Exhibit 10.1


 


SETTLEMENT AGREEMENT
AND MUTUAL RELEASE


 


This SETTLEMENT
AGREEMENT AND MUTUAL RELEASE (the “Agreement”) is entered
into by and among Aksys, Ltd., a
Delaware corporation (“Aksys”); Durus
Life Sciences Master Fund Ltd., a Cayman Islands company (the “Fund”);
Scott Sacane,  a Connecticut resident (“Sacane”); Durus Capital Management, LLC, a Delaware
limited liability company (“Durus”); Durus
Capital Management (N.A.), LLC,  a Delaware limited liability company (“Durus
N.A.”); and Artal Long Biotech Portfolio
LLC, a Delaware limited liability company (“Artal”).  Aksys, the Fund, Sacane, Durus, Durus N.A.
and Artal are collectively referred to herein as the “Parties”, and each
is individually referred to as a “Party.”  The Fund, Sacane, Durus, Durus N.A. and Artal are collectively
referred to herein as “Defendants”, and each is individually referred to
as a “Defendant.”  Unless
otherwise provided herein, capitalized terms used herein without definition
have the meanings given to them in the Rights Agreement (as defined below).


 


WHEREAS, as of the
date hereof, the Fund is the record owner and beneficial owner (as such term is
defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)) of 21,333,118 shares of Aksys common stock (which
amount includes 281,454 shares of Aksys common stock issuable upon exercise of
warrants (the “Warrants”) and is net of the Short Position referred to
(and as defined in) Section 3(e) hereof) (the “Fund Shares”) and
Artal is the beneficial owner of 498,100 shares of Aksys common stock (together
with the Fund Shares, the “Shares”);


 


WHEREAS, on
April 11, 2003, Aksys, Sacane and Durus entered into an agreement relating
to Aksys common stock held by the Fund (the “April 2003 Agreement”);


 


WHEREAS, on
August 5, 2003, Aksys filed a three-count lawsuit against Defendants (the
“Complaint”) in the United States District Court, District of
Connecticut (the “Court”), Case No. 03-CV-1349 (RNC) (the “Litigation”).  Count III of the Complaint, which sought disgorgement
of profits under Section 16(b) of the Exchange Act, was settled pursuant
to an agreement among the Parties dated January 12, 2004 and dismissed
pursuant to a Court order of that same date. 
Counts I and II of the Complaint allege, respectively, breach of
the April 2003 Agreement and violation of Section 13(d) of the Exchange
Act;


 


WHEREAS,
Aksys and the Fund entered into a Standstill Agreement dated as of
October 9, 2003 (the “October 2003 Agreement”);


 


WHEREAS,
Defendants, on the one hand, and Aksys, on the other hand, desire in this
Agreement and pursuant to the terms set forth below fully and finally to
settle, resolve and specifically release each other and certain related parties
from all claims that they may have, whether or not heretofore asserted,
relating to or arising from or otherwise involving the acquisition, ownership,
trading or disposition of shares of Aksys common stock on or before the date
hereof, the application of the Rights Agreement, dated as of October 28,
1996, between Aksys and EquiServe Trust Company, N.A., as successor Rights
Agent to First Chicago Trust


 


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Company of New York (the “Rights Agreement”), or any other
agreements or understandings, or otherwise arising between or among them,
including without limitation Counts I and II of the Complaint and any
claims relating to or arising under the April 2003 Agreement, the
October 2003 Agreement or the Rights Agreement; provided, that
nothing in this Agreement shall limit (i) the rights of the Fund or Artal
to sue Sacane, Durus, Durus N.A. and any of their past or present employees,
officers, directors, managers and members (collectively, the “Sacane Parties”)
for any and all causes of action and claims, or (ii) the rights of any one
or more of the Sacane Parties to sue the Fund or Artal and any of their
respective past or present employees, officers, directors, managers and
members;


 


NOW, THEREFORE,
in consideration of the mutual promises and covenants contained in this Agreement,
it is hereby agreed by and among the Parties as follows:


 


1.                                       DISMISSAL OF
THE COMPLAINT WITH PREJUDICE AGAINST ALL OF THE DEFENDANTS.  Aksys hereby agrees to seek, and
the Parties agree to take all reasonable steps to obtain, as promptly as
possible, Court approval of dismissal, with prejudice, of the Complaint in its
entirety by filing a Stipulation of Dismissal of the Complaint (the “Stipulation
of Dismissal”) substantially in the form annexed in Exhibit A hereto on the
latest of the dates that each Party executes this Agreement (the “Effective
Date”) or within one business day thereafter.


 


2.                                       AMENDMENT TO RIGHTS AGREEMENT.


 


(a)                                  Amendment
of Rights Agreement.  Concurrently
with the execution of this Agreement, Aksys is entering into the First Amendment
to Rights Agreement in the form annexed as Exhibit B hereto (the “Rights
Amendment”).


 


(b)                                 Future
Rights Agreements or Other Similar Actions.  Aksys shall not amend the Rights Agreement, adopt or implement
any rights agreement or any other similar plan or arrangement, or take any
other actions (outside of the Rights Agreement) having a disproportionate or
other disparate effect upon the holders of shares based on the number of shares
held by such holder, that does not provide for substantially similar exemptions,
protections and other provisions with respect to the Defendants as those
provided in this Agreement and the other Transaction Agreements (as defined
below).  Notwithstanding anything to the
contrary herein, upon expiration or termination of the Rights Agreement, Aksys
may adopt a successor rights agreement or similar arrangement, provided,
that such successor rights agreement or similar arrangement provides
substantially similar exemptions, protections and other provisions with respect
to the Defendants as those provided in this Agreement and the other Transaction
Agreements.


 


(c)                                  Dispute
Resolution Procedures.  Any dispute
or controversy arising under the Rights Amendment regarding whether any
Designated Person (as defined in the Rights Amendment) shall have materially
breached Section 5(a) or 6(a) of this Agreement for purposes of the Rights
Amendment (a “Rights Claim”) shall be settled through arbitration in
accordance with the procedures set forth in this Section 2(c).  Such procedures shall not apply to any other
claims, controversies or disputes between any of the Parties.


 


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(i)                                     Aksys or the applicable Defendant shall
submit a Rights Claim to arbitration administered by the American Arbitration
Association (“AAA”) in accordance with its then existing Commercial
Arbitration Rules for Large, Complex Commercial Disputes (the “AAA Rules”).  The arbitrators shall have no authority
other than to determine whether there has been a material breach of Section 5(a)
or 6(a) of this Agreement for purposes of the Rights Amendment.  Notwithstanding anything to the contrary in
this Agreement or any other Transaction Agreement, no Exempt Person shall lose
its status as an Exempt Person pursuant to the second proviso of clause (vii)
of the definition of Exempt Person as provided in the Rights Amendment until
the arbitrators shall have finally determined pursuant to these procedures that
such Person has materially violated Section 5(a) or 6(a) hereof, taking
into account the notice and cure provisions herein.


