.


                                        By: /s/
                                            ------------------------------------
                                            Name:
                                            Title:


                                        ARTAL LONG BIOTECH PORTFOLIO LLC

                                        By: Artal Alternative Treasury
                                            Management
                                        Its: Managing Member


                                        By: /s/
                                            ------------------------------------
                                            Name:
                                            Title:


                                       6




                                        /s/
                                        ----------------------------------------
                                        Lawrence D. Damron


                                        /s/
                                        ----------------------------------------
                                        Alan R. Meyer


                                        /s/
                                        ----------------------------------------
                                        Bernard R. Tresnowski


                                        /s/
                                        ----------------------------------------
                                        Brian J.G. Pereira


                                        /s/
                                        ----------------------------------------
                                        Richard B. Egen

                  [Signature Page to Release Agreement, cont.]


                                       7

EX-10.7

                                                                    Exhibit 10.7

                         EXECUTIVE EMPLOYMENT AGREEMENT

     This Executive Employment Agreement (the "Agreement") is entered into as of
June 23, 2006 (the "Effective Date) by and between Aksys, Ltd., a Delaware
corporation (the "Company"), and Howard J. Lewin ("Executive").

1.   EMPLOYMENT

     A. POSITION. Executive is employed by the Company to render services to the
Company at its corporate headquarters in the position of President and Chief
Executive Officer. Executive shall perform all duties and functions and accept
all responsibilities incident to his position as President and Chief Executive
Officer and as may be reasonably assigned to him by the Board of Directors of
the Company. The Company further intends and agrees to take all actions legally
permitted to nominate and cause Executive to be elected to the Company's Board
of Directors so long as, and at such times as, Executive is serving as President
and Chief Executive Officer of the Company, subject to the Company's compliance
with all applicable laws and NASDAQ listing and similar requirements. Executive
shall abide by the lawful rules, regulations and practices of the Company as
adopted or modified from time to time in the Company's sole discretion.

     B. START DATE. Executive's first date of employment with the Company shall
be the date on which the initial closing occurs under the Securities Purchase
Agreement dated as of March 31, 2006 by and between the Company and Durus Life
Sciences Master Fund Ltd ("Durus").

     C. OTHER ACTIVITIES. Except upon the prior written consent of the Company's
Board of Directors, Executive will not, during the term of this Agreement, (i)
accept any other employment, or (ii) engage, directly or indirectly, in any
other business activity (whether or not pursued for pecuniary advantage) that
might interfere with Executive's duties and responsibilities hereunder or create
a conflict of interest with the Company. Notwithstanding the foregoing,
Executive may serve as a member of the Board of Directors for, and a shareholder
and/or investor in, certain companies that are not competitive with the Company
as mutually agreed upon by the parties hereto in writing.

     D. NO CONFLICT. Executive represents and warrants that Executive's
execution of this Agreement, Executive's employment with the Company, and the
performance of Executive's proposed duties under this Agreement shall not
violate any obligations Executive may have to any other employer, person or
entity, including any obligations with respect to proprietary or confidential
information of any other person or entity.



2.   COMPENSATION AND BENEFITS

     A. BASE SALARY. In consideration of the services to be rendered under this
Agreement, the Company shall pay Executive a salary at the rate of $350,000 per
year (as may be modified from time to time, "Base Salary"). Executive's Base
Salary shall be paid in accordance with the Company's regularly established
payroll practice. Executive's Base Salary will be reviewed annually for
appropriate increases in accordance with the established procedures of the
Company. In no event shall Executive's Base Salary for any subsequent year be
less than Executive's Base Salary in effect for the prior year.

     B. BONUS. During each calendar year, subject to Sections 3, 4, and 5 below,
if Executive remains an active employee through the end of the applicable
calendar year, Executive will be eligible for annual bonus compensation. For the
fiscal year ending December 31, 2006, Executive will be eligible to earn a
pro-rated bonus based on a target annual amount equal to 80% of Base Salary
($280,000). Executive's opportunity to earn any such bonus payment shall be
based on achievement of customary performance objectives established by the
Company's Board of Directors or the Compensation Committee of the Board of
Directors. Any such bonus shall be payable on or before March 31, 2007 as
follows: 50% in cash and 50% in the form of shares of the Company's Common
Stock. Such bonus shall be pro-rated based on the number of days Executive is
employed by the Company for the calendar year ending on December 31, 2006. The
value of any shares of Common Stock issued by the Company to Executive pursuant
to any provision of this Agreement shall be determined based on the Fair Market
Value (as defined in Section 2(c)(iii)) of such shares as of the date of
issuance.

     For each subsequent fiscal year, Executive will have an opportunity to earn
an annual bonus payment in a target amount equal to 80% of Base Salary based on
achievement of customary performance objectives established by the Company's
Board of Directors or the Compensation Committee of the Board of Directors. The
Company will use its reasonable best efforts to consult with Executive and set
the performance objectives for his annual bonus by April 15 of each year.
Executive shall have the option of receiving any such annual bonus in the form
of shares in lieu of cash. Any such election shall be made by Executive in
writing to the Company's Board of Directors at least five days prior to the
scheduled payment date of such bonus.

     C. EQUITY.

          (i) Initial Stock Option Grant. Upon the commencement of Executive's
employment, the Company shall grant to Executive, subject to the approval of the
Company's Board of Directors or its Compensation Committee or Executive
Committee, options to purchase a total of 2,500,000 shares of the Common Stock
of the Company. The exercise price of such options shall be equal to the closing
price of the Company's Common Stock on the Nasdaq Capital Market on the date of
the grant. Notwithstanding the foregoing, Executive's entitlement to such stock
options is conditioned upon Executive's signing of the Stock Option Agreements
with respect to such options in the forms attached hereto as Exhibit A. The
Stock Option


                                       2



Agreements shall provide that with respect to 1,200,000 shares of Common Stock
subject to the stock options (the "Tranche A Option"), 300,000 of the shares of
Common Stock subject to the stock options will vest on the date on which
Executive has been employed by the Company for one year, and the remaining
900,000 of the shares of Common Stock subject to the stock options will vest in
36 equal monthly increments thereafter. Of the remaining 1,300,000 shares
subject to the stock options (the "Tranche B Option"), such shares subject to
the stock options will be subject to performance vesting based upon achievement
of certain milestones listed in Exhibit B hereto. The options subject to the
Stock Option Agreements attached in the forms of Exhibit A hereto shall comply
in all respects with Section 409A of the Code.

          (ii) Annual Stock Option Grants. Executive will also be eligible to
receive stock option grants annually. The Company's Board of Directors or its
Compensation Committee or Executive Committee will determine whether a stock
option will be granted to Executive and the number of shares subject to any such
stock option. Such determination will be in the sole discretion of the Company's
Board of Directors or its Compensation Committee or Executive Committee and will
be based upon, in part, Executive's performance review and applicable
performance objectives established by the Company's Board of Directors or the
Compensation Committee.

          (iii) Required Stock Purchase. Executive agrees that he shall purchase
$100,000 of the Company's Common Stock, based on the price of the Company's
Common Stock on the date of purchase, directly from the Company at some point
within the first two (2) years of Executive's employment with the Company. Such
shares shall be purchased at Fair Market Value. For purposes of this Agreement,
the "Fair Market Value" of the Company's Common Stock shall be determined as
follows: (x) if the Common Stock is listed on one or more established stock
exchanges or national market systems, its Fair Market Value shall be the closing
sales price for such stock (or the closing bid, if no sales were reported) as
quoted on the principal exchange or system on which the Common Stock is listed
on the date of determination, (y) if the Common Stock is not listed on one or
more established stock exchanges or national market systems but the Common Stock
is regularly quoted on an automated quotation system (including the OTC Bulletin
Board) or by a recognized securities dealer, its Fair Market Value shall be the
closing sales price for such stock as quoted on such system or by such
securities dealer on the date of determination, but if selling prices are not
reported, the Fair Market Value of a share of Common Stock shall be the mean
between the high bid and low asked prices for the Common Stock on the date of
determination, or (z) in the absence of an established market for the Common
Stock of the type described in paragraphs (x) and (y) above, the Fair Market
Value thereof shall be reasonably determined by the Board of Directors. Such
shares shall be purchased pursuant to a stock purchase agreement to be entered
into by Executive and the Company containing terms, conditions, representations
and warranties which are customarily included in similar stock purchase
agreements between a company and its senior executive officer. Such shares shall
not be purchased pursuant to the exercise of any stock options granted to
Executive by the Company.


                                       3



     D. BENEFITS. Executive shall be eligible to participate in the employment
benefits made generally available by the Company to similarly-situated
Executives, in accordance with the benefit plans established by the Company, as
may be amended from time to time in the Company's sole discretion. Executive
shall be eligible for additional benefits upon specific approval of the
Company's Board of Directors. The Company will make reasonable accommodations to
permit Executive's family to participate in the Company's current health and
welfare plans given the current residential location of Executive's family in
Maryland; provided, however, that the current terms and conditions of such plans
otherwise permit such participation and Executive's family otherwise qualifies
for coverage under such plans, and that the Company will not be required to
incur unreasonable cost or expense to arrange for Executive's family's
participation in the Company's current health and welfare plans while
Executive's family resides in Maryland

     E. EXPENSES. The Company shall provide Executive with a housing allowance
equal to the cost of Executive's temporary housing in Illinois but not to exceed
$3,000 per calendar month, and shall reimburse Executive for reasonable
commuting expenses to the Company's offices in Lincolnshire, Illinois.
Notwithstanding the foregoing, the Company's Board of Directors may elect to
terminate such payments at any time after Executive has completed twenty-four
(24) months of employment with the Company.

3.   TERMINATION BY COMPANY

     A. TERMINATION BY COMPANY. The employment of Executive shall be "at-will"
at all times. The Company may terminate Executive's employment with the Company
for any reason or no reason at all, notwithstanding anything to the contrary
contained in or arising from any statements, policies or practices of the
Company relating to the employment, discipline or termination of its employees.
Unless Executive's employment is terminated by the Company for "Cause" (as
defined in Section 4(a) below), the Company shall provide Executive with thirty
(30) days' advance written notice of termination (the "30-Day Notice Period").
During such 30-Day Notice Period, Executive shall continue to diligently perform
all of his duties hereunder. In addition, the Company shall use reasonable
efforts to give Executive at least 10 days advance notice of any scheduled Board
meeting, vote, or other formal decision-making process intended to determine
whether to terminate Executive's employment. The Company shall have the right
(i) to make public disclosure of Executive's termination at any time that the
Company determines is necessary or advisable under applicable law or other legal
considerations such as listing requirements of the Nasdaq Stock Market and (ii)
to make Executive's termination effective at any time prior to the end of the
30-Day Notice Period as long as the Company pays Executive all compensation to
which he is entitled up through the last day of the notice period. Upon and
after such termination, all obligations of the Company under this Agreement
shall cease, unless Executive's employment is terminated not "For Cause" (as
defined below), in which case the Company shall provide Executive with the
severance benefits described in Section 3(b) below.

     B. SEVERANCE. Subject to Executive's execution of a general release
agreement as described below and Executive's compliance with Sections 7, 8 and 9
below, in the event that


                                       4



Executive's employment with the Company is terminated by the Company not for
Cause or by Executive for Good Reason pursuant to Section 5(b) hereof, Executive
shall receive the following:

          (i) an amount equal to eighteen (18) months of the then-current Base
Salary of Executive ("Severance"), payable as follows: (a) if such termination
occurs during the first year of Executive's employment with the Company, the
Company may pay up to 50% of the Severance in the form of stock with the
remaining amount of the Severance paid in cash; (b) if such termination occurs
during the second year of Executive's employment with the Company, the Company
may pay up to 34% of the Severance in the form of stock with the remaining
amount of the Severance paid in cash; or (c) if such termination occurs after
Executive has completed two years of employment with the Company, 100% of the
Severance shall be paid in cash. Subject to Section 22, the cash portion of the
Severance shall be payable in equal monthly installments over the course of
eighteen (18) months, and any portion of the Severance paid in the form of stock
shall be paid in a single lump sum following the expiration of any applicable
revocation period with respect to the general release referred to below;

          (ii) if the termination of Executive's employment occurs on or after
January 1, 2008, a pro-rated bonus based on Executive's bonus, if any, for the
fiscal year prior to termination and payable in equal monthly installments over
the course of eighteen (18) months (the pro-rated amount of such bonus shall be
calculated based on the number of days Executive is employed by the Company
during the calendar year in which the termination takes place);

          (iii) any unpaid bonus previously awarded to Executive by the Company
shall be paid in a lump sum within thirty days of the effective date of the
termination;

          (iv) with respect to any shares of Common Stock included in the
Tranche B Option (whether or not vested on or prior to the date of termination
of Executive's employment), Executive shall be permitted to exercise the Tranche
B Option with respect to such shares during the twelve (12) month period after
the termination of Executive's employment, but only to the limited extent that
such shares are vested on the date of termination of Executive's employment or
subsequently vest during such twelve (12) month period as a result of the
attainment of any specific vesting milestones set forth on Exhibit B hereto with
respect to such shares;

          (v) with respect to the shares of Common Stock included in the Tranche
A Option, set forth in Section 2(c)(i) above, those shares shall continue to
vest for an additional six (6) months after the termination of Executive's
employment and Executive shall have twelve (12) months after his employment
termination date to exercise these options to the extent vested; and

          (vi) with respect to any shares of Common Stock included in any other
stock option grants made to Executive by the Company (other than shares included
in the Tranche A Option or the Tranche B Option), Executive shall have twelve
(12) months after his employment termination date to exercise such options to
the extent vested.


