EX-10.5 7 dex105.txt REGISTRATION RIGHTS AGREEMENT - PIPER JAFFRAY EXHIBIT 10.5 REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT, dated as of December 19, 2001 (this "Agreement"), is made by and between Aksys, Ltd., a Delaware corporation, with --------- headquarters located at Two Marriott Drive, Lincolnshire, IL 60069 (the "Company"), and U.S. Bancorp Piper Jaffray Inc. (the "Initial Investor"). ------- ---------------- RECITALS: A. In connection with the Engagement Agreement dated October 5, 2001 by and between the Initial Investor and the Company (the "Engagement Agreement"), -------------------- the Company has agreed, upon the terms and subject to the conditions of the Engagement Agreement, to issue to the Initial Investor Warrants (the "Warrants") -------- to purchase an aggregate of 159,762 shares of the Company's Common Stock, par value $0.01 per share (the "Warrant Shares"). -------------- B. Pursuant to the terms of the Engagement Agreement, the Company has agreed to provide certain registration rights under the Securities Act and applicable state securities laws with respect to the Warrant Shares. 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 Initial Investor hereby agree as follows: ARTICLE I DEFINITIONS As used in this Agreement, the following terms have the following meanings: 1.1 "Registrable Securities" means the Warrant Shares (whether outstanding ---------------------- or subject to the Warrants) and any shares of capital stock issued or issuable from time to time (with any adjustments) in exchange for or otherwise with respect to the Warrant Shares; provided that Warrant Shares will cease to be Registrable Securities at such time as they have been sold under a Registration Statement or pursuant to Rule 144. A holder of Registrable Securities includes holders of the Warrants or holders of the Warrant Shares. 1.2 "Registration Period" means the period between June 19, 2002 and the ------------------- earliest of (i) the date on which all of the Registrable Securities have been sold by the holders thereof under a Registration Statement or pursuant to Rule 144 or (ii) the date on which all the Registrable Securities may be immediately sold by the holders thereof without registration and without restriction as to the number of Registrable Securities to be sold, pursuant to Rule 144 or otherwise. 1.3 "Registration Statement" means a Registration Statement of the Company ---------------------- filed under the Securities Act. 1 1.4 The terms "register," "registered," and "registration" refer to a -------- ---------- ------------ registration effected by preparing and filing a Registration Statement or statements in compliance with the Securities Act and pursuant to Rule 415 and the declaration or ordering of effectiveness of such Registration Statement by the SEC. 1.5 "Rule 415" means Rule 415 under the Securities Act, or any successor -------- rule providing for offering securities on a continuous basis, and applicable rules and regulations thereunder. ARTICLE II REGISTRATION 2.1 Demand Registration. If at any time during the Registration Period the ------------------- Company shall receive a written request for registration from the holders of a majority in interest of the Registrable Securities, the Company will give written notice of such request to all holders of Registrable Securities within 10 days of receipt of such notice. The holders of Registrable Securities shall have 20 days from the date of mailing of such notice by the Company to request inclusion in such registration. Within 10 days after the last day of such twenty-day period, the Company will use its best efforts to have filed with the SEC a Registration Statement on Form S-3 registering the Registrable Securities that request to be registered. If Form S-3 is not available at that time, then the Company will use its best efforts to file a Registration Statement on such form as is then available to effect a registration of the Registrable Securities within such 10-day period. The Company is only obligated to effect two registrations under this Section 2.1. The holders of Registrable Securities shall not have the right to make an underwritten offering pursuant to a Registration Statement requested pursuant to this Section 2.1. 2.2 Effectiveness of the Registration Statements. The Company will use its -------------------------------------------- best efforts to cause the Registration Statements contemplated by the previous Section to be declared effective by the SEC as soon as practicable after filing, and in any event no later than the 30th day after the filing date (the "Required -------- Effective Date"). However, so long as the Company filed the applicable -------------- Registration Statement within the time period required by Section 2.1, if the Registration Statement receives any SEC review, then the Required Effective Date will be the 100th day after the filing date. The Company's best efforts will include, but are not be limited to, promptly responding to all comments received from the staff of the SEC. If the Company receives notification from the SEC that the Registration Statement will receive no action or review from the SEC, then the Company will request that the Registration Statement become effective within five business days after such SEC notification. 