 


(ii)                                  After the time provided for cure in
Section 5(c) or 6(e), as applicable, has lapsed, Aksys or the
applicable Defendant (the “Initiating Party”) may commence such
arbitration by (A) submitting a Demand for Arbitration under the AAA Rules
(“Demand for Arbitration”) and (B) notifying in writing the
applicable Defendant or Aksys, as the case may be (collectively, the “Respondent”).  Such notice shall set forth in reasonable
detail the basic operative facts upon which the Initiating Party is making the
Rights Claim and reference specifically the affected clauses of this
Agreement.  After the Demand for
Arbitration, response and counterclaim, if any, and reply to counterclaim, if
any, have been submitted, the arbitrators shall permit either the Initiating
Party or the Respondent to propose additional issues for resolution in the
pending proceedings.


 


(iii)                               The parties shall attempt, by agreement, to
appoint a sole arbitrator for confirmation by the AAA.  If the parties fail so to appoint a sole
arbitrator within 20 days after the commencement of the arbitration
proceedings, a board of three arbitrators shall be appointed by the parties
jointly or, if the parties cannot agree as to three arbitrators within 20 days after
the commencement of the arbitration proceeding, then one arbitrator shall be
appointed by the Initiating Party and one arbitrator shall be appointed by the
Respondent each within 35 days after the commencement of the arbitration
proceeding and the third arbitrator shall be appointed by mutual agreement of
such two arbitrators.  If such two
arbitrators shall fail to agree within 40 days after commencement of the
arbitration proceeding upon the appointment of the third arbitrator, the third
arbitrator shall be appointed by the AAA in accordance with the AAA Rules.  Notwithstanding the foregoing, if any party
shall fail to appoint an arbitrator within the specified time period, such
arbitrator and the third arbitrator shall be appointed by the AAA in accordance
with the AAA Rules.  For purposes of
this Section, the “commencement of the arbitration proceeding” shall be deemed
to be the date upon which the Demand for Arbitration has been delivered to the
Respondent in accordance with clause (ii).


 


(iv)                              After the appointment of the arbitrators, the
parties to the arbitration shall have the right to take depositions, ask
interrogatories, obtain documentation and to obtain other discovery regarding
the subject matter of the arbitration, and, to that end, to use and exercise
all the same rights, remedies, and procedures, and be subject to all of the
same duties, liabilities, and obligations in the arbitration with respect to
the subject matter thereof.  Before any
discovery is initiated, the parties shall reach agreement with the arbitrators
on a streamlined and expedited discovery program in order to save costs and
avoid unnecessary delay in completing any arbitration.


 


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(v)                                 A hearing on the Rights Claim shall commence
within 30 days following appointment and confirmation of the arbitrators.  The decision of the arbitrators shall be
rendered no later than 30 days after commencement of such hearing.


 


(vi)                              Any decision shall be rendered by a majority
of the arbitrators.  The arbitrators
shall issue to Aksys and the applicable Defendant a written explanation of the
reasons for their decision and a full statement of the facts as found and the
rules of law applied.  The arbitrators’
decision rendered in connection with an arbitration pursuant to this Section
shall be final and binding upon Aksys and the applicable Defendant.  The arbitral award shall be conclusive proof
of the validity of the determinations of the arbitrations set forth in the
award.


 


(vii)                           The place of arbitration shall be in the
State of Delaware.


 


(viii)                        In reaching their decision, the arbitrators
shall follow the substantive law of the State of Delaware.


 


(ix)                                All proceedings and all documents prepared in
connection with any arbitration conducted hereunder shall be confidential and
the subject matter thereof shall not be disclosed to any Person other than the
parties to the proceedings, their Affiliates, their counsel, witnesses and
experts, the arbitrator, and, if involved, the court and court staff; provided,
that the parties to the proceedings and their Affiliates may disclose such
proceedings and documents if required by law. 
All documents filed with the arbitrator or with a court shall be filed
under seal.  The parties shall stipulate
to all arbitration and court orders necessary to effectuate fully the
provisions of this Section concerning confidentiality.


 


3.                                       THE SELL-DOWN PERIOD.


 


(a)                                  Cooperation.  Aksys shall use its commercially reasonable
efforts to facilitate the disposition of the Shares and the Warrants by the
Fund and Artal and their respective Permitted Transferees under (and as defined
in) the Registration Rights Agreement (as defined below), and, upon any
exchange of the Note (as defined below) for New Shares (as defined below), the
New Shares, and will cooperate with the Fund’s and Artal’s reasonable requests
in that regard consistent with the terms hereof and the other Transaction
Agreements.


 


(b)                                 Permitted
Disposition.  The Fund and Artal may
dispose of the Shares and Warrants, and the New Shares, in one or more public
and/or private offerings with the decision as to the type of disposition(s) and
whether or not to use any underwriters to be made by the Fund consistent with
the terms hereof and the other Transaction Agreements.


 


(c)                                  Registration
Rights Agreement.  Concurrently with
the execution of this Agreement, Aksys, the Fund and Artal are entering into a
Registration Rights Agreement in the form annexed as Exhibit C hereto (the “Registration
Rights Agreement”) providing for, among other things, the preparation and
effectiveness of one or more registration statements covering the Shares,
Warrants and New Shares (together with the appropriate amendments and
supplements thereto, the “Registration Statement(s)”).


 


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(d)                                 Related
Agreements.  Aksys shall enter into
underwriting or distribution agreements on reasonable terms with any
underwriter(s) or broker dealer(s) selected by the Fund (subject to Aksys’
approval, which shall not be unreasonably withheld) to distribute securities
selected by the Fund, Artal and/or their Permitted Transferees.  Aksys agrees that any nationally recognized underwriter(s) and/or broker
dealer(s) that acquire Shares from any
Exempt Person as part of a distribution by such Exempt Person of the Shares
(that is, for the purpose of re-sale to investors), whether pursuant to an
underwritten offering, block trade, agented distribution or any other bona fide
distribution of the Shares, shall be deemed to be “Exempt Persons” under the
Rights Agreement.


 


(e)                                  Short
Position.  With respect to the
Fund’s existing short position of 165,000 shares of Aksys common stock (the “Short
Position”), subject to its obligations under Applicable Law (as defined
below), Aksys shall cooperate with the Fund in closing out such short position,
including, without limitation, by delivering instructions to its transfer agent
to release the “matching” shares and taking such other reasonable actions as
the Fund may request.


 


(f)                                    Stock
Certificates.  Aksys agrees that the
Fund may take possession of the certificates representing its shares of Aksys
common stock from Schulte Roth & Zabel LLP, with whom the certificates were
deposited pursuant to the October 2003 Agreement, at any time.  Aksys on the date hereof shall instruct its
transfer agent to remove immediately upon receipt of those certificates the
restrictive legends endorsed on those certificates pursuant to the
October 2003 Agreement.