                                       5



     Executive's eligibility for the foregoing severance benefits is conditioned
on Executive having first signed a general release agreement substantially in
the form attached hereto as Exhibit E. Executive shall not be entitled to any
severance payments or benefits if Executive's employment is terminated for
Cause, by death or by disability (as provided in Section 4 below), or if
Executive's employment is terminated by Executive without Good Reason. In the
event Executive is eligible to receive severance benefits under Section 6 below,
Executive shall not receive any payments or benefits under this Section 3(b).

4.   OTHER TERMINATIONS BY COMPANY

     A. TERMINATION FOR CAUSE. The Company may terminate Executive's employment
under this Agreement for "Cause" at any time upon written notice to Employee
specifically identifying the Cause. The following shall constitute Cause for
termination: (i) Executive's conviction or plea of nolo contendere of a felony
or any other crime involving dishonesty, breach of trust, or physical harm to
any person (excluding traffic violations that do not relate to driving while
intoxicated or driving under the influence); (ii) Executive has willfully
engaged in conduct that is in bad faith and materially injurious to the Company,
including but not limited to, misappropriation of trade secrets, fraud or
embezzlement; or (iii) any material willful breach by Executive of this
Agreement that causes material damage to the Company. Upon termination for Cause
as provided in this Section 4(a), Employee shall be entitled to receive any
compensation that is fully earned but remains unpaid as of the date of
termination, but all other compensation and benefits (including without
limitation vesting of any unvested Options as of the date of such termination)
shall immediately terminate.

     B. BY DEATH. Executive's employment shall terminate automatically upon
Executive's death. The Company shall pay to Executive's beneficiaries or estate,
as appropriate, any compensation then due and owing to Executive, including but
not limited to any bonus earned but not paid. Thereafter all obligations of the
Company under this Agreement shall cease. Nothing in this Section shall affect
any entitlement of Executive's heirs or devisees to the benefits of any life
insurance plan or other applicable benefits.

     C. BY DISABILITY. If Executive becomes eligible for the Company's long term
disability benefits or if, in the reasonable opinion of a physician mutually
selected by the Company and Executive, Executive is unable to carry out the
responsibilities and functions of the position held by Executive by reason of
any physical or mental impairment for more than 120 consecutive days or more
than 180 days in any twelve-month period, then, to the extent permitted by law,
the Company may terminate Executive's employment. The Company shall pay to
Executive all compensation to which Executive is entitled up through the date of
termination, including but not limited to any bonus earned but not paid, and
thereafter all obligations of the Company under this Agreement shall cease.
Nothing in this Section shall affect Executive's rights under any disability
plan in which Executive is a participant.


                                       6



5.   TERMINATION BY EXECUTIVE

     A. TERMINATION BY EXECUTIVE WITHOUT "GOOD REASON." Executive may terminate
employment with the Company at any time for any reason or no reason at all, upon
four weeks' advance written notice. During such notice period Executive shall
continue to diligently perform all of Executive's duties hereunder. The Company
shall have the option, in its sole discretion, to make Executive's termination
effective at any time prior to the end of such notice period as long as the
Company pays Executive all compensation to which Executive is entitled up
through the last day of the four week notice period. Thereafter all obligations
of the Company shall cease.

     B. TERMINATION BY EXECUTIVE FOR "GOOD REASON." Executive may terminate his
employment with the Company for "Good Reason." For purposes of this Agreement,
absent a "Change of Control" as defined below, "Good Reason" shall mean a
material diminution in, or adverse alteration to, Executive's title, position,
or duties, including no longer serving as the highest ranking executive officer
in the Company, provided that (i) Executive provides the Company with written
notice of the event constituting Good Reason within sixty (60) days of such
event and Executive provides the Company with a period of sixty (60) days to
cure such event, (ii) the appointment by the Company of a Chief Operating
Officer, Chief Administrative Officer or similar officer shall not constitute a
material diminution in, or adverse alteration to, Executive's title, position,
or duties, provided that Executive continues to serve as the highest ranking
executive officer in the Company following any such appointment and (iii) if
such material diminution occurs within the first year of Executive's employment
with the Company, any resignation by Executive as result of such material
diminution shall only be for Good Reason if (a) Executive has first provided the
Company with the written notice and cure opportunity provided in clause (i)
above, and (b) such resignation occurs on or after the first year of Executive's
employment with the Company.

6.   CHANGE OF CONTROL

     A. "CHANGE OF CONTROL" DEFINITION. For purposes of this Agreement, "Change
of Control" shall mean a change in ownership or control of the Company effected
through a merger, consolidation or acquisition by any person or related group of
persons (other than an acquisition by the Company or by a Company-sponsored
employee benefit plan or by a person or persons that directly or indirectly
controls, is controlled by, or is under common control with, the Company) of
beneficial ownership (within the meaning of Rule 13d-3 of the Securities
Exchange Act of 1934) of securities possessing more than fifty percent of the
total combined voting power of the outstanding securities of the Company.
Notwithstanding anything else contained herein to the contrary, in no event
shall a Change of Control be deemed to occur by reason of (i) a distribution of
Company's Common Stock held by Durus to its investors, partners or members,
whether as dividend or otherwise, of all or any portion of the shares of Common
Stock held, directly or indirectly, by Durus or (ii) a sale of all or any
portion of the Company's Common Stock held, directly or indirectly, by Durus in
an underwritten public offering (including, without limitation, a sale of
securities of Holdings in an underwritten public offering), unless following
such distribution or sale any person or related group of persons, other than
Durus or its affiliates,


                                       7



possess more than fifty percent of the total combined voting power of the
outstanding securities of the Company.

     B. VESTING OF EQUITY UPON A CHANGE OF CONTROL. Upon a Change of Control,
all of the shares subject to the Tranche A Option, the Tranche B Option or any
other options granted to Executive by the Company shall immediately vest to the
extent such shares have not previously vested.

     C. TERMINATION FOR "GOOD REASON" AFTER CHANGE OF CONTROL. Executive's
termination of employment after a Change of Control shall be for "Good Reason"
if (i) Executive's employment is terminated by the Company not for Cause within
twelve (12) months following a Change of Control, (ii) Executive no longer is
the Chief Executive Officer of a publicly-traded company immediately following a
Change of Control, (iii) Executive is not a member of the Board of Directors
immediately following a Change of Control, (iv) Executive does not directly
report to the Board of Directors immediately following a Change of Control, or
(v) Executive provides written notice to the Company of either of the following
events within sixty (60) days of such event and Executive provides the Company
with a period of sixty (60) days to cure such event (which event remains uncured
following such period), provided that each such event is effected by the Company
without the consent of Executive and occurs within six (6) months following a
Change of Control: (A) a change in Executive's job title at the Company or (B) a
material reduction in Executive's Base Salary. Subject to Executive's execution
of a general release agreement as described below and Executive's compliance
with Sections 7, 8 and 9 below, in the event Executive's termination of
employment is for Good Reason, Executive shall receive (i) an amount equal to
twenty-four (24) months of the then-current Base Salary of Executive, payable in
the form of salary continuation, (ii) an amount equal to any unpaid bonus
previously awarded to Executive by the Company in a lump sum amount, (iii) a
pro-rated bonus based on Executive's bonus, if any, for the fiscal year prior to
termination and payable in equal monthly installments over the course of
twenty-four (24) months (the pro-rated amount of such bonus shall be calculated
based on the number of days Executive is employed by the Company during the
calendar year in which the termination takes place); (iv) an amount equal to two
times the amount of Executive's prior year's bonus paid in cash over the course
of 24 months provided that, in the event of such a termination during the first
year of employment, the bonus amount for purposes of this calculation shall be
$280,000, and (v) a period of 12 months after the termination of Executive's
employment to exercise any stock options that are vested as of the time of
termination.

     Executive's eligibility for severance is conditioned on Executive having
first signed a general release agreement in substantially the form attached
hereto as Exhibit E. If Executive is eligible for payments under this Section
6(c), Executive shall not be eligible for any payments or benefits under Section
3(b) above.

     D. 280G GROSS UP PAYMENT ON CHANGE OF CONTROL.


                                       8



          (i) Effect of Section 280G. Anything in this Agreement to the contrary
notwithstanding and except as set forth below, in the event it shall be
determined that any payment or benefit (within the meaning of Section 280G(b)(2)
of the Code) to Executive or for Executive's benefit, paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise in connection with, or arising out of, Executive's employment with the
Company or a Change of Control (a "Payment" or "Payments"), would be subject to
the excise tax imposed by Section 4999 of the Code, or any interest or penalties
are incurred by Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then Executive shall be entitled to receive an
additional payment (the "Gross-Up Payment"). The Gross-Up Payment shall equal an
amount such that, after payment by Executive of all taxes (and any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.

          (ii) Determination by Accountant. All determinations required to be
made under this Section 6(d), including whether and when a Gross-Up Payment is
required, the amount of such Gross-Up Payment and the assumptions to be utilized
in arriving at any such determination (the "Determination"), shall be made by
the Company. The Company shall provide its Determination and the basis,
assumptions and calculation supporting its Determination, to Executive within
fifteen (15) days of the date of the termination of employment, if applicable,
or such other time as requested by Executive (provided Executive reasonably
believes that any of the Payments may be subject to the Excise Tax). If
requested by Executive, the Company shall furnish Executive, at the Company's
expense, with an opinion reasonably acceptable to Executive from the Company's
accounting firm (or an accounting firm of equivalent stature reasonably
acceptable to Executive) that there is a reasonable basis for the Determination.
Any Gross-Up Payment determined pursuant to this Section 6 shall be paid by the
Company to Executive within thirty (30) days of receipt of the Determination.

          (iii) Adjustment of Payment. As a result of the uncertainty in the
application of Sections 4999 and 280G of the Code, it is possible that the
Payments to be made to, or provided for the benefit of, Executive will be either
greater (an "Excess Payment") or less (an "Underpayment") than the amounts
provided for by the limitations contained in Section 6(d)(i). In the case of an
Underpayment, the Company promptly shall pay, or cause to be paid, the amount of
such Underpayment to or for the benefit of Executive. In the case of an Excess
Payment, Executive shall, at the direction and expense of the Company, take such
steps as are reasonably necessary (including the filing of returns and claims
for refund), follow reasonable instructions from, and procedures established by,
the Company, and otherwise reasonably cooperate with the Company to correct such
Excess Payment; provided, however, that (1) Executive shall not in any event be
obligated to return to the Company an amount greater than the net after-tax
portion of the Excess Payment that Executive has retained or recovered as a
refund from the applicable taxing authorities, and (2) this provision shall be
interpreted in a


                                       9



manner consistent with the intent of Section 6, it being understood that the
correction of an Excess Payment may result in Executive's repaying to the
Company an amount that is less than the Excess Payment.

7.   TERMINATION OBLIGATIONS

     A. RETURN OF PROPERTY. Executive agrees that all property (including
without limitation all equipment, tangible proprietary information, documents,
records, notes, contracts and computer-generated materials) furnished to or
created or prepared by Executive incident to Executive's employment belongs to
the Company and shall be promptly returned to the Company upon termination of
Executive's employment.

     B. RESIGNATION AND COOPERATION. Upon termination of Executive's employment,
Executive shall be deemed to have resigned from all offices and directorships
then held with the Company or any of the Company's subsidiaries. Following any
termination of employment, Executive shall cooperate with the Company in the
winding up of pending work on behalf of the Company and the orderly transfer of
work to other employees. Executive shall also cooperate with the Company in the
defense of any action brought by any third party against the Company that
relates to Executive's employment by the Company.

     C. CONTINUING OBLIGATIONS. Executive understands and agrees that
Executive's obligations under Sections 7, 8 and 9 herein shall survive the
termination of Executive's employment for any reason and the termination of this
Agreement.

8.   INVENTIONS AND PROPRIETARY INFORMATION; NON-SOLICITATION AND
     NON-COMPETITION; PROHIBITION ON THIRD PARTY INFORMATION

     A. PROPRIETARY INFORMATION AGREEMENT. Executive agrees to sign and be bound
by the terms of the Company's Proprietary Information and Inventions Assignment
Agreement ("Proprietary Information Agreement"), the form of which is attached
as Exhibit C hereto. Executive shall identify all inventions as to which
Executive claims any ownership interest in a schedule attached to his
Proprietary Information Agreement.

     B. NON-SOLICITATION. Executive acknowledges that because of Executive's
position in the Company, Executive will have access to material intellectual
property and confidential information. During the term of Executive's employment
and for eighteen (18) months thereafter, in addition to Executive's other
obligations hereunder or under the Proprietary Information Agreement, Executive
shall not, for Executive or any third party, directly or indirectly (a) divert
or attempt to divert from the Company any business of any kind, including
without limitation the solicitation of or interference with any of its
customers, clients, members, business partners or suppliers, or (b) solicit or
otherwise induce any person employed by the Company to terminate his employment.


                                       10



     C. NON-DISCLOSURE OF THIRD PARTY INFORMATION. Executive represents and
warrants and covenants that Executive shall not disclose to the Company, or use,
or induce the Company to use, any proprietary information or trade secrets of
others at any time, including but not limited to any proprietary information or
trade secrets of any former employer, if any; and Executive acknowledges and
agrees that any violation of this provision shall be grounds for Executive's
immediate termination and could subject Executive to substantial civil
liabilities and criminal penalties. Executive further specifically and expressly
acknowledges that no officer or other employee or representative of the Company
has requested or instructed Executive to disclose or use any such third party
proprietary information or trade secrets.