2.3 Piggyback Registrations. ----------------------- (a) If, at any time prior to the expiration of the Registration Period, a Registration Statement is not effective with respect to all of the Registrable Securities and the Company decides to register any of its securities for its own account or for the account of others, then the Company will promptly give all holders of Registrable Securties written notice thereof and will use its best efforts to include in such registration all or any part of the Registrable Securities requested by the holder thereof to be included therein (excluding any Registrable Securities previously included in a Registration Statement). This requirement does not apply to Company registrations on Form S-4 or 2 S-8 or their equivalents (relating to equity securities to be issued in connection with an acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans) or to registration statements that would otherwise not permit the registration of resales of previously issued securities. Each holder of Registrable Securties must give its request for registration under this paragraph to the Company in writing within 15 days after receipt from the Company of notice of such pending registration. If the registration for which the Company gives notice is a public offering involving an underwriting, the Company will so advise the holders of Registrable Securties as part of the above described written notice. In that event, if the managing underwriter(s) of the public offering impose a limitation on the number of shares of Common Stock that may be included in the Registration Statement because, in such underwriter(s)' judgment, such limitation would be necessary to effect an orderly public distribution, then the Company shall include in such registration (i) first, the securities the Company proposes to sell, (ii) second, the securities desired to be sold pursuant to such Registration Statement by the stockholder or stockholders which are requiring the Company pursuant to a contractual registration right to file such Registration Statement and (iii) third, the Registrable Securities requested by the holders thereof to be included in such offering, pro rata among the holders of such Registrable Securities on the basis of the number of shares requested to be included by each such holder. (b) No right to registration of Registrable Securities under this Section 2.3 limits in any way the registration required under Section 2.1 above. The obligations of the Company under this Section 2.3 expire upon the earliest of (i) the effectiveness of a Registration Statement filed pursuant to Section 2.1 above with respect to the Registrable Securities or the respective portion thereof, (ii) after the Company has afforded the opportunity for the holders of Registrable Securties to exercise registration rights under this Section 2.3 for two registrations (provided, however, that the holder that has had any Registrable Securities excluded from any Registration Statement in accordance with this Section 2.3 may include in any additional Registration Statement filed by the Company the Registrable Securities so excluded), or (iii) expiration of the Registration Period. 2.4 Eligibility to use Form S-3. The Company represents and warrants that, --------------------------- as of the date of this Agreement, it meets the requirements for the use of Form S-3 for registration of the resale of the Registrable Securities by the holders thereof. ARTICLE III ADDITIONAL OBLIGATIONS OF THE COMPANY 3.1 Continued Effectiveness of Registration Statement. Subject to the ------------------------------------------------- limitations set forth in Section 3.5, the Company will use its best efforts to keep any Registration Statement covering the Registrable Securities effective under Rule 415 at all times during the Registration Period. In the event that the number of shares available under a Registration Statement filed pursuant to this Agreement is insufficient to cover all of the Registrable Securities originally covered by such Registration Statement, the Company will (if permitted) amend the Registration Statement or file a new Registration Statement (on the short form available therefor, if applicable), or both, so as to cover all of the Registrable Securities originally covered by such Registration Statement. The Company will file such amendment or new Registration Statement as soon as practicable, but in no event later than 20 business days after the necessity therefor arises. The Company will use its best 3 efforts to cause such amendment or new Registration Statement to become effective as soon as is practicable after the filing thereof. 3.2 Accuracy of Registration Statements. Assuming the accuracy of ----------------------------------- information furnished by or on behalf of the holders of Registrable Securties, any Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) filed by the Company covering Registrable Securities will 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 light of the circumstances in which they were made, not misleading. The Company will promptly prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statement and the prospectus used in connection with the Registration Statement as may be necessary to permit sales pursuant to the Registration Statement at all times during the Registration Period (but subject to Section 3.5), and, during such period, will comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered by the Registration Statement until the termination of the Registration Period, or if earlier, until such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in the Registration Statement. 