 


(g)                                 Limitation
on Transfers to 10% Holders.  Each
Defendant covenants that it shall not sell, assign, convey, distribute,
transfer or otherwise dispose of any of the Shares to any Person which, at the
time of such transfer or as a result of such transfer, such Defendant knows
(based on information reasonably available to such Defendant) would
beneficially own in excess of 10% of Aksys’ then-outstanding common stock,
except to:


 


(i)                                     any
Person with the written consent of Aksys, which consent shall not be
unreasonably withheld, provided, that in no event shall a Defendant make
any transfer pursuant to this clause (i) to any Person that such Defendant
knows would beneficially own in excess of 14.99% of Aksys’ then-outstanding
common stock (based on information reasonably available to such Defendant);


 


(ii)                                  any
Permitted Transferee, unless such Defendant knows (based on information
reasonably available to such Defendant) that such Person would beneficially own
in excess of 14.99% of Aksys’ then-outstanding common stock;


 


(iii)                               any
nationally recognized underwriter(s) and/or broker dealer(s) as part of a distribution by such Defendant
of the Shares (that is, for the purpose of re-sale to investors), whether
pursuant to an underwritten offering, block trade, agented distribution or any
other bona fide distribution of the Shares;


 


(iv)                              any
Person in a distribution by such Defendant to its direct or indirect equity or
other interest holders (including any Permitted Transferee) pro rata in
accordance with


 


5

















 


such distributees’ respective pro rata shares of the Defendant’s equity
or other interests, provided, that if any such Person acquires in such
distribution beneficial ownership of shares of Aksys common stock in excess of
14.99% of Aksys’ then-outstanding common stock, then such Person shall be
subject to the provisions of Sections 5 and 6 hereof as if it were a
Defendant hereunder (and shall so confirm in writing to Aksys); and


 


(v)                                 any
holder of a proxy granted pursuant to Section 6(d) hereof.


 


(h)                                 Reasonable
Best Efforts.  Each Defendant shall
use reasonable best efforts to dispose of its Shares as promptly as
practicable; provided, that no Defendant shall be required to accept a
price or other terms for its Shares that it deems in its discretion not
acceptable.


 


4.                                       FINANCIAL
TERMS.


 


(a)                                  Approval
Payment.  Immediately following
execution of this Agreement and receipt of the Court’s order approving the
Stipulation of Dismissal (the “Order”), each of the Fund and Artal,
respectively, shall as soon as possible, and in no event later than two (2)
business days thereafter, deliver, in immediately available funds, to Aksys
(1) $17,640,000 in the case of the Fund and (2) $360,000 in the case
of Artal.


 


(b)                                 Registration
Statement Effectiveness Payment. 
Following receipt of the Order, upon the Initial Registration Statement
(as defined in the Registration Rights Agreement) being declared effective by
the Securities and Exchange Commission, each of the Fund and Artal,
respectively, shall as soon as possible, and in no event later than two (2)
business days thereafter, deliver, in immediately available funds, to Aksys an
additional (1) $9,800,000 in the case of the Fund and (2) $200,000 in
the case of Artal.


 


(c)                                  Purchase
of Subordinated Note.  Aksys shall
sell to each of the Fund and Artal, respectively, and each of the Fund and
Artal, respectively, shall purchase from Aksys, a redeemable exchangeable
subordinated note (each, a “Note,” and any shares of Aksys common stock
issuable upon exchange of a Note, the “New Shares”), for an aggregate
purchase price of (1) $15,778,000, in the case of the Fund, and
(2) $322,000, in the case of Artal, pursuant to a Note Purchase Agreement
in the form annexed as Exhibit D hereto  (the
“Note Purchase Agreement”).  The
Note Purchase Agreement is being executed concurrently with the execution and
delivery of this Agreement.  The closing
of the purchase of the Note shall be concurrent with the payments described in
Section 4(a) above.


 


5.                                       DEFENDANTS’ STANDSTILL COVENANTS.


 


(a)                                  Control Matters. 
Except for the acquisition of the Note and the New Shares, if any, each
Defendant covenants that, until such time as the combined ownership of Voting
Securities (as defined below) by (i) the Fund and, to the Fund’s knowledge
(based on information reasonably available to the Fund), its Affiliates and
Associates, (ii) such Defendant (if other than the Fund) and, to such
Defendant’s knowledge (based on information reasonably available to such
Defendant), its Affiliates and Associates, and (iii) to the knowledge of
such Defendant (based on information reasonably available to such Defendant),
all other Defendants


 


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and their respective Affiliates and Associates (with respect to each
Defendant, the Voting Securities described in clauses (i), (ii) and (iii),
collectively (but without double-counting), are referred to as such Defendant’s
“known Aggregate Ownership”) is less than 15% of the then-outstanding
Aksys common stock, it shall not, and shall not permit any of its Affiliates
controlled by it or its Associates controlled by it to:


 


(i)                                     acquire,
offer to acquire or agree to acquire, by purchase or otherwise, beneficial
ownership of any of Aksys’ securities, except pursuant to the Note or the Note
Purchase Agreement or as a result of a stock split, stock dividend,
distribution, merger, recapitalization, exchange or similar transaction or any
Exempt Event or the exercise of any rights in connection with an Exempt Event;


 


(ii)                                  make
or participate in any “solicitation” of “proxies” to vote (as such terms are
defined in Rule 14a-1 under the Exchange Act), or solicit any consent or
otherwise seek to advise or influence any individual, firm, corporation,
partnership, joint venture, association, trust, unincorporated organization or
other entity or group (as such term is used in Section 13(d)(3) of the
Exchange Act) (a “Person”) with respect to the voting of any Voting
Securities, in each case only if and to the extent such solicitation, advice or
influence is in connection with a Control Matter, or become a “participant” (as
such term is used in Schedule 14A under the Exchange Act) in any election
contest with respect to members of the Aksys Board (as defined below);


 


(iii)                               form,
or join with others in the formation of, any new “person” within the meaning of
Section 13(d)(3) of the Exchange Act with respect to any Voting Securities
in connection with a Control Matter;


 


(iv)                              deposit
any Voting Securities into a voting trust or subject any such Voting Securities
to any arrangement or agreement with respect to the voting thereof in
connection with a Control Matter (other than a proxy granted pursuant to
Section 6(d) hereof);


 


(v)                                 initiate,
propose or otherwise solicit stockholders for the approval of one or more
stockholder proposals with respect to Aksys as described in Rule 14a-8
under the Exchange Act, or induce or attempt to induce any other Person to
initiate any stockholder proposal, in each case in connection with a Control
Matter;


 


(vi)                              seek
election to or seek to place a representative on the Aksys Board or seek the
removal of any member of the Aksys Board;


 


(vii)                           call or
seek to have called any meeting of the stockholders of Aksys; or


 


(viii)                        make any
press release or public proposal with respect to any form of business
combination transaction involving Aksys, including, without limitation, a
merger, exchange offer or liquidation of Aksys’ assets, or any restructuring,
recapitalization or similar transaction with respect to Aksys.