     D. NON-COMPETITION. Executive acknowledges that because of Executive's
position in the Company, Executive will have access to material intellectual
property and confidential information. During the term of Executive's employment
and for eighteen (18) months thereafter, in addition to Executive's other
obligations hereunder or under the Proprietary Information Agreement, Executive
shall not, for the benefit of Executive or any third party, directly or
indirectly, anywhere where the Company does business, be employed by, engaged
in, connected with, or own, share in the earnings of, or invest in the
securities of any person, partnership, corporation or other business
organization that is engaged in the business of manufacturing, marketing or
distributing (i) dialysis machines or mechanical systems for the treatment of
end-stage renal disease or kidney failure or (ii) software designed or used
specifically for such machines or systems. Notwithstanding the foregoing,
Executive may invest in the securities of any business organization engaging in
the business of manufacturing, marketing or distributing (i) dialysis machines
or mechanical systems for the treatment of end-stage renal disease or kidney
failure or (ii) software designed or used specifically for such machines or
systems, if such securities are listed on any securities exchange so long as
Executive's investment does not exceed 5% of the issued and outstanding
securities of such business organization, and Executive does not have any
participation in the control of such business organization.

     E. EFFECT OF BREACH. Executive acknowledges that the provisions and
limitations set forth in Section 8 of this Agreement are necessary for the
protection of the Company and are reasonable in light of the activities and
business of the Company. Executive further acknowledges that (i) Executive will
be able to support himself without violating such covenant and (ii) Executive
has been advised by his legal counsel as to the meaning and consequences of such
covenant. Executive acknowledges that the Company will have no adequate remedy
at law if Executive breaches any of the provisions of Section 8 of this
Agreement. In such event, the Company shall have the right, in addition to any
other rights it may have, to obtain in any court of competent jurisdiction
injunctive relief to restrain any breach or threatened breach of or otherwise to
specifically enforce any of the provisions of said sections. Further, if a court
or arbitrator of competent jurisdiction finds the scope, time or geographical
restrictions in Section 8 of this Agreement to be unreasonable, it is the
intention of the parties that such restrictions shall be enforced to the fullest
extent to which such court or arbitrator deems reasonable, and such provisions
shall thereby be reformed.


                                       11



     In addition to any other remedies, Executive's breach of any of the
obligations contained in this Section 8 shall terminate any obligation the
Company may otherwise have to pay severance to Executive.

9.   ALTERNATIVE DISPUTE RESOLUTION

     A. REQUIRED MEDIATION. The Company and Executive mutually agree that any
controversy or claim arising out of or relating to this Agreement or the breach
thereof, or any other dispute between the parties arising from or related to
Executive's employment with the Company, shall be submitted to mediation before
a mutually agreeable mediator. If the parties are unable to agree on a mediator,
the matter will be submitted to JAMS/Endispute for selection of a mediator and
mediation pursuant to its rules.

     B. ARBITRATION. In the event mediation is unsuccessful in resolving the
claim or controversy, such claim or controversy shall be resolved by arbitration
by a single neutral arbitrator to be mutually agreed. If the parties are unable
to agree on an arbitrator, the matter will be submitted to JAMS/Endispute for
selection of an arbitrator and resolution pursuant to its rules. The Company and
Executive agree that the arbitration shall be held in New York City, New York,
unless the parties otherwise agree in writing. The arbitrator shall have
authority to award or grant legal, equitable, and declaratory relief. Such
arbitration shall be final and binding on the parties subject only to such right
of review that may lie under applicable state and federal law. The arbitrator
shall award reasonable attorney's fees and costs to the prevailing party.

     C. COVERED CLAIMS. The claims covered by this Agreement ("Arbitrable
Claims") include, but are not limited to, any and all issues arising from
Executive's relationship with the Company as an employee, shareholder, director
or otherwise, including but not limited to claims for wages, stock, stock
options, or other compensation due; claims for breach of any contract (including
this Agreement) or covenant (express or implied); tort claims; claims for
discrimination (including, but not limited to, race, sex, religion, national
origin, age, marital status, medical condition, or disability); claims for
benefits (except where an employee benefit or pension plan specifies that its
claims procedure shall culminate in an arbitration procedure different from this
one); and claims for violation of any federal, state, or other law, statute,
regulation, or ordinance, except claims excluded in the following paragraph. The
parties hereby waive any rights they may have to trial by jury in regard to
Arbitrable Claims.

     Claims Executive may have for workers' compensation, State disability, or
unemployment compensation benefits are not covered by this Agreement. Also not
covered is either party's right to obtain provisional remedies, or interim
relief from a court of competent jurisdiction.

     This agreement to mediate and arbitrate survives termination of Executive's
employment. If the Company commences mediation or arbitration, it must pay all
the costs charged by the mediator and/or arbitrator. If Executive commences
mediation or arbitration, the costs charged by


                                       12



the mediator and/or arbitrator are to be divided evenly between the parties. If
Executive is the prevailing party, any such costs are to be reimbursed by the
Company.

10.  AMENDMENTS; WAIVERS; REMEDIES

     This Agreement may not be amended or waived except by a writing signed by
Executive and by a duly authorized representative of the Company other than
Executive. Failure to exercise any right under this Agreement shall not
constitute a waiver of such right. Any waiver of any breach of this Agreement
shall not operate as a waiver of any subsequent breaches. All rights or remedies
specified for a party herein shall be cumulative and in addition to all other
rights and remedies of the party hereunder or under applicable law.

11.  ASSIGNMENT; BINDING EFFECT

     A. ASSIGNMENT. The performance of Executive is personal hereunder, and
Executive agrees that Executive shall have no right to assign and shall not
assign or purport to assign any rights or obligations under this Agreement. This
Agreement may be assigned or transferred by the Company; and nothing in this
Agreement shall prevent the consolidation, merger or sale of the Company or a
sale of any or all or substantially all of its assets.

     B. BINDING EFFECT. Subject to the foregoing restriction on assignment by
Executive, this Agreement shall inure to the benefit of and be binding upon each
of the parties; the affiliates, officers, directors, agents, successors and
assigns of the Company; and the heirs, devisees, spouses, legal representatives
and successors of Executive.

12.  INDEMNIFICATION

     Executive will be entitled to indemnification to the fullest extent
permitted by Delaware law for officers and directors, subject to the standard
terms and conditions of the indemnification agreement provided by the Company to
its officers and directors. Attached as Exhibit D hereto is the form of the
Company's indemnification agreement with its officers and directors.

13.  NOTICES

     All notices or other communications required or permitted hereunder shall
be made in writing and shall be deemed to have been duly given if delivered: (a)
by hand, by a nationally recognized overnight courier service or by United
States first class registered or certified mail (return receipt requested) to
the principal address of the other party, as set forth below, or (b) by
facsimile (provided confirmation of transmission is mechanically or
electronically generated and kept on file by the sending party). The date of
notice shall be deemed to be the earlier of (i) actual receipt of notice by any
permitted means, or (ii) five business days following dispatch by overnight
delivery service or the United States Mail. Executive shall be obligated to
notify the Company in writing of any change in Executive's address. Notice of
change of address shall be effective only when done in accordance with this
paragraph.


                                       13



     Company's Notice Address:

               Aksys, Ltd.
               Two Marriott Drive
               Lincolnshire, Illinois 60069
               Attention: Chief Financial Officer
               Facsimile No.: (847) 229-2235

     With a copy to (which shall not constitute notice):

     Morrison & Foerster LLP

               425 Market Street
               San Francisco, CA 94105
               Attention: Gavin B. Grover
               Facsimile No.: 415-268-7522

     Executive's Notice Address:

               6104 Kennedy Drive
               Chevy Chase, MD 20815

     With a copy to (which shall not constitute notice):

               Greenberg Traurig, LLP
               200 Park Avenue
               New York, New York 10166
               Attention: Brian S. Cousin, Esq.
               Facsimile No.: 212-805-9354
               E-Mail Address: cousinb@gtlaw.com

14.  SEVERABILITY

     If any provision of this Agreement shall be held by a court or arbitrator
to be invalid, unenforceable, or void, such provision shall be enforced to the
fullest extent permitted by law, and the remainder of this Agreement shall
remain in full force and effect. In the event that the time period or scope of
any provision is declared by a court or arbitrator of competent jurisdiction to
exceed the maximum time period or scope that such court or arbitrator deems
enforceable, then such court or arbitrator shall reduce the time period or scope
to the maximum time period or scope permitted by law.


                                       14



15.  TAXES

     All amounts paid under this Agreement (including without limitation Base
Salary and severance payment pursuant to Sections 3(b) or 6) shall be paid less
all applicable state and federal tax withholdings and any other withholdings
required by any applicable jurisdiction.

16.  GOVERNING LAW

     This Agreement shall be governed by and construed in accordance with the
laws of the State of Illinois, based on the Company's location and Executive's
provision of services within Illinois.

17.  INTERPRETATION

     This Agreement shall be construed as a whole, according to its fair
meaning, and not in favor of or against any party. Sections and section headings
contained in this Agreement are for reference purposes only, and shall not
affect in any manner the meaning or interpretation of this Agreement. Whenever
the context requires, references to the singular shall include the plural and
vice versa.

18.  OBLIGATIONS SURVIVE TERMINATION OF EMPLOYMENT

     Executive agrees that any and all of Executive's obligations under this
agreement, including but not limited to the Stock Option Agreement attached as
Exhibit A hereto and the Proprietary Information Agreement attached as Exhibit C
hereto, shall survive the termination of employment and the termination of this
Agreement.

19.  COUNTERPARTS

     This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original of this Agreement, but all of which together shall
constitute one and the same instrument.

20.  AUTHORITY

     Each party represents and warrants that such party has the right, power and
authority to enter into and execute this Agreement and to perform and discharge
all of the obligations hereunder, and that this Agreement constitutes the valid
and legally binding agreement and obligation of such party and is enforceable in
accordance with its terms.

21.  ENTIRE AGREEMENT

     This Agreement is intended to be the final, complete, and exclusive
statement of the terms of Executive's employment by the Company and may not be
contradicted by evidence of any prior or contemporaneous statements or
agreements, except for agreements specifically


                                       15



referenced herein (including the Stock Option Agreements attached as Exhibit A
hereto and the Proprietary Information Agreement attached as Exhibit C hereto).
To the extent that the practices, policies or procedures of the Company, now or
in the future, apply to Executive and are inconsistent with the terms of this
Agreement, the provisions of this Agreement shall control. Any subsequent change
in Executive's duties, position, or compensation will not affect the validity or
scope of this Agreement.

22.  SECTION 409A

     This Agreement is intended to comply with Section 409A of the Code (as
amplified by any Internal Revenue Service or U.S. Treasury Department guidance),
and shall be construed and interpreted in accordance with such intent. Executive
acknowledges that the Company, in the exercise of its reasonable discretion and
without the consent of Executive, (i) may amend or modify this Agreement in any
manner in order to meet the requirements of Section 409A of the Code as
amplified by any Internal Revenue Service or U.S. Treasury Department guidance
and (ii) shall have the authority to delay the payment of any amounts or the
provision of any benefits under this Agreement to the extent it deems necessary
or appropriate to comply with Section 409A(a)(2)(B)(i) of the Code (relating to
payments made to certain "key employees" of certain publicly-traded companies)
as amplified by any Internal Revenue Service or U.S. Treasury Department
guidance as the Company deems appropriate or advisable. In such event, any
amounts or benefits under this Agreement to which Executive would otherwise be
entitled during the six (6) month period following Executive's termination of
employment will be paid on the first business day following the expiration of
such six (6) month period. Any provision of this Agreement that would cause the
payment of any benefit to fail to satisfy Section 409A of the Code shall have no
force and effect until amended to comply with Code Section 409A (which amendment
may be retroactive to the extent permitted by the Code or any regulations or
rulings thereunder).

23.  ATTORNEYS' FEES

     The Company agrees to reimburse Executive for the legal fees incurred in
the negotiation of this Agreement, up to a maximum of $25,000, and such
reimbursement shall be made within 60 days of the date of this Agreement.

24.  EXECUTIVE ACKNOWLEDGEMENT

     EXECUTIVE ACKNOWLEDGES EXECUTIVE HAS HAD THE OPPORTUNITY TO CONSULT LEGAL
COUNSEL CONCERNING THIS AGREEMENT, THAT EXECUTIVE HAS READ AND UNDERSTANDS THE
AGREEMENT, THAT EXECUTIVE IS FULLY AWARE OF ITS LEGAL EFFECT, AND THAT EXECUTIVE
HAS ENTERED INTO IT FREELY BASED ON EXECUTIVE'S OWN JUDGMENT AND NOT ON ANY
REPRESENTATIONS OR PROMISES OTHER THAN THOSE CONTAINED IN THIS AGREEMENT.


                                       16



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

AKSYS, LTD.:                            EXECUTIVE:


By:/s/                                  /s/
   ----------------------------------   ----------------------------------------
                                        Name: Howard J. Lewin
Name:________________________________

Title: ______________________________


                                       17



                                    EXHIBIT A

                             Stock Option Agreement



                                    EXHIBIT B

                               Vesting Milestones

(1) 400,000 of the shares of Common Stock subject to the Tranche B Option shall
vest when the Company obtains additional financing in an amount which, as
determined by the Company's Board of Directors in its sole discretion, will
enable the Company to sustain its operations through the commercial launch of
the Company's next generation product pursuant to the "Pluto" Hemodialysis
System Project Plan as set forth in the Research, Development and License
Agreement, entered into on November 1, 2005, between the Company, DEKA Products
Limited Partnership and DEKA Research and Development Corp., as such Plan may be
revised from time to time ("Pluto").

(2) 400,000 of the shares of Common Stock subject to the Tranche B Option shall
vest upon the commercial launch of Pluto. In addition, in the event that the
commercial launch of Pluto occurs absent the attainment of the financing
described in paragraph (1) above, the shares of Common Stock subject to the
Tranche B Option described in paragraph (1) above shall also vest on the date of
such commercial launch of Pluto.

(3) 250,000 of the shares of Common Stock subject to the Tranche B Option shall
vest when the Fair Market Value of the Company's shares of Common Stock is equal
to or above $3.50 per share for more than 75 of 90 consecutive trading days.

(4) 250,000 of the shares of Common Stock subject to the Tranche B Option shall
vest when the Fair Market Value of the Company's shares of Common Stock is equal
to or above $6.50 per share for more than 75 of 90 consecutive trading days.