3.3 Furnishing Documentation. The Company will furnish to the holder whose ------------------------ Registrable Securities are included in a Registration Statement, or to its legal counsel, (a) promptly after each document is filed with the SEC, one copy of any Registration Statement filed pursuant to this Agreement and any amendments thereto, each preliminary prospectus (if any) and final prospectus and each amendment or supplement thereto; and (b) a number of copies of a prospectus, including a preliminary prospectus (if any), and all amendments and supplements thereto, and such other documents as the holder may reasonably request in order to facilitate the disposition of its Registrable Securities. The Company will promptly notify by facsimile each holder whose Registrable Securities are included in any Registration Statement of the effectiveness of the Registration Statement and any post-effective amendment. 3.4 Additional Obligations. The Company will use its best efforts to (a) ---------------------- register and qualify the Registrable Securities covered by a Registration Statement under such other securities or blue sky laws of such jurisdictions as each holder who holds (or has the right to hold) Registrable Securities being offered reasonably requests, (b) prepare and file in those jurisdictions any amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain their effectiveness during the Registration Period, (c) take any other actions necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (d) take any other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions. Notwithstanding the foregoing, the Company is not required, in connection with such obligations, to (i) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3.4, (ii) subject itself to general taxation in any such jurisdiction, (iii) file a general consent to service of process in any such jurisdiction, (iv) provide any undertakings that cause material expense or burden to the Company, or (v) make any change in its charter or bylaws, which in each case the Company determines to be contrary to the best interests of the Company and its stockholders. 4 3.5 Suspension of Resale Rights. --------------------------- (a) The Company will notify (by telephone and also by facsimile and reputable overnight courier) each holder of Registrable Securities being sold pursuant to a Registration Statement of the happening of any event of which the Company has knowledge as a result of which the prospectus included in the Registration Statement as then in effect includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company will make such notification as promptly as practicable after the Company becomes aware of the event (but in no event will the Company disclose to any holder of Registrable Securities the facts or circumstances regarding the event), will promptly prepare a supplement or amendment to the Registration Statement to correct such untrue statement or omission, and will deliver a number of copies of such supplement or amendment to each holder of Registrable Securities being sold pursuant to such Registration Statement such copies as such holder may reasonably request. (b) Notwithstanding the obligations under Section 3.5(a), if in the good faith judgment of the Company, following consultation with legal counsel, it would be detrimental to the Company and its stockholders for resales of Registrable Securities to be made pursuant to the Registration Statement due to (i) the existence of a material development or potential material development involving the Company which the Company would be obligated to disclose in the Registration Statement, which disclosure would be premature or otherwise inadvisable at such time or would have a Material Adverse Effect upon the Company and its stockholders, or (ii) in the good faith judgment of the Company, it would adversely affect or require premature disclosure of the filing of a Company-initiated registration of any class of its equity securities, the Company will have the right to suspend the use of the Registration Statement for a period of not more than ninety days, provided, however, that the Company will -------- ------- use its commercially reasonable efforts to keep the length of any such suspension to as short a period as is practicable given the then existing circumstances and may so defer or suspend the use of the Registration Statement no more than two times in any eighteen-month period, and provided, further, -------- ------- that, after deferring or suspending the use of the Registration Statement, the Company may not again defer or suspend the use of the Registration Statement until a period of thirty days has elapsed after resumption of the use of the Registration Statement. (c) Subject to the Company's rights under this Section 3, the Company will use its best efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement and, if such an order is issued, will use its best efforts to obtain the withdrawal of such order at the earliest possible time and the Company will promptly notify each holder of Registrable Securities being sold (or, in the event of an underwritten offering, the managing underwriters) of the issuance of such order and the resolution thereof. (d) Notwithstanding anything to the contrary contained herein, if the use of the Registration Statement is suspended by the Company, the Company will promptly give notice of the suspension to all holders of Registable Securites that are covered by the Registration Statement, and will promptly notify each such holder as soon as the use of the Registration Statement may be resumed. 