 


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(b)                                 Other
Matters.  Each Defendant further covenants that, until such time as its
known Aggregate Ownership is less than 15% of the then-outstanding Aksys common
stock, it shall not, and shall not permit any of its Affiliates controlled by
it or its Associates controlled by it to:


 


(i)                                     make
or participate in any “solicitation” of “proxies” to vote (as such terms are
defined in Rule 14a-1 under the Exchange Act), or solicit any consent or
otherwise seek to advise or influence any Person with respect to the voting of
any Voting Securities in connection with any matter other than a Control
Matter;


 


(ii)                                  deposit
any Voting Securities into a voting trust or subject any such Voting Securities
to any arrangement or agreement with respect to the voting thereof in connection
with any matter other than a Control Matter (other than a proxy granted
pursuant to Section 6(d) hereof); or


 


(iii)                               initiate,
propose or otherwise solicit stockholders for the approval of one or more
stockholder proposals with respect to Aksys as described in Rule 14a-8
under the Exchange Act, or induce or attempt to induce any other Person to
initiate any stockholder proposal, in each case other than in connection with a
Control Matter.


 


(c)                                  Notice
And Cure.  In the event that Aksys believes that a
Defendant is in material breach of any of the covenants set forth in
Section 5(a) or (b) (without regard to the first proviso in the following
sentence) (for purposes of this Section 5(c), a “Potential Breach”),
Aksys shall provide such Defendant with written notice that specifies the
Potential Breach in reasonable detail (based on information reasonably
available to Aksys), and such Defendant shall have the opportunity to cure the
Potential Breach (including by ceasing and correcting in all material respects
the allegedly breaching conduct) as described in the following sentence.  Such Defendant shall use its reasonable best
efforts to cure such Potential Breach as soon as practicable after receipt of
such notice from Aksys, but in any event such Defendant shall complete such
cure, in order for such cure to be effective, within 30 days of receipt of such
notice; provided, that, notwithstanding anything herein to the contrary,
no breach shall be deemed to have occurred unless the breach shall not have
been cured in all material respects prior to the end of the 30th day
following the date of such notice; and provided, further, that
nothing herein shall prevent Aksys from seeking interim equitable relief during
such 30-day period.


 


(d)                                 Investor
Communications.  The Parties
acknowledge that the Fund in the ordinary course of business will communicate
with its shareholders and investors and their respective managers, members,
control persons, officers and directors, and that, notwithstanding anything in
this Agreement to the contrary, no such communications shall violate any of the
provisions of this Section 5 so long as such communications occur in the
ordinary course of business and are not made with the intent of encouraging or
initiating any Control Matter prohibited under Section 5(a) above.


 


(e)                                  Defendant
Voting.  Notwithstanding anything in
this Agreement to the contrary, none of the provisions of Section 5(a) or
(b) shall restrict the voting by any Defendant of any


 


8

















 


Shares which such Defendant is permitted to vote in its own discretion
pursuant to Section 6 hereof.


 


(f)                                    Certain
Definitions.  For purposes of this
Agreement:


 


(i)                                     “Voting
Securities” means any securities entitled to vote generally on matters submitted
for a vote of stockholders of Aksys, or any direct or indirect rights or
options to acquire any such securities or any securities convertible into or
exercisable or exchangeable for such securities.


 


(ii)                                  “Control
Matter” means any proposal or transaction concerning or involving
(A) the control of a majority of the outstanding Voting Securities,
(B) the election or removal of members of the Aksys Board, (C) a
business combination transaction involving Aksys, including, without limitation,
any merger, reorganization, recapitalization, sale of all or substantially all
assets or similar transaction with respect to Aksys, or (D) any other
matter proposed to Aksys’ shareholders, including, without limitation, changes
to Aksys’ certificate of incorporation or bylaws, that pertains to takeover
defenses or a change in control of Aksys.


 


6.                                       VOTING AGREEMENT.


 


(a)                                  2004
Annual Meeting Election of Directors. 
Each Defendant shall authorize Aksys’ chief executive officer and/or
chief financial officer as its proxy to vote at the 2004 annual meeting of
Aksys shareholders, to be held in May 2004 (the “2004 Annual Meeting”),
all Shares owned by it of record or for which it has the power to direct the
vote as of the record date for the 2004 Annual Meeting in favor of the election
of William C. Dow and Dekle W. Rountree, Jr. to the Aksys Board.


 


(b)                                 Other
Voting.  In connection with any
other vote of Aksys stockholders, including any vote to be held at the 2004
Annual Meeting, each Defendant shall authorize a third party selected by the
Fund with the consent of Aksys (such consent not to be unreasonably withheld)
or, if no such third party shall have been selected by the end of the 30th
day following the Effective Date, Aksys’ chief executive officer and/or chief
financial officer (in either case, the “Voting Designee”) as its proxy
to vote all Shares owned by it of record or for which it has the power to
direct the vote as of the record date for such vote:


 


(i)                                     at
the 2004 Annual Meeting, in the case of any stockholder proposal (as described
in Rule 14a-8 under the Exchange Act) being acted upon by the
shareholders, as directed by a majority of the independent members of the Aksys
Board (as defined under the rules of the National Association of Securities
Dealers), and


 


(ii)                                  for
all other matters, in proportion to the votes cast by all other holders of
Aksys common stock (other than other Defendants);


 


provided,
that from and after certification by the Fund to Aksys that its known Aggregate
Ownership is less than 50% of the then-outstanding Aksys common stock, the
Voting Designee shall vote as provided above only those of Defendants’ Shares
that are in excess of 14.99% of the


 


9

















 


then-outstanding Aksys common
stock (with the Fund to designate which of the Defendants’ Shares are to be so
voted by the Voting Designee) and the Defendants’ remaining Shares may be voted
at each Defendant’s discretion.


 


(c)                                  Termination
of Voting.  From and after
certification by the Fund to Aksys that the Fund’s known Aggregate Ownership is
less than 15% of the then-outstanding Aksys common stock, the voting and other
rights, if any, of the Voting Designee (and, if applicable, the proxies
specified in Section 6(a) above) with respect to the Shares shall be
discontinued.


 


(d)                                 Proxies.  Each Defendant that as of the date hereof
owns of record or holds the power to direct the vote of any Shares shall
execute irrevocable proxies in the forms annexed as Exhibit E hereto.


 


(e)                                  Notice
And Cure.  In the event that Aksys believes that a
Defendant is in material breach of any of the covenants set forth in
Section 6(a) or (b) (without regard to the first proviso in the following
sentence) (for purposes of this Section 6(e), a “Potential Breach”),
Aksys shall provide such Defendant with written notice that specifies the
Potential Breach in reasonable detail (based on information reasonably
available to Aksys), and such Defendant shall have the opportunity to cure the
Potential Breach (including by ceasing and correcting in all material respects
the allegedly breaching conduct) as described in the following sentence.  Such Defendant shall use its reasonable best
efforts to cure such Potential Breach as soon as practicable after receipt of
such notice from Aksys, but in any event such Defendant shall complete such
cure, in order for such cure to be effective, within 10 days of receipt of such
notice; provided, that, notwithstanding anything herein to the contrary,
no breach shall be deemed to have occurred unless the breach shall not have
been cured in all material respects prior to the end of the 10th day
following the date of such notice; provided, further, that
nothing herein shall prevent Aksys from seeking interim equitable relief during
such 10-day period; and provided, further, that nothing herein
shall prevent Aksys from exercising any rights otherwise available to it under
its organizational documents or Applicable Laws to postpone any shareholder
meeting or action by written consent in order to facilitate a cure and
correction of such Potential Breach.