                                    EXHIBIT C

                        Proprietary Information Agreement



                                    EXHIBIT D

                        Form of Indemnification Agreement



                                    EXHIBIT E

                            Form of Release Agreement

                               RELEASE CERTIFICATE

     Howard J. Lewin ("You") and Aksys, Ltd. (the "Company") have agreed to
enter into this Release Certificate on the following terms:

     Within ten (10) days after you sign this Release Certificate (which you may
sign no sooner than the last day of your employment with the Company), you will
become eligible to receive severance benefits in accordance with the terms of
your Executive Employment Agreement with the Company dated June 23, 2006
("Agreement"). Your receipt of the foregoing severance benefits is subject to
the conditions set forth in the Agreement, including but not limited to your
continued compliance with your obligations under Sections 7 and 8 thereof.

     In return for the consideration described in the Agreement, you and your
representatives completely release Aksys, Ltd., Durus Life Sciences Master Fund
Ltd., its and their affiliated, related, parent or subsidiary corporations, and
its and their present and former directors, officers, investors, stockholders
and employees (the "Released Parties") from all claims of any kind, known and
unknown, which you may now have or have ever had against any of them, or arising
out of your relationship with any of them, including all claims arising from
your employment or the termination of your employment, whether based on
contract, tort, statute, local ordinance, regulation or any comparable law in
any jurisdiction ("Released Claims"). By way of example and not in limitation,
the Released Claims shall include any claims arising under Title VII of the
Civil Rights Act of 1964, the Americans with Disabilities Act, the Worker
Adjustment and Retraining Notification Act, the Age Discrimination in Employment
Act, or any other comparable state or local law, as well as any claims asserting
wrongful termination, breach of contract, breach of the covenant of good faith
and fair dealing, negligent or intentional misrepresentation, and defamation and
any claims for attorneys' fees. You also agree not to file, cause to be filed,
or otherwise pursue any Released Claims.

     You acknowledge that the release of claims under the Age Discrimination in
Employment Act ("ADEA") is subject to special waiver protection. Therefore, you
acknowledge the following: (a) you have had 21 days to consider this Release
Certificate (but may sign it at any time beforehand if you so desire); (b) you
can consult an attorney in doing so; (c) you can revoke this Release Certificate
within seven (7) days of signing it by sending a certified letter to that effect
to [NAME AND ADDRESS]; and that (d) this Release Certificate shall not become
effective or enforceable and no severance benefits shall be provided until the
7-day revocation period has expired.

     The parties agree that this Release Certificate and the Agreement contain
all of our agreements and understandings with respect to their subject matter,
and may not be contradicted by evidence of any prior or contemporaneous
agreement, except to the extent that the provisions



of any such agreement have been expressly referred to in this Release
Certificate or the Agreement as having continued effect. It is agreed that this
Release Certificate shall be governed by the laws of the State of Illinois. If
any provision of this Release Certificate or its application to any person,
place, or circumstance is held by a court of competent jurisdiction to be
invalid, unenforceable, or void, the remainder of this Release Certificate and
such provision as applied to other person, places, and circumstances will remain
in full force and effect.

     PLEASE NOTE THAT THIS RELEASE CERTIFICATE MAY NOT BE SIGNED BEFORE THE LAST
DAY OF YOUR EMPLOYMENT WITH THE COMPANY, AND THAT YOUR ELIGIBILITY FOR SEVERANCE
BENEFITS IS CONDITIONED UPON MEETING THE TERMS SET FORTH IN THE AGREEMENT.


_____________________________________     Date: ______________________
              [EMPLOYEE]


_____________________________________     Date: ______________________
         [COMPANY SIGNATORY]


                                       23

EX-10.8

                                                                    Exhibit 10.8

                                   AKSYS, LTD.

                     NOTICE OF TRANCHE A STOCK OPTION AWARD

Grantee's Name and Address:   Howard J. Lewin
                              6104 Kennedy Drive
                              Chevy Chase, MD 20815

     You (the "Grantee") have been granted a Tranche A option (the "Option") to
purchase shares of Common Stock of Aksys, Ltd. (the "Company"), subject to the
terms and conditions of this Notice of Stock Option Award (the "Notice"), the
Stock Option Award Agreement (the "Option Agreement") attached hereto, and the
executive employment agreement between the Grantee and the Company, dated June
23, 2006 (the "Employment Agreement"), as follows. Unless otherwise defined
herein, the terms defined in the Option Agreement shall have the same defined
meanings in this Notice.

Date of Award                    June 23, 2006
Vesting Commencement Date        June 23, 2006
Exercise Price per Share         0.7644
Total Number of Shares Subject
to the Option (the "Shares")     1,200,000 Shares
Total Exercise Price             $917,280
Type of Option                   Non-Qualified Stock Option
Expiration Date:                 June 23, 2016
Post-Termination Vesting and
Exercise Period:                 As set forth in Section 5 of the Option
                                 Agreement

Vesting Schedule:

     Subject to the Grantee's Continuous Service and other limitations set forth
in this Notice, the Option Agreement and the Employment Agreement, the Option
may be exercised, in whole or in part, in accordance with the following
schedule:

     Three hundred thousand (300,000) Shares of the Option shall vest on the
first anniversary of the Vesting Commencement Date and the remaining nine
hundred thousand (900,000) Shares shall vest in thirty-six (36) equal monthly
installments thereafter.

     In the event the Grantee's Continuous Service terminates without Cause or
by the Grantee with Good Reason, the outstanding Shares subject to the Option
shall continue to vest for an additional six (6) months from the date of such
termination.


                                       1



     During any authorized leave of absence, the vesting of the Option as
provided in this schedule shall be suspended after the leave of absence exceeds
a period of three (3) months. Vesting of the Option shall resume upon the
Grantee's termination of the leave of absence and return to service to the
Company or a Related Entity. The Vesting Schedule of the Option shall be
extended by the length of the suspension.

     IN WITNESS WHEREOF, the Company and the Grantee have executed this Notice
and agree that the Option is to be governed by the terms and conditions of this
Notice and the Option Agreement.

                                        Aksys, Ltd.,
                                        a Delaware corporation


                                        By:                 /s/
                                            ------------------------------------

                                        Title:
                                               ---------------------------------

THE GRANTEE ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS NOTICE OR THE OPTION
AGREEMENT SHALL CONFER UPON THE GRANTEE ANY RIGHT WITH RESPECT TO FUTURE AWARDS
OR CONTINUATION OF THE GRANTEE'S CONTINUOUS SERVICE, NOR SHALL IT INTERFERE IN
ANY WAY WITH THE GRANTEE'S RIGHT OR THE RIGHT OF THE COMPANY OR RELATED ENTITY
TO WHICH THE GRANTEE PROVIDES SERVICES TO TERMINATE THE GRANTEE'S CONTINUOUS
SERVICE, WITH OR WITHOUT CAUSE.

     The Grantee acknowledges receipt of a copy of the Option Agreement, and
represents that he or she is familiar with the terms and provisions thereof, and
hereby accepts the Option subject to all of the terms and provisions hereof and
thereof. The Grantee has reviewed this Notice and the Option Agreement in their
entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Notice, and fully understands all provisions of this Notice and
the Option Agreement. The Grantee hereby agrees that all questions of
interpretation and administration relating to this Notice and the Option
Agreement shall be resolved by the Board in accordance with Section 13 of the
Option Agreement. The Grantee further agrees to the venue selection and waiver
of a jury trial in accordance with Section 14 of the Option Agreement. The
Grantee further agrees to notify the Company upon any change in the residence
address indicated in this Notice.

Dated:          6/23/06                 Signed:                /s/
       ------------------------------           --------------------------------
                                                             Grantee


                                       2



                                   AKSYS, LTD.

                          STOCK OPTION AWARD AGREEMENT

     1. Grant of Option. Aksys, Ltd., a Delaware corporation (the "Company"),
hereby grants to the Grantee (the "Grantee") named in the Notice of Stock Option
Award (the "Notice"), an option (the "Option") to purchase the Total Number of
Shares of Common Stock subject to the Option (the "Shares") set forth in the
Notice, at the Exercise Price per Share set forth in the Notice (the "Exercise
Price") subject to the terms and provisions of this Stock Option Award Agreement
(the "Option Agreement"), the Notice and the executive employment agreement
between the Grantee and the Company, dated June 23, 2006 (the "Employment
Agreement"), which are incorporated herein by reference.

     2. Exercise of Option.

          (a) Right to Exercise. The Option shall be exercisable during its term
in accordance with the Vesting Schedule set out in the Notice and with the
applicable provisions of this Option Agreement.

          (b) Method of Exercise. The Option shall be exercisable by delivery of
an exercise notice (a form of which is attached as Exhibit A) or by such other
procedure as specified from time to time by the Board which shall state the
election to exercise the Option, the whole number of Shares in respect of which
the Option is being exercised, and such other provisions as may be required by
the Board. The exercise notice shall be delivered in person, by certified mail,
or by such other method (including electronic transmission) as determined from
time to time by the Board to the Company accompanied by payment of the Exercise
Price. The Option shall be deemed to be exercised upon receipt by the Company of
such notice accompanied by the Exercise Price, which, to the extent selected,
shall be deemed to be satisfied by use of the broker-dealer sale and remittance
procedure or the net exercise procedure to pay the Exercise Price provided in
Sections 3(d) and 3(e) below.

          (c) Taxes. No Shares will be delivered to the Grantee or other person
pursuant to the exercise of the Option until the Grantee or other person has
made arrangements acceptable to the Board for the satisfaction of applicable
income tax and employment tax withholding obligations, including, without
limitation, obligations incident to the receipt of Shares. Upon exercise of the
Option, the Company or the Grantee's employer may offset or withhold (from any
amount owed by the Company or the Grantee's employer to the Grantee) or collect
from the Grantee or other person an amount sufficient to satisfy such tax
withholding obligations.

     3. Method of Payment. Payment of the Exercise Price shall be made by any of
the following, or a combination thereof, at the election of the Grantee;
provided, however, that such exercise method does not then violate any
Applicable Law and, provided further, that the portion of the Exercise Price
equal to the par value of the Shares must be paid in cash or other legal
consideration permitted by the Delaware General Corporation Law:

          (a) cash;


                                        1



          (b) check;

          (c) surrender of Shares or delivery of a properly executed form of
attestation of ownership of Shares as the Board may require which have a Fair
Market Value on the date of surrender or attestation equal to the aggregate
Exercise Price of the Shares as to which the Option is being exercised,
provided, however, that Shares acquired under any other equity compensation plan
or agreement of the Company must have been held by the Grantee for a period of
more than six (6) months (and not used for another award exercise by attestation
during such period);

          (d) payment through a broker-dealer sale and remittance procedure
pursuant to which the Grantee (i) shall provide written instructions to a
Company-designated brokerage firm to effect the immediate sale of some or all of
the purchased Shares and remit to the Company sufficient funds to cover the
aggregate exercise price payable for the purchased Shares and (ii) shall provide
written directives to the Company to deliver the certificates for the purchased
Shares directly to such brokerage firm in order to complete the sale
transaction; or

          (e) unless such exercise would constitute a violation of any
Applicable Laws as determined by the Board in its sole discretion, payment
through a "net exercise" such that, without the payment of any funds, the
Grantee may exercise the Option and receive the net number of Shares equal to
(i) the number of Shares as to which the Option is being exercised, multiplied
by (ii) a fraction, the numerator of which is the Fair Market Value per Share
less the Exercise Price per Share, and the denominator of which is such Fair
Market Value per Share (the net number of Shares received shall be rounded down
to the nearest whole number of Shares).

     4. Restrictions on Exercise. The Option may not be exercised if the
issuance of the Shares subject to the Option upon such exercise would constitute
a violation of any Applicable Laws. If the exercise of the Option within the
applicable time periods set forth in Section 5, 6 and 7 of this Option Agreement
is prevented by the provisions of this Section 4, the Option shall remain
exercisable until one (1) month after the date the Grantee is notified by the
Company that the Option is exercisable, but in any event no later than the
Expiration Date set forth in the Notice.

     5. Termination or Change of Continuous Service.

          (a) Subject to Section 17 below, in the event the Grantee's Continuous
Service terminates without Cause or by the Grantee with Good Reason, (i) the
outstanding Shares subject to the Option shall continue to vest for an
additional six (6) months from the date of such termination (also the
"Termination Date"), and (ii) the Grantee shall have twelve (12) months from the
Termination Date to exercise any vested Shares subject to the Option.

          (b) Subject to Section 17 below, in the event the Grantee's Continuous
Service terminates for Good Reason following a Change of Control of the Company,
the Grantee shall have twelve (12) months from the Termination Date to exercise
any vested Shares subject to the Option.


                                        2



          (c) In the event of termination of the Grantee's Continuous Service
for Cause or by the Grantee without Good Reason, the Grantee shall have thirty
(30) days from the Termination Date to exercise any vested Shares subject to the
Option.

          (d) In no event, however, shall the Option be exercised later than the
Expiration Date set forth in the Notice. In the event of the Grantee's change in
status from Employee, Director or Consultant to any other status of Employee,
Director or Consultant, the Option shall remain in effect and the Option shall
continue to vest in accordance with the Vesting Schedule set forth in the
Notice. Except as provided in Sections 6 and 7 below, to the extent that the
Option was unvested on the Termination Date, or if the Grantee does not exercise
the vested portion of the Option within the Post-Termination Exercise Period,
the Option shall terminate.

     6. Disability of Grantee. In the event the Grantee's Continuous Service
terminates as a result of his or her Disability, the Grantee may, but only
within twelve (12) months commencing on the Termination Date (but in no event
later than the Expiration Date), exercise the portion of the Option that was
vested on the Termination Date. To the extent that the Option was unvested on
the Termination Date, or if the Grantee does not exercise the vested portion of
the Option within the time specified herein, the Option shall terminate.