5 3.6 Review by Selling Shareholders. The Company will permit a single firm ------------------------------ of legal counsel, designated by the holders of a majority in interest of the Registrable Securities being sold pursuant to a Registration Statement, to review the Registration Statement and all amendments and supplements thereto (as well as all requests for acceleration or effectiveness thereof) a reasonable period of time prior to their filing with the SEC, and will not file any document in a form to which such counsel reasonably objects, unless otherwise required by law in the opinion of the Company's counsel; provided that the time periods set forth in Section 2.2 shall be tolled to the extent that such legal counsel does not deliver its final comments relating to such Registration Statement to the Company within 3 business days after receipt of such Registration Statement. The sections of any such Registration Statement including information with respect to the holders of Registrable Securities, such holders' beneficial ownership of securities of the Company or such holders' intended method of disposition of Registrable Securities must conform to the information provided to the Company by each of such holders. 3.7 Due Diligence; Confidentiality. ------------------------------ (a) The Company will make available upon reasonable advance notice during normal business hours for inspection by any holder of Registrable Securities being sold pursuant to a Registration Statement and any attorney, accountant or other agent retained by any such holder (collectively, the "Inspectors"), all pertinent financial and other records, pertinent corporate ---------- documents and properties of the Company (collectively, the "Records"), as ------- reasonably necessary to enable the Inspector to exercise its due diligence responsibility in connection with or related to the contemplated offering. The Company will cause its officers, directors and employees to supply all information that any Inspector may reasonably request for purposes of performing such due diligence. (b) Each Inspector will hold in confidence, use only in connection with the contemplated offering, and will not make any disclosure (except to a holder of Registrable Securties) of, all Records and other information that the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in any Registration Statement, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court or government body of competent jurisdiction, (iii) 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 (to the knowledge of the relevant Inspector), (iv) the Records or other information was developed independently by an Inspector without breach of this Agreement, (v) the information was known to the Inspector before receipt of such information from the Company, or (vi) the information was disclosed to the Inspector by a third party not under an obligation of confidentiality. The Company is not required to disclose any confidential information in the Records to any Inspector unless and until such Inspector has entered into a confidentiality agreement (in form and substance satisfactory to the Company) with the Company with respect thereto, substantially in the form of this Section 3.7. Each holder of Registrable Securties will, upon learning that disclosure of Records containing confidential information 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 the Company's expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential. Nothing herein will be deemed to limit the ability of a holder of 6 Registrable Securities to sell Registrable Securities in a manner that is otherwise consistent with applicable laws and regulations. (c) The Company will hold in confidence, and will not make any disclosure of, information concerning a holder of Registrable Securities provided to the Company under this Agreement unless (i) disclosure of such information is necessary to comply with federal or state securities laws, or any exchange listing or similar rules and regulations, (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 order from a court or governmental body of competent jurisdiction, (iv) such information has been made generally available to the public other than by disclosure in violation of this Agreement or any other agreement, (v) the information was disclosed to the Company by a third party not under an obligation of confidentiality or (vi) such holder of Registrable Securities consents to the form and content of any such disclosure. If the Company learns that disclosure of such information concerning a holder of Registrable Securities is sought in or by a court or governmental body of competent jurisdiction or through other means, the Company will give prompt notice to such holder prior to making such disclosure and allow such holder, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information. 3.8 Listing. The Company will use best efforts to (i) cause all of the ------- Registrable Securities covered by each Registration Statement to be listed on each national 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) to the extent the securities of the same class or series are not then listed on a national securities exchange, secure the designation and quotation of all of the Registrable Securities covered by each Registration Statement on Nasdaq. 