 


7.                                       ACCESS RIGHTS. 
Until such time as the Fund’s known Aggregate Ownership is
less than 15% of the then-outstanding Aksys common stock, Aksys shall provide
the Fund with reasonable access to Aksys’ senior management and members of the
Aksys Board, including, without limitation, the opportunity to meet with
members of the Aksys Board immediately prior to or after each regular meeting
of the Aksys Board (at the site of such meeting, if so desired by the Fund),
and shall cause such senior managers and members of the Aksys Board to discuss
in good faith issues raised by the Fund. 
Aksys shall give the Fund at least 5 business days’ notice of any
regular meeting of the Aksys Board and, if requested by the Fund, the agenda
items for such meetings.


 


8.                                       NO
ASSIGNMENT.  The Parties
represent and warrant that they have not assigned, transferred or conveyed to
any other Person any claim or portion thereof or interest therein relating to
any of the matters that are the subject of this Agreement.


 


10

















 


9.                                       RELEASE OF
THE DEFENDANTS.  On the Effective Date and subject to
Court approval of the Order, Aksys, for (i) itself and its affiliates
(other than the Fund, to the extent the Fund might otherwise be deemed to be an
affiliate of Aksys) 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 each of the Defendants, 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., 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, all Claims arising out of conduct to date
relating to or arising from the acquisition, ownership, trading or disposition
of shares of Aksys common stock, all Claims arising out of conduct to date
relating to or arising under the April 2003 Agreement, the
October 2003 Agreement or the Rights Agreement and all Claims arising out
of conduct to date that were asserted or that could have been asserted in the
Litigation.


 


10.                                 RELEASE OF
AKSYS.  On the Effective Date
and subject to Court approval of the Order, each Defendant, for (i) itself
and its affiliates (other than, in the case of the Fund, Aksys, to the extent
Aksys might otherwise be deemed to be an affiliate of the Fund) 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 Aksys, its affiliates and subsidiaries, predecessor and successor
corporations or entities, any and all of their respective past, present and
future managers, 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, 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,
all Claims arising out of conduct to date relating to or arising from the
acquisition, ownership, trading or disposition of the shares of Aksys common
stock, all Claims arising out of conduct to date relating to or arising under
the April 2003 Agreement, the October 2003 Agreement or the Rights
Agreement and all Claims arising out of conduct to date that were asserted or
that could have been asserted in the Litigation.


 


11

















 


11.                                 REPRESENTATIONS
AND WARRANTIES.


 


(a)                                  Mutual
Representations and Warranties. 
Each Defendant, on the one hand, represents and warrants to Aksys, and
Aksys, on the other hand, represents and warrants to each Defendant, as
follows:


 


(i)                                     It
has the right, power and authority to enter into and to perform its obligations
under those of the Transaction Agreements to which it is or is contemplated to
be a party.  The execution, delivery and
performance by it of each Transaction Agreement to which it is or is
contemplated to be a party have been duly authorized by all necessary action on
its part.  Each Transaction Agreement to
which it is or is contemplated to be a party has been duly executed and
delivered and constitutes its valid and binding obligation, enforceable in
accordance with its terms.


 


(ii)                                  The
execution and delivery of each Transaction Agreement to which it is or is
contemplated to be a party, and the consummation of the transactions
contemplated thereby, by it will not, directly or indirectly (with or without
notice or lapse of time): 
(A) contravene, conflict with or result in a violation of
(1) any provisions of its certificate or articles of incorporation,
bylaws, management agreement, operating agreement, partnership agreement or
similar governing document or (2) any resolution adopted by its board of
directors or any committee thereof or shareholders, (B) contravene,
conflict with or result in a violation of, or give any governmental authority,
agency or entity of any kind whatsoever, including without limitation any
quasi-governmental agency, self-regulatory organization, arbitrator or arbitral
panel (a “Governmental Body”) the right to exercise any remedy or obtain
any relief under, any federal, state, local or foreign statute, law, ordinance,
rule, regulation, judgment, decree, order, concession, grant, franchise, permit
or other governmental authorization or approval (collectively, “Applicable
Law”), or (C) contravene, conflict with or result in a violation or
breach of, or default under, any provision of any contract to which it is a
party or may be bound.


 


(b)                                 Additional
Representations and Warranties and Covenants of Aksys.  Aksys additionally represents and warrants
to each Defendant as follows:


 


(i)                                     to
Aksys’ knowledge, no past or present Aksys shareholder has made or threatened
to make any claims with respect to the acquisition, ownership, trading or
disposition of shares of Aksys common stock by any of the Defendants, other
than as previously disclosed in writing to the Fund; and


 


(ii)                                  the
Rights Amendment has been adopted and approved by a unanimous vote of the
members of the board of directors of Aksys (the “Aksys Board”), has been
duly executed and delivered by Aksys, and will be effective, without any
further action by any Person, immediately upon the Court’s approval of the
Stipulation of Dismissal, and there has not been any Stock Acquisition Date
based on the stock ownership of any Defendant, individually or collectively,
and there has not been any Distribution Date under the Rights Agreement.


 


Aksys shall
cause the Rights Agent to duly execute and deliver a counterpart to the Rights
Amendment as soon as practicable, and in any event within 1 business day
following the Effective Date.


 


12

















 


(c)                                  Additional
Representations and Warranties and Covenants of Defendants.


 


(i)                                     Each
Defendant represents and warrants to Aksys that it does not hold any Shares
with the purpose or intent of controlling Aksys or changing or influencing the
control or management of Aksys or in connection with or as a participant in any
transaction having that purpose or intent.


 


(ii)                                  Each
Defendant covenants that, until such time as such Defendant’s known Aggregate
Ownership is less than 15% of the then-outstanding Aksys common stock, it shall
not in the future hold any Shares with the purpose or intent of controlling
Aksys or changing or influencing the control or management of Aksys or in
connection with or as a participant in any transaction having that purpose or
intent.


 


(iii)                               Each
of the Fund and Artal, respectively, represents and warrants to Aksys that it
is the beneficial owner of that number of Shares indicated on Schedule I
annexed hereto.  Each other Defendant
represents and warrants to Aksys that it does not own any Shares of record or
beneficially, other than indirect interests, if any, in the Shares owned by the
Fund or Artal as represented pursuant to the preceding sentence.


 


(d)                                 Additional
Representation and Warranty of the Fund and Artal.  Each of the Fund and Artal represents and
warrants to Aksys that neither the Sacane Parties nor any Person known to the Fund
or Artal, respectively (based on information reasonably available to it), to be
an Affiliate or Associate of the Sacane Parties has the right to direct the
voting or disposition of any Shares beneficially owned by the Fund or Artal or
to trade securities on the Fund’s or Artal’s behalf or exercise any management
power with respect to the Fund or Artal.