     7. Death of Grantee. In the event of the termination of the Grantee's
Continuous Service as a result of his or her death, or in the event of the
Grantee's death during the Post-Termination Exercise Period or during the twelve
(12) month period following the Grantee's termination of Continuous Service as a
result of his or her Disability, the person who acquired the right to exercise
the Option pursuant to Section 8 may exercise the portion of the Option that was
vested at the date of termination within twelve (12) months commencing on the
date of death (but in no event later than the Expiration Date). To the extent
that the Option was unvested on the date of death, or if the vested portion of
the Option is not exercised within the time specified herein, the Option shall
terminate.

     8. Transferability of Option. The Option may not be transferred in any
manner other than by will or by the laws of descent and distribution, provided,
however, that the Option may be transferred during the lifetime of the Grantee
to the extent and in the manner determined by the Board. Notwithstanding the
foregoing, the Grantee may designate one or more beneficiaries of the Grantee's
Option in the event of the Grantee's death on a beneficiary designation form
provided by the Board. Following the death of the Grantee, the Option, to the
extent provided in Section 7, may be exercised (a) by the person or persons
designated under the deceased Grantee's beneficiary designation or (b) in the
absence of an effectively designated beneficiary, by the Grantee's legal
representative or by any person empowered to do so under the deceased Grantee's
will or under the then applicable laws of descent and distribution. The terms of
the Option shall be binding upon the executors, administrators, heirs,
successors and transferees of the Grantee.

     9. Term of Option. The Option must be exercised no later than the
Expiration Date set forth in the Notice or such earlier date as otherwise
provided herein. After the Expiration Date or such earlier date, the Option
shall be of no further force or effect and may not be exercised.


                                        3



     10. Tax Consequences. The Grantee may incur tax liability as a result of
the Grantee's purchase or disposition of the Shares. THE GRANTEE SHOULD CONSULT
A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE SHARES.

     11. Entire Agreement: Governing Law. The Notice, this Option Agreement, and
the Employment Agreement constitute the entire agreement of the parties with
respect to the subject matter hereof and supersede in their entirety all prior
undertakings and agreements of the Company and the Grantee with respect to the
subject matter hereof, and may not be modified adversely to the Grantee's
interest except by means of a writing signed by the Company and the Grantee.
Nothing in the Notice, this Option Agreement, or the Employment Agreement
(except as expressly provided therein) is intended to confer any rights or
remedies on any persons other than the parties. The Notice, this Option
Agreement, and the Employment Agreement are to be construed in accordance with
and governed by the internal laws of the State of Illinois 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 Illinois to the rights
and duties of the parties. Should any provision of the Notice or this Option
Agreement be determined to be illegal or unenforceable, such provision shall be
enforced to the fullest extent allowed by law and the other provisions shall
nevertheless remain effective and shall remain enforceable.

     12. Construction. The captions used in the Notice and this Option Agreement
are inserted for convenience and shall not be deemed a part of the Option for
construction or interpretation. Except when otherwise indicated by the context,
the singular shall include the plural and the plural shall include the singular.
Use of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.

     13. Administration and Interpretation. Any question or dispute regarding
the administration or interpretation of the Notice or this Option Agreement
shall be submitted by the Grantee or by the Company to the Board. The resolution
of such question or dispute by the Board shall be final and binding on all
persons.

     14. Venue and Waiver of Jury Trial. The Company, the Grantee, and the
Grantee's assignees pursuant to Section 8 (the "parties") agree that any suit,
action, or proceeding arising out of or relating to the Notice or this Option
Agreement shall be brought in the United States District Court for the Northern
District of Illinois (or should such court lack jurisdiction to hear such
action, suit or proceeding, in a Illinois state court in Cook County) and that
the parties shall submit to the jurisdiction of such court. The parties
irrevocably waive, to the fullest extent permitted by law, any objection the
party may have to the laying of venue for any such suit, action or proceeding
brought in such court. THE PARTIES ALSO EXPRESSLY WAIVE ANY RIGHT THEY HAVE OR
MAY HAVE TO A JURY TRIAL OF ANY SUCH SUIT, ACTION OR PROCEEDING. If any one or
more provisions of this Section 14 shall for any reason be held invalid or
unenforceable, it is the specific intent of the parties that such provisions
shall be modified to the minimum extent necessary to make it or its application
valid and enforceable.

     15. Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, upon
deposit for delivery by an internationally recognized express mail courier
service or upon deposit in the United States mail by certified mail (if the
parties are within the United States), with postage and fees prepaid,


                                        4



addressed to the other party at its address as shown in these instruments, or to
such other address as such party may designate in writing from time to time to
the other party.

     16. Adjustments Upon Changes in Capitalization. Subject to any required
action by the stockholders of the Company, the number of Shares covered by the
Option, the exercise price of the Option, as well as any other terms that the
Board determines require adjustment shall be proportionately adjusted for (i)
any increase or decrease in the number of issued Shares resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Shares, or similar transaction affecting the Shares, (ii) any other increase
or decrease in the number of issued Shares effected without receipt of
consideration by the Company, or (iii) as the Board may determine in its
discretion, any other transaction with respect to Common Stock including a
corporate merger, consolidation, acquisition of property or stock, separation
(including a spin-off or other distribution of stock or property),
reorganization, liquidation (whether partial or complete) or any similar
transaction; provided, however that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board and its determination
shall be final, binding and conclusive. Except as the Board determines, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason hereof shall be made with respect to, the number or price of Shares
subject to the Option.

     17. Change of Control. Immediately prior to the specified effective date of
a Change of Control, any unvested Shares subject to the Option shall immediately
vest in full. Effective upon the consummation of a Change of Control, the Option
shall terminate. However, the Option shall not terminate to the extent it is
Assumed in connection with the Change of Control.

     18. Definitions. As used herein, the following definitions shall apply:

          (a) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act.

          (b) "Applicable Laws" means the legal requirements applicable to the
Option, if any, under applicable provisions of federal securities laws, state
corporate and securities laws, the Code, the rules of any applicable stock
exchange or national market system, and the rules of any non-U.S. jurisdiction
applicable to Options granted to residents therein.

          (c) "Assumed" means that pursuant to a Change of Control either (i)
the Option is expressly affirmed by the Company or (ii) the contractual
obligations represented by the Option are expressly assumed (and not simply by
operation of law) by the successor entity or its Parent in connection with the
Change of Control with appropriate adjustments to the number and type of
securities of the successor entity or its Parent subject to the Option and the
exercise or purchase price thereof which at least preserves the compensation
element of the Option existing at the time of the Change of Control as
determined in accordance with the instruments evidencing the agreement to assume
the Option.


                                        5



          (d) "Board" means the Board of Directors of the Company and shall
include any committee of the Board or Officer of the Company to which the Board
has delegated its authority under this Agreement.

          (e) "Cause" means (i) the Grantee's conviction or plea of nolo
contendere of a felony or any other crime involving dishonesty, breach of trust,
or physical harm to any person (excluding traffic violations that do not relate
to driving while intoxicated or driving under the influence); (ii) the Grantee
has willfully engaged in conduct that is in bad faith and materially injurious
to the Company, including but not limited to, misappropriation of trade secrets,
fraud or embezzlement; or (iii) any material willful breach by the Grantee of
the Employment Agreement that causes material damage to the Company.

          (f) "Change of Control" means a change in ownership or control of the
Company effected through a merger, consolidation or acquisition by any person or
related group of persons (other than an acquisition by the Company or by a
Company-sponsored employee benefit plan or by a person or persons that directly
or indirectly controls, is controlled by, or is under common control with, the
Company) of beneficial ownership (within the meaning of Rule 13d-3 of the
Exchange Act) of securities possessing more than fifty percent of the total
combined voting power of the outstanding securities of the Company.
Notwithstanding anything else contained herein to the contrary, in no event
shall a Change of Control be deemed to occur by reason of (i) a distribution of
the Company's Common Stock held by Durus Life Sciences Master Fund Ltd ("Durus")
to its investors, partners or members, whether as dividend or otherwise, of all
or any portion of the shares of Common Stock held, directly or indirectly, by
Durus or (ii) a sale of all or any portion of the Company's Common Stock held,
directly or indirectly, by Durus in an underwritten public offering (including,
without limitation, a sale of securities of holdings in an underwritten public
offering), unless following such distribution or sale any person or related
group of persons, other than Durus or its affiliates, possess more than fifty
percent of the total combined voting power of the outstanding securities of the
Company.

          (g) "Code" means the Internal Revenue Code of 1986, as amended.

          (h) "Common Stock" means the common stock of the Company.

          (i) "Company" means Aksys, Ltd., a Delaware corporation.

          (j) "Consultant" means any person (other than an Employee or a
Director, solely with respect to rendering services in such person's capacity as
a Director) who is engaged by the Company or any Related Entity to render
consulting or advisory services to the Company or such Related Entity.

          (k) "Continuous Service" means that the provision of services to the
Company or a Related Entity in any capacity of Employee, Director or Consultant
is not interrupted or terminated. In jurisdictions requiring notice in advance
of an effective termination as an Employee, Director or Consultant, Continuous
Service shall be deemed terminated upon the actual cessation of providing
services to the Company or a Related Entity notwithstanding any required notice
period that must be fulfilled before a termination as an Employee, Director or
Consultant can be effective under Applicable Laws. A Grantee's Continuous
Service shall be


                                        6



deemed to have terminated either upon an actual termination of Continuous
Service or upon the entity for which the Grantee provides services ceasing to be
a Related Entity. Continuous Service shall not be considered interrupted in the
case of (i) any approved leave of absence, (ii) transfers among the Company, any
Related Entity, or any successor, in any capacity of Employee, Director or
Consultant, or (iii) any change in status as long as the individual remains in
the service of the Company or a Related Entity in any capacity of Employee,
Director or Consultant (except as otherwise provided in the Award Agreement). An
approved leave of absence shall include sick leave, military leave, or any other
authorized personal leave.

          (l) "Director" means a member of the Board or the board of directors
of any Related Entity.

          (m) "Disability" means as defined under the long-term disability
policy of the Company or the Related Entity to which the Grantee provides
services regardless of whether the Grantee is covered by such policy. If the
Company or the Related Entity to which the Grantee provides service does not
have a long-term disability plan in place, "Disability" means that a Grantee is
unable to carry out the responsibilities and functions of the position held by
the Grantee by reason of any medically determinable physical or mental
impairment for a period of not less than one hundred twenty (120) consecutive
days or more than one hundred eighty (180) days in any twelve-month period. A
Grantee will not be considered to have incurred a Disability unless he or she
furnishes proof of such impairment sufficient to satisfy the Board in its
discretion.

          (n) "Employee" means any person, including an Officer or Director, who
is in the employ of the Company or any Related Entity, subject to the control
and direction of the Company or any Related Entity as to both the work to be
performed and the manner and method of performance. The payment of a director's
fee by the Company or a Related Entity shall not be sufficient to constitute
"employment" by the Company.

          (o) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

          (p) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:

               (i) If the Common Stock is listed on one or more established
stock exchanges or national market systems, including without limitation The
Nasdaq Global Select Market, The Nasdaq Global Market or The Nasdaq Capital
Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing
sales price for such stock (or the closing bid, if no sales were reported) as
quoted on the principal exchange or system on which the Common Stock is listed
(as determined by the Board) on the date of determination (or, if no closing
sales price or closing bid was reported on that date, as applicable, on the last
trading date such closing sales price or closing bid was reported), as reported
in The Wall Street Journal or such other source as the Board deems reliable;

               (ii) If the Common Stock is regularly quoted on an automated
quotation system (including the OTC Bulletin Board) or by a recognized
securities dealer, its Fair Market Value shall be the closing sales price for
such stock as quoted on such system or by


                                        7



such securities dealer on the date of determination, but if selling prices are
not reported, the Fair Market Value of a share of Common Stock shall be the mean
between the high bid and low asked prices for the Common Stock on the date of
determination (or, if no such prices were reported on that date, on the last
date such prices were reported), as reported in The Wall Street Journal or such
other source as the Board deems reliable; or

               (iii) In the absence of an established market for the Common
Stock of the type described in (i) and (ii), above, the Fair Market Value
thereof shall be determined by the Board in good faith.

          (q) "Good Reason" means,

               (i) absent a Change of Control, as defined by paragraph 18(f),
having a material diminution in, or adverse alteration to, the Grantee's title,
position, or duties, including no longer serving as the highest ranking
executive officer in the Company, provided that (A) the Grantee provides the
Company with written notice of the event constituting Good Reason within sixty
(60) days of such event and the Grantee provides the Company with a period of
sixty (60) days to cure such event, (B) the appointment by the Company of a
Chief Operating Officer, Chief Administrative Officer or similar officer shall
not constitute a material diminution in, or adverse alteration to, the Grantee's
title, position, or duties, provided that the Grantee continues to serve as the
highest ranking executive officer in the Company following any such appointment
and (C) if such material diminution occurs within the first year of the
Grantee's employment with the Company, any resignation by the Grantee as result
of such material diminution shall only be for Good Reason if (1) the Grantee has
first provided the Company with the written notice and cure opportunity provided
in clause (A) above, and (2) such resignation occurs on or after the first year
of the Grantee's employment with the Company; and

               (ii) upon or following a Change of Control, as defined by
paragraph 18(f) herein, either (A) the Grantee's employment is terminated by the
Company not for Cause within twelve (12) months following a Change of Control,
(B) the Grantee no longer is the Chief Executive Officer of a publicly-traded
company immediately following a Change of Control, (C) the Grantee is not a
member of the Board immediately following a Change of Control, (D) the Grantee
does not directly report to the Board immediately following a Change of Control,
or (E) the Grantee provides written notice to the Company of either of the
following events within sixty (60) days of such event and the Grantee provides
the Company with a period of sixty (60) days to cure such event (which event
remains uncured following such period), provided that each such event is
effected by the Company without the consent of the Grantee and occurs within six
(6) months following a Change of Control: (1) a change in the Grantee's job
title at the Company or (2) a material reduction in the Grantee's base salary.