3.9 Share Certificates. The Company will cooperate with the holders of ------------------ Registrable Securities being sold to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing Registrable Securities to be offered pursuant to a Registration Statement and will enable such certificates to be in such denominations or amounts as the case may be, and registered in such names as the holders of Registrable Securities may reasonably request. 3.10 Plan of Distribution. At the request of the holders of a majority in -------------------- interest of the Registrable Securities registered pursuant to a Registration Statement, the Company will promptly prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statement, and the prospectus used in connection with the Registration Statement, as may be necessary in order to change the plan of distribution set forth in such Registration Statement. 3.11 Securities Laws Compliance. The Company will comply with all -------------------------- applicable laws related to any Registration Statement relating to the sale of Registrable Securities and to offering and sale of securities and with all applicable rules and regulations of governmental authorities in connection therewith (including, without limitation, the Securities Act, the Exchange Act and the rules and regulations promulgated by the SEC). 7 3.12 Further Assurances. The Company will take all other reasonable actions ------------------ as any holder of Registrable Securities or the underwriters, if any, may reasonably request to expedite and facilitate disposition by such holder of the Registrable Securities pursuant to the Registration Statement. ARTICLE IV OBLIGATIONS OF THE HOLDERS OF REGISTRABLE SECURITIES 4.1 Holder Information. As a condition to the obligations of the Company ------------------ to complete any registration pursuant to this Agreement with respect to the Registrable Securities of each holder thereof, such holder will 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 is reasonably required by the Company to effect the registration of the Registrable Securities. At least 10 business days prior to the first anticipated filing date of a Registration Statement for any registration under this Agreement, the Company will notify each holder of Registrable Securities of the information the Company requires from that holder if such holder elects to have any of its Registrable Securities included in the Registration Statement. If, within three business days prior to the filing date, the Company has not received the requested information from a holder of Registrable Securities, then the Company may file the Registration Statement without including Registrable Securities of that holder. 4.2 Further Assurances. Each holder of Registrable Securities for which ------------------ registration has been requested in accordance with the terms of this Agreement will cooperate with the Company, as reasonably requested by the Company, in connection with the preparation and filing of any Registration Statement hereunder. 4.3 Suspension of Sales. Upon receipt of any notice from the Company under ------------------- Section 3.5, each holder of Registrable Securities will immediately discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until (i) it receives copies of a supplemented or amended prospectus contemplated by Section 3.5(a) or (ii) the Company advises such holder of Registrable Securities that a suspension of sales under Section 3.5(b) has terminated. If so directed by the Company, each holder of Registrable Securities will deliver to the Company (at the expense of the Company) or destroy (and deliver to the Company a certificate of destruction) all copies in such holder's possession (other than a limited number of file copies) of the prospectus covering such Registrable Securities that is current at the time of receipt of such notice. ARTICLE V EXPENSES OF REGISTRATION The Company will bear all reasonable expenses, other than underwriting discounts and commissions, and transfer taxes, if any, incurred in connection with registrations, filings or qualifications pursuant to Articles II and III of this Agreement, including, without limitation, all registration, listing and qualifications fees, printers and accounting fees, the fees and disbursements 8 of counsel for the Company, and the reasonable fees and disbursements of one firm of legal counsel selected pursuant to Section 3.6 hereof (not to exceed $5,000). ARTICLE VI INDEMNIFICATION In the event that any Registrable Securities are included in a Registration Statement under this Agreement: 6.1 To the extent permitted by law, the Company will indemnify and hold harmless each holder of such Registrable Securities, any underwriter (as defined in the Securities Act) for the holders of Registrable Securities, any directors or officers of such holders of Registrable Securities or such underwriter and any person who controls such holders of Registrable Securities or such underwriter within the meaning of the Securities Act or the Exchange Act (each, an "Indemnified Person") against any losses, claims, damages, expenses or ------------------ liabilities (joint or several) (collectively, and together with actions, proceedings or inquiries by any regulatory or self-regulatory organization, whether commenced or threatened in respect thereof, "Claims") to which any of ------ them become subject under the Securities Act, the Exchange Act or otherwise, insofar as such Claims arise out of or are based upon any of the following statements, omissions or violations in a Registration Statement filed