 


12.                                 NOTICES OF
SALES.  Each Defendant, until
such time as such Defendant’s known Aggregate Ownership is less than 15% of the
then-outstanding Aksys common stock, shall notify Aksys promptly in writing of
each sale or other similar disposition by it of any Shares.


 


13.                                 PROHIBITION
AGAINST SHORT SALES.  Each
Defendant covenants that, until such time as such Defendant’s known Aggregate
Ownership is less than 10% of Aksys’ then-outstanding common stock, it will not
engage in short sales of any Aksys common stock.


 


14.                                 VOLUNTARY
AND KNOWINGLY.  The Parties
acknowledge that, before executing this Agreement, they have been advised and
given the opportunity to consult with counsel and have in fact sought and
received advice from counsel of their own choosing, and have been fully advised
of their rights under law.  The Parties
further acknowledge that they have reviewed this Agreement in its entirety,
understand it and voluntarily execute it.


 


15.                                 SACANE
PARTIES.


 


(a)                                  No
Release of Sacane Parties.  Nothing
in this Agreement shall be construed as a release by the Fund or Artal of any
third party or any party other than Aksys, Aksys’ affiliates and subsidiaries,
predecessor and successor corporations and entities, any and all of their
respective past, present and future managers, partners, officers, directors,
employees, agents, representatives and attorneys, permitted assigns and
transferees, and any and all other persons,


 


13

















 


firms, corporations and entities that could or might act on Aksys’
behalf.  Without limiting the generality
of the foregoing, nothing in this Agreement shall be construed as a release by
the Fund or Artal of the Sacane Parties, nor shall this Agreement impair in any
way the right of the Fund, Artal, Durus Life Sciences Fund, LLC and Durus Life
Sciences International Fund Ltd., or any of their respective investors,
managers, members and control persons, from asserting any claims at law or in
equity against any of the Sacane Parties. 
Any language to the contrary in this Agreement or any other Transaction
Agreement is superceded by this Section 15(a).


 


(b)                                 No
Release by Sacane Parties.  Nothing in this Agreement shall be construed
as a release by the Sacane Parties of any third party or any party other than
Aksys, Aksys’ affiliates and subsidiaries, predecessor and successor
corporations and entities, any and all of their respective past, present and future
managers, 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 Aksys’ behalf.  Without limiting the generality of the
foregoing, nothing in this Agreement shall be construed as a release by the
Sacane Parties of the Fund, Artal, Durus
Life Sciences Fund, LLC and Durus Life Sciences International Fund Ltd., nor
shall this Agreement impair in any way the right of the Sacane Parties from
asserting any claims at law or in equity against any of the Fund, Artal, Durus
Life Sciences Fund, LLC and Durus Life Sciences International Fund Ltd., or any
of their respective investors.  Any
language to the contrary in this Agreement or any of the other Transaction
Agreements is superceded by this Section 15(b).


 


16.                                 SUFFICIENCY
OF CONSIDERATION.  Other than
the terms set forth in this Agreement, each Defendant, on the one hand, and
Aksys, on the other hand, acknowledges and agrees that no additional
consideration is required or owing to the other arising out of or relating to
the Complaint or other matters covered hereby, and that sufficient
consideration has passed between them by virtue of this Agreement to render this
Agreement and the Transaction Agreements, including the releases herein, valid
and enforceable.  Aksys further
acknowledges that each Defendant, and each Defendant further acknowledges that
Aksys, is relying upon the representations and warranties of such Party, among
other things, in entering into this Agreement.


 


17.                                 ENTIRE
AGREEMENT; MODIFICATION.


 


(a)                                  Entire
Agreement.  This Agreement and the
other Transaction Agreements constitute the complete, final and exclusive
embodiment of the entire agreement among the Parties with regard to the subject
matter hereof.  This Agreement is
entered into without reliance on any promise or representation, written or
oral, other than those expressly contained or referenced herein.  Without limiting the generality of the
foregoing, the April 2003 Agreement and the October 2003 Agreement
are hereby terminated.


 


(b)                                 Modification.  This Agreement may not be modified except in
a writing signed by each Party adversely affected by the proposed amendment.


 


14

















 


18.                                 SEVERAL
OBLIGATIONS.  The obligations
of Aksys, the Fund, Artal and the Sacane Parties hereunder are several and not
joint; provided, that the obligations of the Sacane Parties are joint
and several.


 


19.                                 HEIRS,
SUCCESSORS
AND ASSIGNS.  This Agreement
shall bind the heirs, personal representatives, successors, assigns, executors
and administrators of each Party, and inure to the benefit of each Party, its
heirs, personal representatives, successors, assigns, executors and
administrators.


 


20.                                 GOVERNING
LAW.  This Agreement shall be
governed by and construed according to the laws of the State of Delaware
without giving effect to the conflicts or choice of law provisions thereof.


 


21.                                 SEVERABILITY.  If any provision of this Agreement or any
other Transaction 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 the intended benefits
of the provision.


 


22.                                 ENFORCEMENT
ACCORDING TO TERMS.


 


(a)                                  Enforcement.  The Parties intend this Agreement to be
enforced according to its terms.  Each
Defendant, on the one hand, and Aksys, on the other hand, acknowledges and
agrees that Aksys or the Defendants, as the case may be, would suffer
irreparable harm if any of the provisions of this Agreement were not performed
in accordance with their specific terms or were otherwise breached.  Accordingly, each Defendant, on the one
hand, and Aksys, on the other hand, shall be entitled to an injunction or
injunctions (without the need to post any bond) to prevent breaches of this
Agreement by Aksys or the Defendants, as the case may be, and to enforce
specifically its provisions in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which any
Party may be entitled at law or in equity.


 


(b)                                 Third
Party Beneficiaries.   The Parties
acknowledge and agree that the provisions of this Agreement and each of the
Transaction Agreements are intended to be for the benefit of, and may be
enforced by, each of the Parties. 
Nothing in this Agreement shall be construed to give any rights to any
third parties to enforce the terms of this Agreement or the Transaction
Agreements, except that third parties who are intended beneficiaries of the
release of claims against them contained in Sections 9 and 10 hereof shall
be entitled to enforce such releases.


 


(c)                                  Limitations.  In the event a third party claim (the “Third
Party Claim”) results in losses for which a Party (the “Claiming Party”)
seeks recovery against another Party (the “Representing Party”) as a
result of breach of the representation and warranty contained in
Section 11(a)(i), 11(a)(ii)(C) and 11(b) hereof:


 


(i)                                     Damages
recoverable from the Representing Party for the breach of the representation
and warranty shall not include losses arising from a general decline in the
price of all Aksys common stock as a result of the Third Party Claim or the
settlement thereof; and


 


15

















 


(ii)                                  Damages
recoverable from the Representing Party in the claim for breach of the
representation and warranty shall be limited to the extent that any losses in
the Third Party Claim arose from acts of misconduct at any time by those
individuals who currently are officers or directors of the Claiming Party.