          (r) "Non-Qualified Stock Option" means an Option not intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.

          (s) "Officer" means a person who is an officer of the Company or a
Related Entity within the meaning of Section 16 of the Exchange Act and the
rules and regulations promulgated thereunder.


                                        8



          (t) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.

          (u) "Related Entity" means any Parent (other than Durus or any related
investment fund) or Subsidiary of the Company and any business, corporation,
partnership, limited liability company or other entity in which the Company or a
Parent (other than Durus or any related investment fund) or a Subsidiary of the
Company holds a substantial ownership interest, directly or indirectly.

          (v) "Share" means a share of the Common Stock.

          (w) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.

                                END OF AGREEMENT


                                        9



                                    EXHIBIT A

                                 EXERCISE NOTICE

Aksys, Ltd.
[address]
Attention: Secretary

     1. Effective as of today, ______________, ___ the undersigned (the
"Grantee") hereby elects to exercise the Grantee's option to purchase
___________ shares of the Common Stock (the "Shares") of Aksys, Ltd. (the
"Company") under and pursuant to the Stock Option Award Agreement (the "Option
Agreement") and Notice of Stock Option Award (the "Notice") dated
______________, ________. Unless otherwise defined herein, the terms defined in
the Option Agreement shall have the same defined meanings in this Exercise
Notice.

     2. Representations of the Grantee. The Grantee acknowledges that the
Grantee has received, read and understood the Notice and the Option Agreement
and agrees to abide by and be bound by their terms and conditions.

     3. Rights as Stockholder. Until the stock certificate evidencing such
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the Shares, notwithstanding the exercise of the Option. The Company
shall issue (or cause to be issued) such stock certificate promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the stock certificate is issued,
except as provided in Section 16 of the Option Agreement.

     4. Delivery of Payment. The Grantee herewith delivers to the Company the
full Exercise Price for the Shares, which, to the extent selected, shall be
deemed to be satisfied by use of the broker-dealer sale and remittance procedure
to pay the Exercise Price provided in Section 3(d) of the Option Agreement.

     5. Tax Consultation. The Grantee understands that the Grantee may suffer
adverse tax consequences as a result of the Grantee's purchase or disposition of
the Shares. The Grantee represents that the Grantee has consulted with any tax
consultants the Grantee deems advisable in connection with the purchase or
disposition of the Shares and that the Grantee is not relying on the Company for
any tax advice.

     6. Taxes. The Grantee agrees to satisfy all applicable non-U.S., federal,
state and local income and employment tax withholding obligations and herewith
delivers to the Company the full amount of such obligations or has made
arrangements acceptable to the Company to satisfy such obligations.


                                       1



     7. Successors and Assigns. The Company may assign any of its rights under
this Exercise Notice to single or multiple assignees, and this agreement shall
inure to the benefit of the successors and assigns of the Company. This Exercise
Notice shall be binding upon the Grantee and his or her heirs, executors,
administrators, successors and assigns.

     8. Construction. The captions used in this Exercise Notice are inserted for
convenience and shall not be deemed a part of this agreement for construction or
interpretation. Except when otherwise indicated by the context, the singular
shall include the plural and the plural shall include the singular. Use of the
term "or" is not intended to be exclusive, unless the context clearly requires
otherwise.

     9. Administration and Interpretation. The Grantee hereby agrees that any
question or dispute regarding the administration or interpretation of this
Exercise Notice shall be submitted by the Grantee or by the Company to the
Board. The resolution of such question or dispute by the Board shall be final
and binding on all persons.

     10. Governing Law; Severability. This Exercise Notice is to be construed in
accordance with and governed by the internal laws of the State of Illinois
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
Illinois to the rights and duties of the parties. Should any provision of this
Exercise Notice be determined by a court of law to be illegal or unenforceable,
such provision shall be enforced to the fullest extent allowed by law and the
other provisions shall nevertheless remain effective and shall remain
enforceable.

     11. Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, upon
deposit for delivery by an internationally recognized express mail courier
service or upon deposit in the United States mail by certified mail (if the
parties are within the United States), with postage and fees prepaid, addressed
to the other party at its address as shown below beneath its signature, or to
such other address as such party may designate in writing from time to time to
the other party.

     12. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this agreement.


                                       2



     13. Entire Agreement. The Notice and the Option Agreement are incorporated
herein by reference and together with this Exercise Notice and the executive
employment agreement between the Grantee and Company, dated June 23, 2006 (the
"Employment Agreement") constitute the entire agreement of the parties with
respect to the subject matter hereof and supersede in their entirety all prior
undertakings and agreements of the Company and the Grantee with respect to the
subject matter hereof, and may not be modified adversely to the Grantee's
interest except by means of a writing signed by the Company and the Grantee.
Nothing in the Notice, the Option Agreement, this Exercise Notice or the
Employment Agreement (except as expressly provided therein) is intended to
confer any rights or remedies on any persons other than the parties.

Submitted by:                           Accepted by:

GRANTEE:                                ASKYS, LTD.


                                        By:
                                            -----------------------------------
                                        Title:
- -------------------------------------          ---------------------------------
            (Signature)

Address:                                Address:

_____________________________________
_____________________________________


                                       3

EX-10.9

                                                                    Exhibit 10.9

                                   AKSYS, LTD.

                     NOTICE OF TRANCHE B STOCK OPTION AWARD

     Grantee's Name and Address:      Howard J. Lewin
                                      6104 Kennedy Drive
                                      Chevy Chase, MD 20815

     You (the "Grantee") have been granted a Tranche B option (the "Option") to
purchase shares of Common Stock of Aksys, Ltd. (the "Company"), subject to the
terms and conditions of this Notice of Stock Option Award (the "Notice"), the
Stock Option Award Agreement (the "Option Agreement") attached hereto, and the
executive employment agreement between the Grantee and the Company, dated June
23, 2006 (the "Employment Agreement"), as follows. Unless otherwise defined
herein, the terms defined in the Option Agreement shall have the same defined
meanings in this Notice.

     Date of Award                    June 23, 2006

     Vesting Commencement Date        June 23, 2006

     Exercise Price per Share         0.7644

     Total Number of Shares Subject
     to the Option (the "Shares")     1,300,000 Shares

     Total Exercise Price             $993,720

     Type of Option                   Non-Qualified Stock Option

     Expiration Date:                 June 23, 2016

     Post-Termination Vesting and
     Exercise Period:                 As set forth in Section 5 of the Option
                                      Agreement

Vesting Schedule:

     Subject to the Grantee's Continuous Service and other limitations set forth
in this Notice, the Option Agreement, and the Employment Agreement, the Option
may be exercised, in whole or in part, in accordance with the following
schedule:

          (a) Four hundred thousand (400,000) Shares subject to the Option shall
vest when the Company obtains additional financing in an amount which, as
determined by the Board in its sole discretion, will enable the Company to
sustain its operations through the commercial launch of the Company's next
generation product pursuant to the "Pluto" Hemodialysis System Project Plan as
set forth in the Research, Development and License Agreement, entered into on
November 1, 2005, between the Company, DEKA Products Limited Partnership and
DEKA Research and Development Corp., as such Plan may be revised from time to
time ("Pluto");


                                        1




          (b) Four hundred thousand (400,000) Shares subject to the Option shall
vest upon the commercial launch of Pluto;

          (c) Two hundred fifty thousand (250,000) Shares subject to the Option
shall vest when the Fair Market Value of the Company's Common Stock is equal to
or above $3.50 per share for more than 75 of 90 consecutive trading days; and

          (d) Two hundred fifty thousand (250,000) Shares subject to the Option
shall vest when the Fair Market Value of the Company's Common Stock is equal to
or above $6.50 per share for more than 75 of 90 consecutive trading days.

     In addition, the Grantee shall have twelve (12) months from the Termination
Date to exercise any Shares that become vested due to the achievement of any of
the foregoing performance milestones during such twelve (12) month period after
the Termination Date.

     Notwithstanding the foregoing, in the event of the commercial launch of
Pluto absent the attainment of the financing described in clause (a) above, all
of the Shares referenced in clauses (a) and (b) above shall vest on the date of
such commercial launch of Pluto.


                                        2



     IN WITNESS WHEREOF, the Company and the Grantee have executed this Notice
and agree that the Option is to be governed by the terms and conditions of this
Notice and the Option Agreement.

                                        Aksys, Ltd.,
                                        a Delaware corporation


                                        By: /s/
                                            ------------------------------------

                                        Title:
                                               ---------------------------------

THE GRANTEE ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS NOTICE OR THE OPTION
AGREEMENT SHALL CONFER UPON THE GRANTEE ANY RIGHT WITH RESPECT TO FUTURE AWARDS
OR CONTINUATION OF THE GRANTEE'S CONTINUOUS SERVICE, NOR SHALL IT INTERFERE IN
ANY WAY WITH THE GRANTEE'S RIGHT OR THE RIGHT OF THE COMPANY OR RELATED ENTITY
TO WHICH THE GRANTEE PROVIDES SERVICES TO TERMINATE THE GRANTEE'S CONTINUOUS
SERVICE, WITH OR WITHOUT CAUSE.

     The Grantee acknowledges receipt of a copy of the Option Agreement, and
represents that he or she is familiar with the terms and provisions thereof, and
hereby accepts the Option subject to all of the terms and provisions hereof and
thereof. The Grantee has reviewed this Notice and the Option Agreement in their
entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Notice, and fully understands all provisions of this Notice and
the Option Agreement. The Grantee hereby agrees that all questions of
interpretation and administration relating to this Notice and the Option
Agreement shall be resolved by the Board in accordance with Section 13 of the
Option Agreement. The Grantee further agrees to the venue selection and waiver
of a jury trial in accordance with Section 14 of the Option Agreement. The
Grantee further agrees to notify the Company upon any change in the residence
address indicated in this Notice.

Dated:           06/23/06                Signed:             /s/
       ------------------------------           --------------------------------
                                                             Grantee


                                        3



                                   AKSYS, LTD.

                          STOCK OPTION AWARD AGREEMENT

     1. Grant of Option. Aksys, Ltd., a Delaware corporation (the "Company"),
hereby grants to the Grantee (the "Grantee") named in the Notice of Stock Option
Award (the "Notice"), an option (the "Option") to purchase the Total Number of
Shares of Common Stock subject to the Option (the "Shares") set forth in the
Notice, at the Exercise Price per Share set forth in the Notice (the "Exercise
Price") subject to the terms and provisions of this Stock Option Award Agreement
(the "Option Agreement"), the Notice and the executive employment agreement
between the Grantee and the Company, dated June 23, 2006 (the "Employment
Agreement"), which are incorporated herein by reference.

     2. Exercise of Option.

          (a) Right to Exercise. The Option shall be exercisable during its term
in accordance with the Vesting Schedule set out in the Notice and with the
applicable provisions of this Option Agreement.

          (b) Method of Exercise. The Option shall be exercisable by delivery of
an exercise notice (a form of which is attached as Exhibit A) or by such other
procedure as specified from time to time by the Board which shall state the
election to exercise the Option, the whole number of Shares in respect of which
the Option is being exercised, and such other provisions as may be required by
the Board. The exercise notice shall be delivered in person, by certified mail,
or by such other method (including electronic transmission) as determined from
time to time by the Board to the Company accompanied by payment of the Exercise
Price. The Option shall be deemed to be exercised upon receipt by the Company of
such notice accompanied by the Exercise Price, which, to the extent selected,
shall be deemed to be satisfied by use of the broker-dealer sale and remittance
procedure or the net exercise procedure to pay the Exercise Price provided in
Sections 3(d) and 3(e) below.

          (c) Taxes. No Shares will be delivered to the Grantee or other person
pursuant to the exercise of the Option until the Grantee or other person has
made arrangements acceptable to the Board for the satisfaction of applicable
income tax and employment tax withholding obligations, including, without
limitation, obligations incident to the receipt of Shares. Upon exercise of the
Option, the Company or the Grantee's employer may offset or withhold (from any
amount owed by the Company or the Grantee's employer to the Grantee) or collect
from the Grantee or other person an amount sufficient to satisfy such tax
withholding obligations.

     3. Method of Payment. Payment of the Exercise Price shall be made by any of
the following, or a combination thereof, at the election of the Grantee;
provided, however, that such exercise method does not then violate any
Applicable Law and, provided further, that the portion of the Exercise Price
equal to the par value of the Shares must be paid in cash or other legal
consideration permitted by the Delaware General Corporation Law:

          (a) cash;


                                        1



          (b) check;

          (c) surrender of Shares or delivery of a properly executed form of
attestation of ownership of Shares as the Board may require which have a Fair
Market Value on the date of surrender or attestation equal to the aggregate
Exercise Price of the Shares as to which the Option is being exercised,
provided, however, that Shares acquired under any other equity compensation plan
or agreement of the Company must have been held by the Grantee for a period of
more than six (6) months (and not used for another award exercise by attestation
during such period); or

          (d) payment through a broker-dealer sale and remittance procedure
pursuant to which the Grantee (i) shall provide written instructions to a
Company-designated brokerage firm to effect the immediate sale of some or all of
the purchased Shares and remit to the Company sufficient funds to cover the
aggregate exercise price payable for the purchased Shares and (ii) shall provide
written directives to the Company to deliver the certificates for the purchased
Shares directly to such brokerage firm in order to complete the sale
transaction; or

          (e) unless such exercise would constitute a violation of any
Applicable Laws as determined by the Board in its sole discretion, payment
through a "net exercise" such that, without the payment of any funds, the
Grantee may exercise the Option and receive the net number of Shares equal to
(i) the number of Shares as to which the Option is being exercised, multiplied
by (ii) a fraction, the numerator of which is the Fair Market Value per Share
less the Exercise Price per Share, and the denominator of which is such Fair
Market Value per Share (the net number of Shares received shall be rounded down
to the nearest whole number of Shares).