pursuant to this Agreement, any post-effective amendment thereof or any prospectus included therein: (a) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any post-effective amendment thereof or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, (b) any untrue statement or alleged untrue statement of a material fact contained in the prospectus related to the Registration Statement (as it may be amended or supplemented) 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, or (c) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any other law related to the Registration Statement, including without limitation any state securities law or any rule or regulation thereunder (the matters in the foregoing clauses (a) through (c) being, collectively, "Violations"). Subject to the restrictions set ---------- forth in Section 6.3 with respect to the number of legal counsel, the Company will reimburse the holders of Registrable Securities and each such underwriter or controlling person and each such other Indemnified Person, 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 Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6.1: (i) does not apply to Claims arising out of or based upon a Violation that occurs in reliance upon and in conformity with information furnished in writing to the Company by an Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto, if such prospectus was timely made available by the Company pursuant to Section 3.3 hereof; (ii) does not apply to a Claim arising out of or based on any failure by any Indemnified Person to comply with prospectus delivery requirements (or the Securities Act, the Exchange Act or any other law or legal requirement applicable to them) or any covenant or agreement contained in this Agreement; and (iii) does not apply to amounts paid in settlement of any Claim if such settlement is made without the prior written 9 consent of the Company, which consent will not be unreasonably withheld. This indemnity obligation will remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Persons and will survive the transfer of the Registrable Securities by the Initial Investor under Article IX of this Agreement. 6.2 In connection with any Registration Statement in which a holder of Registrable Securities is participating, each such participating holder will indemnify and hold harmless, severally and not jointly, to the same extent and in the same manner set forth in Section 6.1 above, the Company, each of its directors, each of its officers who signs the Registration Statement, each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act, and any other stockholder selling securities pursuant to the Registration Statement and any of its directors and officers and any person who controls such stockholder within the meaning of the Securities Act or the Exchange Act (each an "Indemnified Person") against any Claim to which any ------------------ of them may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such Claim arises out of or is based upon any of the following: (a) any matter of the type referred to clause (a) or (b) in Section 6.1 above 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 holder of Registrable Securities expressly for use in connection with such Registration Statement or (b) any failure by such holder of Registrable Securities to comply with prospectus delivery requirements (or the Securities Act, the Exchange Act or any other law or legal requirement applicable to sales under the Registration Statement) or any covenant or agreement contained in this Agreement with respect to sales under the Registration Statement. Subject to the restrictions set forth in Section 6.3, such holder of Registrable Securities will promptly reimburse any legal or other expenses (promptly as such expenses are incurred and due and payable) reasonably incurred by them in connection with investigating or defending any such Claim. However, the indemnity agreement contained in this Section 6.2 does not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such holder of Registrable Securities, which consent will not be unreasonably withheld, and no holder of Registrable Securities will be liable under this Agreement (including this Section 6.2 and Article VII) for the amount of any Claim that exceeds the net proceeds actually received by such holder of Registrable Securities as a result of the sale of Registrable Securities pursuant to such Registration Statement. This indemnity will remain in full force and effect regardless of any investigation made by or on behalf of an Indemnified Party and will survive the transfer of the Registrable Securities by the Initial Investor under Article IX of this Agreement. 