Exhibit 10.12
REGISTRATION RIGHTS AGREEMENT
     This Registration Rights Agreement (this “Agreement”) is made and entered
into as of December 27, 2007, by and among NovaRay Medical, Inc., a Delaware
corporation (the “Company”), and the purchasers listed on Schedule I hereto (the
“Purchasers”).
          This Agreement is being entered into pursuant to the Series A
Convertible Preferred Stock and Warrant Purchase Agreement dated as of the date
hereof among the Company and the Purchasers participating in the Initial Closing
(the “Purchase Agreement”). The Company may sell and issue additional shares of
Preferred Stock and Warrants (each as defined below) (the “Additional
Securities”) to certain Purchasers and other purchasers (the “Additional
Purchasers”) pursuant to the Purchase Agreement.
          The Company and the Purchasers hereby agree as follows:
     1. Definitions.
          Capitalized terms used and not otherwise defined herein shall have the
meanings given such terms in the Purchase Agreement. As used in this Agreement,
the following terms shall have the following meanings:
          “Advice” shall have meaning set forth in Section 3(m).
          “Affiliate” means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, “control,” when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of “affiliated,” “controlling” and “controlled” have meanings
correlative to the foregoing.
          “Board” shall have meaning set forth in Section 3(n).
          “Business Day” means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the State of
New York generally are authorized or required by law or other government actions
to close.
          “Commission” means the Securities and Exchange Commission.
          “Common Stock” means the Company’s Common Stock, par value $.001 per
share.
          “Company” means NovaRay Medical, Inc., a Delaware corporation.
          “Conversion Shares” means any shares of Common Stock issuable upon
conversion of the Preferred Stock.
          “Demand Effectiveness Date” means, subject to Section 2(d) hereof,
with respect to the Demand Registration Statement the earlier of (A) the one
hundred twentieth (120th) day following the Demand Filing Date or (B) the date
which is within five (5) Business Days after the date on which the Commission
informs the Company (i) that the Commission will not review the Demand
Registration Statement or (ii) that the Company may request the acceleration of
the effectiveness of the Demand Registration Statement.

i

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

 

          “Demand Effectiveness Period” shall have the meaning set forth in
Section 2(b).
          “Demand Filing Date” means, subject to Section 2(d) hereof, the
forty-fifth (45th) day following the receipt by the Company of the Demand
Notice.
          “Demand Notice” shall have the meaning set forth in Section 2(b).
          “Demand Registration Statement” shall have the meaning set forth in
Section 2(b).
          “Effectiveness Date” means, subject to Section 2(d) hereof, with
respect to the Registration Statement to be filed pursuant to Section 2(a)
hereof, the earlier of (A) the two hundred tenth (210th) day following the
Filing Date or (B) the date which is within five (5) Business Days after the
date on which the Commission informs the Company (i) that the Commission will
not review such Registration Statement or (ii) that the Company may request the
acceleration of the effectiveness of such Registration Statement.
          “Effectiveness Period” shall have the meaning set forth in Section 2.
          “Event” shall have the meaning set forth in Section 7(e).
          “Event Date” shall have the meaning set forth in Section 7(e).
          “Exchange Act” means the Securities Exchange Act of 1934, as amended.
          “Filing Date” means, subject to Section 2(d) hereof, the forty-fifth
(45th) day following the last day on which Preferred Stock and Warrants may be
sold pursuant to the Purchase Agreement.
          “Holder” or “Holders” means the holder or holders, as the case may be,
from time to time of Registrable Securities.
          “Indemnified Party” shall have the meaning set forth in Section 5(c).
          “Indemnifying Party” shall have the meaning set forth in Section 5(c).
          “Initiating Holders” shall have the meaning set forth in Section 2(b).
          “Losses” shall have the meaning set forth in Section 5(a).
          “Mandatorily Registrable Securities” means (i) the Shell Shares;
(ii) the shares of Common Stock issuable upon conversion of the Preferred Stock;
(iii) the Specified Shares, and (iv) any securities issued or issuable upon any
stock split, dividend or other distribution, recapitalization or similar event
with respect to the foregoing.
          “Person” means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
          “Preferred Stock” means shares of the Company’s Series A Convertible
Preferred Stock issued to the Purchasers pursuant to the Purchase Agreement (and
for the avoidance of doubt, shall not include the Underlying Preferred Stock).

ii

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

 

          “Proceeding” means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
          “Prospectus” means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference in such Prospectus.
          “Registrable Securities” means (i) the Mandatorily Registrable
Securities; and (ii) the Warrant Shares.
          “Registration Statement” means all or any (as the context requires) of
the registration statements and any additional registration statements
contemplated by Section 2, including (in each case) the Prospectuses, amendments
and supplements to such registration statements or Prospectuses, including pre-
and post-effective amendments, all exhibits thereto, and all material
incorporated by reference in such registration statements.
          “Rule 144” means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
          “Rule 144(k)” means Rule 144(k) promulgated by the Commission pursuant
to the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
          “Rule 158” means Rule 158 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
          “Rule 415” means Rule 415 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
          “Rule 424” means Rule 424 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
          “Securities Act” means the Securities Act of 1933, as amended.
          “Shell Shares” means the 187,266 shares of Common Stock owned as of
the date hereof by Vision Opportunity Master Fund, Ltd.
          “Special Counsel” means Sadis & Goldberg LLP.
          “Specified Shares” means 5,202 shares of the Company’s Common Stock
issued in the Merger to the certain purchasers of common stock of NovaRay, Inc.
pursuant to subscription agreements dated December 20, 2007.