 


23.                                 CONSTRUCTION
AND CERTAIN DEFINED TERMS.


 


(a)                                  Headings.  Descriptive headings are for convenience
only and will not control or affect the meaning or construction of any
provision of this Agreement.


 


(b)                                 Transaction
Agreements.  “Transaction
Agreements” shall mean this Agreement, the Rights Agreement, as amended by
the Rights Amendment, the Registration Rights Agreement, the Note Purchase
Agreement, the Note, and all other agreements, certificates and instruments
contemplated herein or therein.


 


24.                                 WAIVER.  No term or condition of this Agreement shall
be deemed to have been waived, nor shall there be an estoppel against the
enforcement of any provision of this Agreement, except by a written instrument
signed by the Party charged with the waiver or estoppel.  No written waiver shall be deemed a
continuing waiver unless specifically stated therein, and the written waiver
shall operate only as to the specific term or condition waived, and not for the
future or as to any other act than that specifically waived.


 


25.                                 COUNTERPARTS.  This Agreement may be executed in one or
more counterparts, any of which need not contain the signatures of more than
one Party, but all signed counterparts taken together shall constitute one and
the same instrument.  A facsimile
signature shall be deemed as valid as an original signature.


 


26.                                 NOTICES.  All demands, notices, communications and
reports provided for in this Agreement shall be in writing and shall be either
sent by facsimile with confirmation to the number specified below or personally
delivered or sent by reputable overnight courier service (delivery charges
prepaid) to any party at the address specified below.


 


If to Aksys, to:


 


Aksys, Ltd.


Two Marriott Drive


Lincolnshire, Illinois  60069


Attn:                    Chief Executive Officer

Chief Financial Officer


Telecopy:  (847) 229-2235


Telephone:  (847) 229-2020


 


16

















 


With a copy to:


 


Kirkland &
Ellis LLP


200 East
Randolph Drive


Chicago,
Illinois  60601


Attn:  Keith S. Crow, P.C.


Telecopy:  (312) 861-2200


Telephone:  (312) 861-2000


 


If to the Fund, 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 a copy to:


 


Schulte Roth & Zabel LLP


919 Third Avenue


New York, NY 10022


Attn:  Paul N. Roth, Esq.


Telecopy: (212) 593-5955


Telephone: (212) 756-2000


 


And an additional copy to:


 


Morrison & Foerster LLP


425 Market Street


San Francisco, CA 94105


Attn:  Gavin Grover, Esq.


Telecopy: (415) 268-7522


Telephone: (415) 268-7113


 


If to Sacane, to:


 


Scott Sacane


20 Marshall Street


Suite 320


Norwalk, Connecticut 06854


Telecopy:   (203) 899-3107


Telephone: (203) 899-3125


 


17

















 


With a copy to:


 


The Dontzin Law Firm


6 East 81st Street


New York, New York 10028


Telecopy:   (212) 717-8088


Telephone: (212) 717-2900


 


If to Durus, to:


 


Durus Capital Management, LLC


20 Marshall Street


Suite 320


Norwalk, Connecticut 06854


Telecopy:   (203) 899-3107


Telephone: (203) 899-3125


 


With a copy to:


 


The Dontzin Law Firm


6 East 81st Street


New York, New York 10028


Telecopy:   (212) 717-8088


Telephone: (212) 717-2900


 


If to Durus N.A., to:


 


Durus Capital Management (N.A.), LLC


20 Marshall Street


Suite 320


Norwalk, Connecticut 06854


Telecopy:   (203) 899-3107


Telephone: (203) 899-3125


 


With a copy to:


 


The Dontzin Law Firm


6 East 81st Street


New York, New York 10028


Telecopy:   (212) 717-8088


Telephone: (212) 717-2900


 


18

















 


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: Christian Tedeschi, Managing Director


 


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


 


Any such
demand, notice, communication or report shall be deemed to have been given
pursuant to this Agreement when delivered personally, when confirmed if by
facsimile or on the second business day after deposit with a reputable
overnight courier service, as the case may be.


 


27.                                 PUBLIC
DISCLOSURE.


 


(a)                                  Disclosures.  Until such time as the Fund’s known
Aggregate Ownership is less than 15% of the then-outstanding Aksys common
stock:


 


(i)                                     each
Party proposing to make any press release or other written public announcement
or disclosure concerning any Transaction Agreement (a “Disclosure”)
shall provide an advance copy to the other Parties and shall allow each of
Aksys, the Fund and Artal the opportunity to comment thereon, and


 


(ii)                                  no
such Disclosure shall be made by any Party in a press release without the
consent of Aksys, in the case of any Disclosure made by any Defendant, or the
consent of the Fund, in the case of any Disclosure made by any Party other than
the Fund, in each case such consent not to be unreasonably withheld.


 


(b)                                 Process.  At any and all times after the filing of the
Stipulation of Dismissal, if any Party receives a subpoena or other process
from any non-party seeking production or other disclosure of any documentation,
correspondence, or testimony related to the Litigation, the Party receiving the
process promptly shall give written notice and notice by telephone to all other
Parties of the receipt of that process, identifying the production, disclosure
or testimony sought and enclosing a copy of the process.


 


(c)                                  Governmental
Bodies.  At any and all times after
the filing of the Stipulation of Dismissal, the Parties may not disclose any
documentation, correspondence, or testimony related


 


19

















 


to the Litigation except (i) as may be required by Applicable Law
or (ii) to any Governmental Body, provided, that the Party disclosing
such documentation, correspondence, or testimony requests confidential
treatment thereof to the extent permitted by law.


 


28.                                 NON-DISPARAGEMENT.


 


(a)                                  Aksys
Covenant.  Subject to
paragraph (d) below, Aksys agrees not to publicly make or publish, and to
instruct its agents and employees not to publicly make or publish, any
Disparaging (as defined below) remarks, comments or statements (orally or in
writing), or instigate, assist or participate in the making or publication of
any Disparaging remarks, comments or statements, concerning (i) any Defendant,
(ii) any Defendant’s services, affairs or operations, or (iii) the
reputation of any Person who is known by Aksys (based on information reasonably
available to Aksys) to be a member, manager, officer, director, agent, employee
or investor of any Defendant.


 


(b)                                 Defendants
Covenant.  Each Defendant agrees not
to publicly make or publish, and to instruct its agents and employees not to
publicly make or publish, any Disparaging remarks, comments or statements (orally
or in writing), or instigate, assist or participate in the making or
publication of any Disparaging remarks, comments or statements, concerning
(i) Aksys, (ii) any of Aksys’ services, affairs or operations, or
(iii) the reputation of any Person who is known by such Defendant (based
on information reasonably available to such Defendant) to be a member, manager,
officer, director, agent or employee of Aksys.


 


(c)                                  Definition
of Disparaging.  “Disparaging”
remarks, comments or statements are those that impugn the character, honesty,
integrity or morality or business acumen or abilities in connection with any
aspect of the operation of business of the Person being disparaged.