6.3 Promptly after receipt by an Indemnified Person under this Article VI of notice of the commencement of any action (including any governmental action), such Indemnified Person will, if a Claim in respect thereof is to be made against any indemnifying party under this Article VI, deliver to the indemnifying party a written notice of the commencement thereof. The indemnifying party may participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly given notice, assume control of the defense thereof with counsel mutually satisfactory to the indemnifying parties and the Indemnified Person. In that case, the indemnifying party will diligently pursue such defense. If, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person and the indemnifying party would be inappropriate due to the 10 actual or potential conflicts of interest between the Indemnified Person and any other party represented by such counsel in such proceeding or the actual or potential defendants in, or targets of, any such action including the Indemnified Person and such Indemnified Person reasonably determines that there may be legal defenses available to such Indemnified Person that are different from or in addition to those available to the indemnifying party, then the Indemnified Person is entitled to assume such defense and may retain its own counsel, with the fees and expenses to be paid by the indemnifying party (subject to the restrictions on settlement under Section 6.1 or 6.2, as applicable). The Company will pay for only one separate legal counsel for the holders of Registrable Securities collectively, and such legal counsel will be selected by the holders of a majority in interest of the Registrable Securities. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action does not relieve an indemnifying party of any liability to an Indemnified Person under this Article VI, except to the extent that the indemnifying party is prejudiced in its ability to defend such action. The indemnification required by this Article VI will be made by periodic payments of the amount thereof during the course of the investigation or defense, as such expense, loss, damage or liability is incurred and is due and payable. ARTICLE VII CONTRIBUTION To the extent that any indemnification provided for herein is prohibited or limited by law, the indemnifying party will make the maximum contribution with respect to any amounts for which it would otherwise be liable under Article VI to the fullest extent permitted by law. However, (a) no contribution will be made under circumstances where the maker would not have been liable for indemnification under the fault standards set forth in Article VI, (b) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any seller of Registrable Securities who was not guilty of such fraudulent misrepresentation, and (c) contribution (together with any indemnification or other obligations under this Agreement) by any seller of Registrable Securities will be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities. ARTICLE VIII EXCHANGE ACT REPORTING In order to make available to the holders of Registrable Securities the benefits of Rule 144 or any similar rule or regulation of the SEC that may at any time permit such holders to sell securities of the Company to the public without registration, the Company will, until the end of the Registration Period: (a) File with the SEC in a timely manner, and make and keep available, all reports and other documents required of the Company under the Securities Act and the Exchange Act so long as the Company remains subject to such requirements and the filing and availability of such reports and other documents is required for the applicable provisions of Rule 144; and (b) Furnish to each holder of Registrable Securities, so long as such holder of Registrable Securities holds Registrable Securities, promptly upon such holder's request, (i) a written 11 statement by the Company that it has complied with the reporting requirements of the Securities Act and the Exchange Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents filed by the Company with the SEC and (iii) such other information as may be reasonably requested to permit the holders of Registrable Securities to sell such securities pursuant to Rule 144 without registration. ARTICLE IX ASSIGNMENT OF REGISTRATION RIGHTS The rights of the Initial Investor hereunder, including the right to have the Company register Registrable Securities pursuant to this Agreement, will be automatically assigned by the Initial Investor to transferees or assignees of all or any portion of the Registrable Securities, but only if (a) the Initial Investor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment, (b) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being transferred or assigned, (c) such transfer or assignment was not made under the Registration Statement or Rule 144, (d) at or before the time the Company received the written notice contemplated by clause (b) of this sentence, the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein, (e) such transfer is made in accordance with the applicable requirements of the Warrants, as the case may be, and (f) the transferee is an "accredited investor" as that term is defined in Rule 501 of Regulation D. Any transferee or assignee of the Initial Investor under Article IX shall be deemed the "Initial Investor" and a "holder of Registrable Securities" for all purposes of this Agreement, and shall be entitled to all rights of, and subject to all obligations (including indemnification obligations) of, the Initial Investor and a holder of Registrable Securities hereunder. ARTICLE X AMENDMENT OF REGISTRATION RIGHTS This Agreement may be amended and the obligations hereunder may be waived (either generally or in a particular instance, and either retroactively or prospectively) only with the written consent of the Company and of the holders then holding a majority in interest of the Registrable Securities (but not including any such holder who is not affected by such amendment or waiver). Any amendment or waiver effected in accordance with this Article X is binding upon each holder of Registrable Securities and the Company. Notwithstanding the foregoing, no amendment or waiver will retroactively affect any holder of Registrable Securities without its consent, or will prospectively adversely affect any former holder of Registrable Securities who no longer owns Registrable Securities without its consent. Neither Article VI nor Article VII hereof may be amended or waived in a manner adverse to a holder of Registrable Securities without its consent. ARTICLE XI MISCELLANEOUS 12 11.1 Conflicting Instructions. A person or entity is deemed to be a holder ------------------------- of Registrable Securities whenever such person or entity owns of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more persons or entities with respect to the same Registrable Securities, the Company will act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities. 