iii

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

 

          “Underlying Preferred Stock” means the Company’s Series A Convertible
Preferred Stock issuable upon exercise of the Series J Warrant.
          “Warrants” means the warrants to purchase shares of Common Stock
and/or Underlying Preferred Stock (as applicable) issued to the Purchasers
pursuant to the Purchase Agreement.
          “Warrant Shares” means the shares of Common Stock issuable upon
exercise of the Warrants and the shares of Common Stock issuable upon conversion
of the Underlying Preferred Stock, and any securities issued or issuable upon
any stock split, dividend or other distribution, recapitalization or similar
event with respect to the foregoing.
     2. Registration.
          (a) Mandatory Registration. On or prior to the Filing Date, the
Company shall prepare and file with the Commission a “resale” Registration
Statement providing for the resale of all Mandatorily Registrable Securities for
an offering to be made on a continuous basis pursuant to Rule 415. Such
Registration Statement shall be on Form SB-2 (except if the Company is not then
eligible to register for resale the Mandatorily Registrable Securities on Form
SB-2, in which case such registration shall be on another appropriate form in
accordance herewith and the Securities Act and the rules promulgated
thereunder). Such Registration Statement shall cover to the extent allowable
under the Securities Act and the rules promulgated thereunder (including
Rule 416), such indeterminate number of additional shares of Common Stock
resulting from stock splits, stock dividends or similar transactions with
respect to the Mandatorily Registrable Securities. The Company shall (i) not
permit any securities other than the Mandatorily Registrable Securities to be
included in such Registration Statement (except as may be required to satisfy
any listing requirements of the OTC Bulletin Board as may be approved by the
Holders) and (ii) use its best efforts to cause such Registration Statement to
be declared effective under the Securities Act as promptly as possible after the
filing thereof, but in any event prior to the Effectiveness Date, and to keep
such Registration Statement continuously effective under the Securities Act
until such date as is the earlier of (x) the date when all Mandatorily
Registrable Securities covered by such Registration Statement have been sold, or
(y) as to any Mandatorily Registrable Securities held by any Holder, the date on
which such Mandatorily Registrable Securities may be sold without any
restriction pursuant to Rule 144(k) as determined by the counsel to the Company
pursuant to a written opinion letter, addressed to the Company’s transfer agent
to such effect (the “Effectiveness Period”). If at any time and for any reason,
an additional Registration Statement is required to be filed because at such
time the actual number of shares of Common Stock into which the Preferred Stock
is convertible plus the number of shares of Common Stock previously issued upon
such conversion exceeds the number of shares of Mandatorily Registrable
Securities remaining under such Registration Statement, the Company shall have
twenty (20) Business Days to file such additional Registration Statement, and
the Company shall use its reasonable commercial efforts to cause such additional
Registration Statement to be declared effective by the Commission as soon as
possible, but in no event later than sixty (60) Business Days after filing.
          (b) Demand Registration. If the Company shall receive, at any time
after the Effectiveness Date of the Registration Statement pursuant to a
mandatory registration under Section 2(a) but prior to five (5) years from the
date of this Agreement, a written request from the Holders of a majority in
interest of the Warrant Shares (the “Initiating Holders”) that the Company file
a registration statement under the Securities Act, then the Company shall,
within fifteen (15) days after the receipt of such written request, give written
notice of such request to all Holders (the “Demand Notice”), and file by the
Demand Filing Date a Registration Statement (the “Demand Registration
Statement”) under the Securities Act covering all Warrant Shares requested to be
registered by the Holders in a written request received by the Company within
fifteen (15) days of the mailing of the Demand Notice, provided that

iv

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

 