 


(d)                                 Exceptions
and Expiration.  Nothing contained
in this Section 28 shall preclude any of the Parties from:  (i) complying with its disclosure
obligations under the securities laws; (ii) providing truthful testimony
in response to a subpoena, court order, regulatory request or other legal
process believed in good faith to be valid; or (iii) making any statements
of any kind to such parties’ spouse or attorney.  The provisions of this Section 28 shall expire upon the
third anniversary of the Effective Date.


 


29.                                 NO ADMISSION
OF LIABILITY.  Neither Aksys’ nor any Defendant’s
execution of this Agreement constitutes or may be construed as an admission of
any liability.


 


30.                                 FURTHER ASSURANCES.


 


(a)                                  Reasonable Efforts.  Each
Party agrees to use reasonable effort to take reasonable actions as any other
Party may request to carry out the intent of the transactions contemplated by
this Agreement and the other Transaction Agreements and to take any other
actions required under Applicable Laws to carry out and effectuate the intent
of this Agreement and the other Transaction Agreements.  Each Party further agrees to cooperate with
the other Parties and use all reasonable efforts to take, or cause to be taken,
all action, and do, or cause to be done, all


 


20

















 


things, reasonably necessary to carry out and effectuate the intent of
this Agreement and the other Transaction Agreements.


 


(b)                                 Third
Party Claims.  Subject to
Section 15 hereof and obligations under Applicable Law, each Party agrees
that neither it nor (i) any of its affiliates and subsidiaries, predecessor
and successor corporations or entities, (ii) any of its past, present and
future officers, directors, employees, agents, representatives and attorneys,
or (iii) any other Persons that such Party controls that could or might
act on its behalf, will assist, directly or indirectly, any other Person in
investigating, preparing or asserting any Proceeding against any Person
released hereunder arising out of conduct to date or any transaction
contemplated by this Agreement or any other Transaction Agreement; provided,
that nothing contained in this Section 30 shall preclude any such Person
from providing truthful testimony in response to a subpoena, court order,
regulatory request or other legal process believed in good faith to be valid;
and provided, further, that nothing in this Section 30 shall
preclude the Fund and Artal from cooperating with and assisting each other in
connection with any actions brought by or against any of the Sacane Parties.


 


(c)                                  No
Inconsistent Positions.  Each
Defendant, on the one hand, and Aksys, on the other hand, agrees not to pursue
any claim, right or defense against Aksys or any Defendant, as the case may be,
under this Agreement and the other Transaction Agreements that is inconsistent
with the obligations of such Party under this Agreement and the other
Transaction Agreements.  Each Party
agrees that it will not make any representation or argument or take any
position inconsistent with the representations, warranties, and agreements made
by it in this Agreement or any other Transaction Agreement, whether in any
action, suit, litigation, arbitration, proceeding (including any civil,
criminal, administrative, investigative or appellate proceeding and any
informal proceeding), prosecution, contest, hearing, inquiry, inquest, audit,
examination or investigation that is, has been or may in the future be
commenced, brought, conducted or heard by or before, or that otherwise has
involved or may involve, any Governmental Body (collectively, “Proceedings”),
including in any negotiation with any Person threatening to make any claims or
commence any Proceeding, and no Party shall initiate or encourage in any way
any such Proceeding.


 


31.                                 COSTS.  Except
as otherwise specified herein or in any of the other Transaction Agreements,
each Party will bear its own costs in connection with this Agreement and the
other Transaction Agreements.


 


*       *       *       *       *


 


21

















 


IN WITNESS WHEREOF, the Parties have duly
authorized and caused this Settlement Agreement and Mutual Release to be
executed as follows:


 


 


	
  AKSYS, LTD.

  
	
   

  
	
   

  
	
  By:

  	
   /s/
  William C. Dow 

  	
   

  
	
   

  	
   

  
	
  Name:

  	
  William C.
  Dow

  	
   

  
	
   

  	
   

  
	
  Title:

  	
  President
  and Chief Executive Officer

  	
   

  
	
   

  	
   

  
	
  Date:

  	
  February 23,
  2004

  	
   

  
						



 

















 


IN WITNESS WHEREOF, the Parties have duly
authorized and caused this Settlement Agreement and Mutual Release to be
executed as follows:


 


 


	
  DURUS LIFE SCIENCES MASTER FUND LTD.

  
	
   

  
	
   

  
	
  By:

  	
   /s/
  Leslie L. Lake

  	
   

  
	
   

  	
   

  
	
  Name:

  	
   Leslie
  L. Lake

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   Director

  	
   

  
	
   

  	
   

  
	
  Date:

  	
   February
  23, 2004

  	
   

  
						



 

















 


IN WITNESS WHEREOF, the Parties have duly
authorized and caused this Settlement Agreement and Mutual Release to be
executed as follows:


 


 


	
  DURUS CAPITAL MANAGEMENT, LLC

  
	
   

  
	
   

  
	
  By:

  	
   /s/
  Scott Sacane

  	
   

  
	
   

  	
   

  
	
  Name:

  	
   Scott
  Sacane

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   Managing
  Member

  	
   

  
	
   

  	
   

  
	
  Date:

  	
   February
  23, 2004

  	
   

  
						



 

















 


IN WITNESS WHEREOF, the Parties have duly
authorized and caused this Settlement Agreement and Mutual Release to be
executed as follows:


 


 


	
  DURUS CAPITAL MANAGEMENT (N.A.), LLC

  
	
   

  
	
   

  
	
  By:

  	
   /s/
  Scott Sacane

  	
   

  
	
   

  	
   

  
	
  Name:

  	
   Scott Sacane

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   Managing
  Member

  	
   

  
	
   

  	
   

  
	
  Date:

  	
   February
  23, 2004

  	
   

  
						



 

















 


IN WITNESS WHEREOF, the Parties have duly
authorized and caused this Settlement Agreement and Mutual Release to be
executed as follows:


 


 


	
  SCOTT SACANE

  
	
   

  	
   

  
	
   /s/
  Scott Sacane

  	
   

  
	
   

  	
   

  
	
  Date:

  	
   February
  23, 2004

  	
   

  



 

















 


IN WITNESS WHEREOF, the Parties have duly
authorized and caused this Settlement Agreement and Mutual Release to be
executed as follows:


 


 


	
  ARTAL LONG BIOTECH PORTFOLIO LLC

  
	
   

  
	
  By:

  	
  Artal
  Alternative Treasury Management

  
	
  Its:

  	
  Managing
  Member

  
	
   

  
	
   

  
	
  By:

  	
   /s/
  Christian Tedeschi

  	
   

  
	
   

  	
   

  
	
  Name:

  	
   Christian
  Tedeschi

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   Managing
  Director

  	
   

  
	
   

  	
   

  
	
  Date:

  	
   February
  23, 2004

  	
   

  
								



 

















 


SCHEDULE I


 


SHARES HELD


 


(as of the Effective Date)


 


	
  Defendant

  	
   

  	
  Shares
  Held of

  Record or

  Beneficially

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  The Fund

  	
   

  	
  21,333,118

  	
   

  
	
  Artal

  	
   

  	
  498,100