11.2 Notices. Any notices required or permitted to be given under the terms ------- of this Agreement must be sent by certified or registered mail (return receipt requested) or delivered personally or by courier (including a recognized overnight delivery service) or by facsimile and will be effective five days after being placed in the mail, if mailed by regular U.S. mail, or upon receipt, if delivered personally or by facsimile, in each case addressed to a party. Any notice sent by courier (including a recognized overnight delivery service) will be deemed received one business day after being sent. The addresses for such communications are: If to the Company: Aksys, Ltd. Two Marriot Drive Lincolnshire, IL 60069 Attention: President (847) 229-2080 With a copy to: Kirkland & Ellis 200 East Randolph Drive Chicago, IL 60601 Attention: Keith S. Crow (312) 861-2200 If to the Intial Investor: U.S. Bancorp Piper Jaffray 800 Nicollet Mall Mail Station J1012005 Minneapolis, MN 55402-7020 Attention: Jon Salveson (612) 303-1036 With a copy to: Faegre & Benson LLP 2200 Wells Fargo Center 90 South Seventh Street Minneapolis, MN 55402-3901 Attention: David B. Miller (612) 766-1600 If to a holder of Registrable Securities other than the Intial Investor: To the address reflected in the records of the Company. Each party will provide written notice to the other parties of any change in its address. 13 11.3 Waiver. 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, does not operate as a waiver thereof. 11.4 Governing Law. This Agreement will be governed by and interpreted in ------------- accordance with the laws of the State of Illinois without regard to the principles of conflict of laws. The parties hereto hereby submit to the exclusive jurisdiction of the United States federal and state courts located in the State of Illinois with respect to any dispute arising under this Agreement, the agreements entered into in connection herewith or the transactions contemplated hereby or thereby. 11.5 Severability. If any provision of this Agreement is invalid or ------------ unenforceable under any applicable statute or rule of law, then such provision will be deemed modified in order to conform with such statute or rule of law. Any provision hereof that may prove invalid or unenforceable under any law will not affect the validity or enforceability of any other provision hereof. 11.6 Entire Agreement. This Agreement and the Warrants (including all ---------------- schedules and exhibits thereto) 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 or therein. This Agreement supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof. 11.7 Successors and Assigns. Subject to the requirements of Article IX ---------------------- hereof, this Agreement inures to the benefit of and is binding upon the successors and assigns of each of the parties hereto. Notwithstanding anything to the contrary herein, including, without limitation, Article IX, the rights of holder of Registrable Securities are assignable to and exercisable by a bona fide pledgee of the Registrable Securities in connection with such holder's margin or brokerage accounts. 11.8 Use of Pronouns. All pronouns refer to the masculine, feminine or --------------- neuter, singular or plural, as the context may require. 11.9 Headings. The headings of this Agreement are for convenience of -------- reference only, are not part of this Agreement and do not affect its interpretation. 11.10 Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which is deemed an original but all of which constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission, and facsimile signatures are binding on the parties hereto. 11.11 Further Assurances. Each party will do and perform, or cause to be ------------------ done and performed, all such further acts and things, and will execute and deliver all other agreements, certificates, instruments and documents, as another 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. 11.12 Consents. All consents and other determinations to be made by the -------- holders of Registrable Securities pursuant to this Agreement will be made by the Initial Investor or the holders 14 of a majority in interest of the Registrable Securities, determined as if all Warrants then outstanding had been exercised for Registrable Securities. 11.13 No Strict Construction. The language used in this Agreement is 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. * * * * 15 IN WITNESS WHEREOF, the undersigned Initial Investor and the Company have caused this Agreement to be duly executed as of the date first above written. COMPANY: AKSYS, LTD. By: /s/ William C. Dow Name: William C. Dow Title: President & CEO INITIAL INVESTOR: U.S. BANCORP PIPER JAFFRAY INC. By: /s/ Jon W. Salveson Name: Jon W. Salveson Title: Managing Director 16