     4. Restrictions on Exercise. The Option may not be exercised if the
issuance of the Shares subject to the Option upon such exercise would constitute
a violation of any Applicable Laws. If the exercise of the Option within the
applicable time periods set forth in Section 5, 6 and 7 of this Option Agreement
is prevented by the provisions of this Section 4, the Option shall remain
exercisable until one (1) month after the date the Grantee is notified by the
Company that the Option is exercisable, but in any event no later than the
Expiration Date set forth in the Notice.

     5. Termination or Change of Continuous Service.

          (a) Subject to Section 17 below, in the event the Grantee's Continuous
Service terminates without Cause or by the Grantee with Good Reason, the Grantee
shall have twelve (12) months from the date of such termination (also the
"Termination Date") to exercise any vested Shares subject to the Option. In
addition, the Grantee shall have twelve (12) months from the Termination Date to
exercise any Shares that become vested due to the achievement of any performance
milestones during such twelve (12) month period after the Termination Date as
set forth in the Vesting Schedule of the Notice.

          (b) Subject to Section 17 below, in the event the Grantee's Continuous
Service terminates for Good Reason following a Change of Control of the Company,
the Grantee shall have twelve (12) months from the Termination Date to exercise
any vested Shares subject to the Option.


                                        2



          (c) In the event of termination of the Grantee's Continuous Service
for Cause or by the Grantee without Good Reason, the Grantee shall have thirty
(30) days from the Termination Date to exercise any vested Shares subject to the
Option.

          (d) In no event, however, shall the Option be exercised later than the
Expiration Date set forth in the Notice. In the event of the Grantee's change in
status from Employee, Director or Consultant to any other status of Employee,
Director or Consultant, the Option shall remain in effect and the Option shall
continue to vest in accordance with the Vesting Schedule set forth in the
Notice. Except as provided in Sections 6 and 7 below, to the extent that the
Option was unvested on the Termination Date, or if the Grantee does not exercise
the vested portion of the Option within the Post-Termination Exercise Period,
the Option shall terminate.

     6. Disability of Grantee. In the event the Grantee's Continuous Service
terminates as a result of his or her Disability, the Grantee may, but only
within twelve (12) months commencing on the Termination Date (but in no event
later than the Expiration Date), exercise the portion of the Option that was
vested on the Termination Date. To the extent that the Option was unvested on
the Termination Date, or if the Grantee does not exercise the vested portion of
the Option within the time specified herein, the Option shall terminate.

     7. Death of Grantee. In the event of the termination of the Grantee's
Continuous Service as a result of his or her death, or in the event of the
Grantee's death during the Post-Termination Exercise Period or during the twelve
(12) month period following the Grantee's termination of Continuous Service as a
result of his or her Disability, the person who acquired the right to exercise
the Option pursuant to Section 8 may exercise the portion of the Option that was
vested at the date of termination within twelve (12) months commencing on the
date of death (but in no event later than the Expiration Date). To the extent
that the Option was unvested on the date of death, or if the vested portion of
the Option is not exercised within the time specified herein, the Option shall
terminate.

     8. Transferability of Option. The Option may not be transferred in any
manner other than by will or by the laws of descent and distribution, provided,
however, that the Option may be transferred during the lifetime of the Grantee
to the extent and in the manner determined by the Board. Notwithstanding the
foregoing, the Grantee may designate one or more beneficiaries of the Grantee's
Option in the event of the Grantee's death on a beneficiary designation form
provided by the Board. Following the death of the Grantee, the Option, to the
extent provided in Section 7, may be exercised (a) by the person or persons
designated under the deceased Grantee's beneficiary designation or (b) in the
absence of an effectively designated beneficiary, by the Grantee's legal
representative or by any person empowered to do so under the deceased Grantee's
will or under the then applicable laws of descent and distribution. The terms of
the Option shall be binding upon the executors, administrators, heirs,
successors and transferees of the Grantee.

     9. Term of Option. The Option must be exercised no later than the
Expiration Date set forth in the Notice or such earlier date as otherwise
provided herein. After the Expiration


                                        3



Date or such earlier date, the Option shall be of no further force or effect and
may not be exercised.

     10. Tax Consequences. The Grantee may incur tax liability as a result of
the Grantee's purchase or disposition of the Shares. THE GRANTEE SHOULD CONSULT
A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE SHARES.

     11. Entire Agreement: Governing Law. The Notice, this Option Agreement, and
the Employment Agreement constitute the entire agreement of the parties with
respect to the subject matter hereof and supersede in their entirety all prior
undertakings and agreements of the Company and the Grantee with respect to the
subject matter hereof, and may not be modified adversely to the Grantee's
interest except by means of a writing signed by the Company and the Grantee.
Nothing in the Notice, this Option Agreement, or the Employment Agreement
(except as expressly provided therein) is intended to confer any rights or
remedies on any persons other than the parties. The Notice, this Option
Agreement, and the Employment Agreement are to be construed in accordance with
and governed by the internal laws of the State of Illinois 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 Illinois to the rights
and duties of the parties. Should any provision of the Notice or this Option
Agreement be determined to be illegal or unenforceable, such provision shall be
enforced to the fullest extent allowed by law and the other provisions shall
nevertheless remain effective and shall remain enforceable.

     12. Construction. The captions used in the Notice and this Option Agreement
are inserted for convenience and shall not be deemed a part of the Option for
construction or interpretation. Except when otherwise indicated by the context,
the singular shall include the plural and the plural shall include the singular.
Use of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.

     13. Administration and Interpretation. Any question or dispute regarding
the administration or interpretation of the Notice or this Option Agreement
shall be submitted by the Grantee or by the Company to the Board. The resolution
of such question or dispute by the Board shall be final and binding on all
persons.

     14. Venue and Waiver of Jury Trial. The Company, the Grantee, and the
Grantee's assignees pursuant to Section 8 (the "parties") agree that any suit,
action, or proceeding arising out of or relating to the Notice or this Option
Agreement shall be brought in the United States District Court for the Northern
District of Illinois (or should such court lack jurisdiction to hear such
action, suit or proceeding, in a Illinois state court in Cook County) and that
the parties shall submit to the jurisdiction of such court. The parties
irrevocably waive, to the fullest extent permitted by law, any objection the
party may have to the laying of venue for any such suit, action or proceeding
brought in such court. THE PARTIES ALSO EXPRESSLY WAIVE ANY RIGHT THEY HAVE OR
MAY HAVE TO A JURY TRIAL OF ANY SUCH SUIT, ACTION OR PROCEEDING. If any one or
more provisions of this Section 14 shall for any reason be held invalid or
unenforceable, it is the specific intent of the parties that such provisions
shall be modified to the minimum extent necessary to make it or its application
valid and enforceable.


                                        4



     15. Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, upon
deposit for delivery by an internationally recognized express mail courier
service or upon deposit in the United States mail by certified mail (if the
parties are within the United States), with postage and fees prepaid, addressed
to the other party at its address as shown in these instruments, or to such
other address as such party may designate in writing from time to time to the
other party.

     16. Adjustments Upon Changes in Capitalization. Subject to any required
action by the stockholders of the Company, the number of Shares covered by the
Option, the exercise price of the Option, as well as any other terms that the
Board determines require adjustment shall be proportionately adjusted for (i)
any increase or decrease in the number of issued Shares resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Shares, or similar transaction affecting the Shares, (ii) any other increase
or decrease in the number of issued Shares effected without receipt of
consideration by the Company, or (iii) as the Board may determine in its
discretion, any other transaction with respect to Common Stock including a
corporate merger, consolidation, acquisition of property or stock, separation
(including a spin-off or other distribution of stock or property),
reorganization, liquidation (whether partial or complete) or any similar
transaction; provided, however that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board and its determination
shall be final, binding and conclusive. Except as the Board determines, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason hereof shall be made with respect to, the number or price of Shares
subject to the Option.

     17. Change of Control. Immediately prior to the specified effective date of
a Change of Control, any unvested Shares subject to the Option shall immediately
vest in full. Effective upon the consummation of a Change of Control, the Option
shall terminate. However, the Option shall not terminate to the extent it is
Assumed in connection with the Change of Control.

     18. Definitions. As used herein, the following definitions shall apply:

          (a) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act.

          (b) "Applicable Laws" means the legal requirements applicable to the
Option, if any, under applicable provisions of federal securities laws, state
corporate and securities laws, the Code, the rules of any applicable stock
exchange or national market system, and the rules of any non-U.S. jurisdiction
applicable to Options granted to residents therein.

          (c) "Assumed" means that pursuant to a Change of Control either (i)
the Option is expressly affirmed by the Company or (ii) the contractual
obligations represented by the Option are expressly assumed (and not simply by
operation of law) by the successor entity or its Parent in connection with the
Change of Control with appropriate adjustments to the number and type of
securities of the successor entity or its Parent subject to the Option and the
exercise or purchase price thereof which at least preserves the compensation
element of the Option


                                        5



existing at the time of the Change of Control as determined in accordance with
the instruments evidencing the agreement to assume the Option.

          (d) "Board" means the Board of Directors of the Company and shall
include any committee of the Board or Officer of the Company to which the Board
has delegated its authority under this Agreement.

          (e) "Cause" means (i) the Grantee's conviction or plea of nolo
contendere of a felony or any other crime involving dishonesty, breach of trust,
or physical harm to any person (excluding traffic violations that do not relate
to driving while intoxicated or driving under the influence); (ii) the Grantee
has willfully engaged in conduct that is in bad faith and materially injurious
to the Company, including but not limited to, misappropriation of trade secrets,
fraud or embezzlement; or (iii) any material willful breach by the Grantee of
the Employment Agreement that causes material damage to the Company.

          (f) "Change of Control" means a change in ownership or control of the
Company effected through a merger, consolidation or acquisition by any person or
related group of persons (other than an acquisition by the Company or by a
Company-sponsored employee benefit plan or by a person or persons that directly
or indirectly controls, is controlled by, or is under common control with, the
Company) of beneficial ownership (within the meaning of Rule 13d-3 of the
Exchange Act) of securities possessing more than fifty percent of the total
combined voting power of the outstanding securities of the Company.
Notwithstanding anything else contained herein to the contrary, in no event
shall a Change of Control be deemed to occur by reason of (i) a distribution of
the Company's Common Stock held by Durus Life Sciences Master Fund Ltd ("Durus")
to its investors, partners or members, whether as dividend or otherwise, of all
or any portion of the shares of Common Stock held, directly or indirectly, by
Durus or (ii) a sale of all or any portion of the Company's Common Stock held,
directly or indirectly, by Durus in an underwritten public offering (including,
without limitation, a sale of securities of holdings in an underwritten public
offering), unless following such distribution or sale any person or related
group of persons, other than Durus or its affiliates, possess more than fifty
percent of the total combined voting power of the outstanding securities of the
Company.

          (g) "Code" means the Internal Revenue Code of 1986, as amended.

          (h) "Common Stock" means the common stock of the Company.

          (i) "Company" means Aksys, Ltd., a Delaware corporation.

          (j) "Consultant" means any person (other than an Employee or a
Director, solely with respect to rendering services in such person's capacity as
a Director) who is engaged by the Company or any Related Entity to render
consulting or advisory services to the Company or such Related Entity.

          (k) "Continuous Service" means that the provision of services to the
Company or a Related Entity in any capacity of Employee, Director or Consultant
is not interrupted or terminated. In jurisdictions requiring notice in advance
of an effective termination as an Employee, Director or Consultant, Continuous
Service shall be deemed terminated upon the


                                        6



actual cessation of providing services to the Company or a Related Entity
notwithstanding any required notice period that must be fulfilled before a
termination as an Employee, Director or Consultant can be effective under
Applicable Laws. A Grantee's Continuous Service shall be deemed to have
terminated either upon an actual termination of Continuous Service or upon the
entity for which the Grantee provides services ceasing to be a Related Entity.
Continuous Service shall not be considered interrupted in the case of (i) any
approved leave of absence, (ii) transfers among the Company, any Related Entity,
or any successor, in any capacity of Employee, Director or Consultant, or (iii)
any change in status as long as the individual remains in the service of the
Company or a Related Entity in any capacity of Employee, Director or Consultant
(except as otherwise provided in the Award Agreement). An approved leave of
absence shall include sick leave, military leave, or any other authorized
personal leave.

          (l) "Director" means a member of the Board or the board of directors
of any Related Entity.

          (m) "Disability" means as defined under the long-term disability
policy of the Company or the Related Entity to which the Grantee provides
services regardless of whether the Grantee is covered by such policy. If the
Company or the Related Entity to which the Grantee provides service does not
have a long-term disability plan in place, "Disability" means that a Grantee is
unable to carry out the responsibilities and functions of the position held by
the Grantee by reason of any medically determinable physical or mental
impairment for a period of not less than one hundred twenty (120) consecutive
days or more than one hundred eighty (180) days in any twelve-month period. A
Grantee will not be considered to have incurred a Disability unless he or she
furnishes proof of such impairment sufficient to satisfy the Board in its
discretion.

          (n) "Employee" means any person, including an Officer or Director, who
is in the employ of the Company or any Related Entity, subject to the control
and direction of the Company or any Related Entity as to both the work to be
performed and the manner and method of performance. The payment of a director's
fee by the Company or a Related Entity shall not be sufficient to constitute
"employment" by the Company.

          (o) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

          (p) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:

               (i) If the Common Stock is listed on one or more established
stock exchanges or national market systems, including without limitation The
Nasdaq Global Select Market, The Nasdaq Global Market or The Nasdaq Capital
Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing
sales price for such stock (or the closing bid, if no sales were reported) as
quoted on the principal exchange or system on which the Common Stock is listed
(as determined by the Board) on the date of determination (or, if no closing
sales price or closing bid was reported on that date, as applicable, on the last
trading date such closing sales price or closing bid was reported), as reported
in The Wall Street Journal or such other source as the Board deems reliable;


                                        7



               (ii) If the Common Stock is regularly quoted on an automated
quotation system (including the OTC Bulletin Board) or by a recognized
securities dealer, its Fair Market Value shall be the closing sales price for
such stock as quoted on such system or by such securities dealer on the date of
determination, but if selling prices are not reported, the Fair Market Value of
a share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the date of determination (or, if no such prices
were reported on that date, on the last date such prices were reported), as
reported in The Wall Street Journal or such other source as the Board deems
reliable; or

               (iii) In the absence of an established market for the Common
Stock of the type described in (i) and (ii), above, the Fair Market Value
thereof shall be determined by the Board in good faith.

          (q) "Good Reason" means,

               (i) absent a Change of Control, as defined by paragraph 18(f),
having a material diminution in, or adverse alteration to, the Grantee's title,
position, or duties, including no longer serving as the highest ranking
executive officer in the Company, provided that (A) the Grantee provides the
Company with written notice of the event constituting Good Reason within sixty
(60) days of such event and the Grantee provides the Company with a period of
sixty (60) days to cure such event, (B) the appointment by the Company of a
Chief Operating Officer, Chief Administrative Officer or similar officer shall
not constitute a material diminution in, or adverse alteration to, the Grantee's
title, position, or duties, provided that the Grantee continues to serve as the
highest ranking executive officer in the Company following any such appointment
and (C) if such material diminution occurs within the first year of the
Grantee's employment with the Company, any resignation by the Grantee as result
of such material diminution shall only be for Good Reason if (1) the Grantee has
first provided the Company with the written notice and cure opportunity provided
in clause (A) above, and (2) such resignation occurs on or after the first year
of the Grantee's employment with the Company; and

               (ii) upon or following a Change of Control, as defined by
paragraph 18(f) herein, either (A) the Grantee's employment is terminated by the
Company not for Cause within twelve (12) months following a Change of Control,
(B) the Grantee no longer is the Chief Executive Officer of a publicly-traded
company immediately following a Change of Control, (C) the Grantee is not a
member of the Board immediately following a Change of Control, (D) the Grantee
does not directly report to the Board immediately following a Change of Control,
or (E) the Grantee provides written notice to the Company of either of the
following events within sixty (60) days of such event and the Grantee provides
the Company with a period of sixty (60) days to cure such event (which event
remains uncured following such period), provided that each such event is
effected by the Company without the consent of the Grantee and occurs within six
(6) months following a Change of Control: (1) a change in the Grantee's job
title at the Company or (2) a material reduction in the Grantee's base salary.

          (r) "Non-Qualified Stock Option" means an Option not intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.


                                        8



          (s) "Officer" means a person who is an officer of the Company or a
Related Entity within the meaning of Section 16 of the Exchange Act and the
rules and regulations promulgated thereunder.

          (t) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.

          (u) "Related Entity" means any Parent (other than Durus or any related
investment fund) or Subsidiary of the Company and any business, corporation,
partnership, limited liability company or other entity in which the Company or a
Parent (other than Durus or any related investment fund) or a Subsidiary of the
Company holds a substantial ownership interest, directly or indirectly.

          (v) "Share" means a share of the Common Stock.

          (w) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.

                                END OF AGREEMENT


                                        9

EX-99.1

                                                                        Ex. 99.1

AKSYS, LTD. ANNOUNCES CLOSING OF INVESTMENT BY DURUS AND CHANGE IN MAJORITY OF
DIRECTORS

LINCOLNSHIRE, Ill., June 23 /PRNewswire-FirstCall/ -- Aksys(R), Ltd. (Nasdaq:
AKSY), a pioneer in the field of dialysis products, announced the closing today
of its financing with Durus Life Sciences Master Fund, Ltd. The closing follows
the $5 million bridge financing provided to the Company by Durus in March 2006.

At today's closing, the Company issued new shares of its Series B preferred
stock, which are convertible into five million shares of common stock of the
Company, and warrants to purchase five million shares of the Company's common
stock in exchange for the cancellation of $5 million of existing subordinated
promissory notes of the Company currently held by Durus. In addition, at the
closing Durus provided approximately $15.9 million in senior debt to the Company
for a cash payment of approximately $1.45 million, the cancellation of
approximately $9.3 million of existing subordinated promissory notes held by
Durus and the rollover of the $5 million bridge financing provided by Durus into
the senior debt. Durus also has made available to the Company as part of the
financing a $5 million line of credit to be used by the Company to fund its
ongoing operations to the extent the Company is unable to obtain other financing
and certain funding conditions are met.

Furthering its commitment to the Company, Durus also exercised its option under
the financing agreements at the closing to purchase from the Company
approximately $1.45 million of Series B preferred stock, convertible into shares
of common stock at an initial conversion price of $1.00 per share, and warrants
to purchase shares of common stock at $1.10 per share. In exchange, the Company
cancelled approximately $1.45 million existing subordinated promissory notes of
the Company currently held by Durus.

In addition, as previously announced, a majority of the members of the Company's
Board of Directors changed in connection with the closing. The new directors
appointed to the board are Douglass B. Given, a partner at Bay City Capital LLC,
Timothy M. Mayleben, a consultant with ELMa Advisors LLC, Gretchen C. Piller,
Director of Research for Torrey Associates LLC, and Leslie L. Lake, Managing
Director of the Invus Group.

The new directors join current directors Richard B. Egen, Shodhan Trivedi and
Larry Birch. The Company's other directors, Lawrence D. Damron, Alan R. Meyer,
Bernard R. Tresnowski and Brian J.G. Pereira, resigned from the board effective
upon the closing.

About the Company

Aksys, Ltd. produces hemodialysis products, providing services for patients
suffering from kidney failure. The Company's lead product, the PHD(R) System, is
a currently available, advanced technology hemodialysis system designed to
improve clinical outcomes of patients and reduce mortality, morbidity and the
associated high cost of patient care. Further information is available on Aksys'
website http://www.aksys.com.

This press release contains forward-looking statements that involve a number of
risks and uncertainties. Our actual results could differ materially from the
results identified or implied in any forward-looking statement. These statements
are based on our views as of the date they are made with respect to future
results or events. Factors that could cause such a difference include, but are
not limited to, the following: (i) our ability to obtain sufficient capital on
acceptable terms to run our business; (ii) risks and uncertainties relating to
our ability to satisfy the continued listing requirements of the NASDAQ Capital
Market; (iii) risks relating to our ability comply with regulatory clearances
and approvals required to manufacture, market and sell the PHD System, and the
potential adverse impact on our company of failing to maintain or obtain any
such clearances and approvals; (iv) uncertainty about the acceptance of the PHD
System by both potential users and purchasers, including without limitation,
patients, clinics and other health care providers; (v) risks related to
uncertain unit pricing and product cost, which may not be at levels that permit
us to be profitable; (vi) risks related to quality control issues and
consistency of service applicable to the PHD System; (vii) market, regulatory
reimbursement and competitive conditions; (viii) risks related to the failure to
meet additional development and manufacturing milestones for the current or
next-generation PHD System on a timely basis, including, without limitation,



manufacturing and servicing cost reduction efforts; (ix) risks inherent in
relying on third parties to manufacture the current PHD System or develop the
next-generation PHD System; (x) changes in QSR requirements; (xi) risks related
to the disposition of our common stock by Durus and its affiliates; (xii) risks
related to our new POD strategy and focused resource allocation; and (xiii)
other factors detailed in our filings with the SEC, including our recent filings
on Forms 10-K, 10-Q and 8-K. We do not undertake to publicly update or revise
our forward-looking statements in order to reflect events or circumstances that
may arise after the date of this release.

EX-99.2

                                                                        Ex. 99.2

AKSYS NAMES HOWARD J. LEWIN AS CEO

VETERAN OF DIALYSIS SECTOR BRINGS EXTENSIVE OPERATIONAL EXPERTISE AND SUCCESSFUL
TRACK RECORD IN BUSINESS DEVELOPMENT AND M&A

LINCOLNSHIRE, III., June 26 /PRNewswire-FirstCall/ -- Aksys(R), Ltd. (Nasdaq:
AKSY), a pioneer in innovative dialysis systems, today announced that veteran
healthcare executive Howard J. Lewin has joined the Company as President and
Chief Executive Officer effective immediately. Mr. Lewin also was appointed to
the Company's Board of Directors. Mr. Lewin replaces Laurence P. Birch, Interim
CEO, who will continue to serve as the Company's Chief Financial Officer.

Mr. Lewin most recently served as Group Vice President at DaVita Inc., one of
the two largest companies in the U.S. providing dialysis services to patients
suffering from chronic kidney failure. During his tenure at DaVita, Mr. Lewin
managed 220 dialysis centers where he was responsible for clinical outcomes,
growing revenues, increasing margins and effecting the turnaround of a key
division within the company. Mr. Lewin also headed up DaVita's clinical
laboratory and in 2003-2004 managed mergers and acquisitions on a company-wide
basis, completing 41 transactions.

"We are thrilled that Howard Lewin has joined the Aksys team, bringing with him
a skill set uniquely suited for leadership of the Company at a watershed moment
in its history," stated Leslie Lake, a director of Aksys and managing director
of Invus Group Ltd. "Howard has a thorough knowledge of the dialysis industry,
extensive experience with transactions and a strong track record in business
development that will be essential to the Company's progress going forward."

Mr. Lewin commented, "In 2002, Aksys introduced the first FDA-approved system
for hemodialysis in the home, a tremendous advance for patient health and
quality of life. One of my primary mandates at Aksys will be to streamline and
accelerate the Company's program to develop and launch the Company's
next-generation system, which has the potential to dramatically transform
treatment for patients with ESRD. I am excited to join the hardworking team at
Aksys, each of whom is dedicated to ensuring that the Company achieves its
potential and a significant presence in the marketplace."

Prior to joining DaVita, Mr. Lewin served as Chief Executive Officer of New
Vision Laser Centers, restructuring the business while expanding into new
markets. Previously, he executed a turnaround of a Cardiology service business,
and served as President of Vivra Nephrology Partners. Mr. Lewin also served as
Vice President of Finance of IG Laboratories and Vice President/Chief Financial
Officer of Odyssey Biomedical Corp. Mr. Lewin received his MBA degree from
Harvard University and his Bachelor of Science degree in Chemical Engineering
from Cornell University.

About Aksys

Aksys, Ltd. produces hemodialysis products, providing services for patients
suffering from kidney failure. The Company's lead product, the PHD(R) System, is
a currently available, advanced technology hemodialysis system designed to
improve clinical outcomes of patients and reduce mortality, morbidity and the
associated high cost of patient care. Further information is available on Aksys'
website: http://www.aksys.com/.

Nasdaq Notice

In connection with Mr. Lewin's employment and as an inducement to begin
employment, the Company has granted him non-qualified stock options to purchase
2.5 million shares of the Company's common stock in two tranches. The first
tranche consists of non-qualified stock options to purchase 1.2 million shares
of Company common stock at an exercise price of $0.7644, the closing price of
the Company's stock on June 23, 2006. Three hundred thousand of these shares
vest on the first anniversary of the grant date, with 1/36th of the remaining
900,000 shares vesting monthly thereafter. The second tranche consists of
non-qualified stock



options to purchase 1.3 million shares of Company common stock at an exercise
price of $0.7644. These shares vest in varying amounts upon the achievement of
certain financial, operational and stock price milestones. All of the options
granted to Mr. Lewin have a ten- year term. The option grants were approved by
the Company's Board of Directors without shareholder approval pursuant to NASDAQ
Marketplace Rule 4350(i)(1)(A)(iv).

Safe Harbor Statement

This press release contains forward-looking statements that involve a number of
risks and uncertainties. Our actual results could differ materially from the
results identified or implied in any forward-looking statement. These statements
are based on our views as of the date they are made with respect to future
results or events. These statements include, without limitation, statements that
implicate benefits to our company from the hiring of Mr. Lewin, statements
relating to expected operational and financial improvements and other statements
containing words such as "expects" and words of similar import. Factors that
could cause such a difference include, but are not limited to, the following:
(i) our ability to obtain sufficient capital on acceptable terms to run our
business; (ii) risks and uncertainties relating to our ability to satisfy the
continued listing requirements of the NASDAQ Capital Market; (iii) risks
relating to our ability comply with regulatory clearances and approvals required
to manufacture, market and sell the PHD System, and the potential adverse impact
on our company of failing to maintain or obtain any such clearances and
approvals; (iv) uncertainty about the acceptance of the PHD System by both
potential users and purchasers, including without limitation, patients, clinics
and other health care providers; (v) risks related to uncertain unit pricing and
product cost, which may not be at levels that permit us to be profitable; (vi)
risks related to quality control issues and consistency of service applicable to
the PHD System; (vii) market, regulatory reimbursement and competitive
conditions; (viii) risks related to the failure to meet additional development
and manufacturing milestones for the current or next-generation PHD System on a
timely basis, including, without limitation, manufacturing and servicing cost
reduction efforts; (ix) risks inherent in relying on third parties to
manufacture the current PHD System or develop the next-generation PHD System;
(x) changes in QSR requirements; (xi) risks related to the disposition of our
common stock by Durus Life Sciences Master Fund Ltd. and its affiliates; (xii)
risks related to our new POD strategy and focused resource allocation; and
(xiii) other factors detailed in our filings with the SEC, including our recent
filings on Forms 10-K, 10-Q and 8-K. We do not undertake to publicly update or
revise our forward-looking statements in order to reflect events or
circumstances that may arise after the date of this release.