such Registration Statement must be declared effective by the Commission by the
Demand Effectiveness Date. The Demand Registration Statement required hereunder
shall be on Form SB-2 (except if the Company is not then eligible to register
for resale the Warrant Shares on Form SB-2, in which case the Demand
Registration Statement shall be on another appropriate form). The Demand
Registration Statement required hereunder shall contain the Plan of
Distribution, attached hereto as Exhibit A (which may be modified to respond to
comments, if any, received by the Commission). The Company shall (i) not permit
any securities other than the Warrant Shares to be included in the Demand
Registration Statement and (ii) use its best efforts to cause the Demand
Registration Statement to be declared effective under the Securities Act as
promptly as possible after the filing thereof, and to keep such Demand
Registration Statement continuously effective under the Securities Act until
such date as is the earlier of (x) the date when all Warrant Shares covered by
such Demand Registration Statement have been sold or (y) the date on which the
Warrant Shares may be sold without any restriction pursuant to Rule 144(k) as
determined by the counsel to the Company pursuant to a written opinion letter,
addressed to the Company’s transfer agent to such effect (the “Demand
Effectiveness Period”). The Company shall not be required to effect a Demand
Registration Statement pursuant to this Section 2(b): (aa) after the Company has
effected one Demand Registration Statement pursuant to this Section 2(b), and
such registrations have been declared or ordered effective; and (bb) during the
period starting with the date sixty (60) days prior to the Company’s good faith
estimate of the date of the filing of, and ending on a date one hundred eighty
(180) days following the effective date of, a Company-initiated Registration
Statement subject to Section 2(c), provided that the Company is actively
employing in good faith all reasonable efforts to cause such registration
statement to become effective.
          (c) Piggyback Registrations Rights. If at any time when there is not
an effective Registration Statement covering the Warrant Shares, the Company
shall determine to prepare and file with the Commission a registration statement
relating to an offering for its own account or the account of others under the
Securities Act of any of its equity securities, other than on Form S-4 or Form
S-8 (each as promulgated under the Securities Act) or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, the Company shall
send to each Holder of Warrant Shares written notice of such determination and,
if within thirty (30) days after receipt of such notice, or within such shorter
period of time as may be specified by the Company in such written notice as may
be necessary for the Company to comply with its obligations with respect to the
timing of the filing of such registration statement, any such Holder shall so
request in writing (which request shall specify the Warrant Shares intended to
be disposed of by the Purchasers), the Company will cause the registration under
the Securities Act of all Warrant Shares which the Company has been so requested
to register by the Holder, to the extent required to permit the disposition of
the Warrant Shares so to be registered; provided that if at any time after
giving written notice of its intention to register any securities and prior to
the effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register or to
delay registration of such securities, the Company may, at its election, give
written notice of such determination to such Holder and, thereupon, (i) in the
case of a determination not to register, shall be relieved of its obligation to
register any Warrant Shares in connection with such registration (but not from
its obligation to pay expenses in accordance with Section 4 hereof), and (ii) in
the case of a determination to delay registering, shall be permitted to delay
registering any Warrant Shares being registered pursuant to this Section 2(c)
for the same period as the delay in registering such other securities. The
Company shall include in such registration statement all or any part of such
Warrant Shares such Holder requests to be registered; provided, however, that
the Company shall not be required to register any Warrant Shares pursuant to
this Section 2(c) that are eligible for sale pursuant to Rule 144(k) of the
Securities Act. In the case of an underwritten public offering, if the managing
underwriter(s) or underwriter(s) should reasonably object to the inclusion of
the Warrant Shares in such registration statement, then if the Company after
consultation with the managing underwriter should reasonably determine that the
inclusion of such Warrant Shares would materially

v

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

 

adversely affect the offering contemplated in such registration statement, and
based on such determination recommends inclusion in such registration statement
of fewer or none of the Warrant Shares of the Holders, then (x) the number of
Warrant Shares of the Holders included in such registration statement shall be
reduced pro-rata among such Holders (based upon the number of Warrant Shares
requested to be included in the registration), if the Company after consultation
with the underwriter(s) recommends the inclusion of fewer Warrant Shares, or
(y) none of the Warrant Shares of the Holders shall be included in such
registration statement, if the Company after consultation with the
underwriter(s) recommends the inclusion of none of such Warrant Shares;
provided, however, that if securities are being offered for the account of other
persons or entities as well as the Company, such reduction shall not represent a
greater fraction of the number of Warrant Shares intended to be offered by the
Holders than the fraction of similar reductions imposed on such other persons or
entities (other than the Company).
          (d) Notwithstanding anything to the contrary set forth in this
Section 2, in the event the Commission does not permit the Company to register
all of the Mandatorily Registrable Securities in a Registration Statement
because of the Commission’s application of Rule 415, the Company shall register
in such Registration Statement the number of Mandatorily Registrable Securities
as is permitted by the Commission, provided, however, that the number of
Mandatorily Registrable Securities to be included in such Registration Statement
or any subsequent registration statement shall be determined in the following
order: (i) first, the Shell Shares; (ii) second, the shares of Common Stock
issuable upon conversion of the Preferred Stock shall be registered on a pro
rata basis among the holders of the Preferred Stock, and (iii) third, the
Specified Shares shall be registered on a pro rata basis among the holders of
the Specified Shares. In addition, in the event the Commission does not permit
the Company to register all of the Warrant Shares in a Demand Registration
Statement because of the Commission’s application of Rule 415, the Company shall
register in such Demand Registration Statement the number of Warrant Shares as
is permitted by the Commission, provided, however, that the number of Warrant
Shares to be included in such Demand Registration Statement or any subsequent
registration statement shall be determined in the following order: (i) first,
the shares of Common Stock issuable upon conversion of the Underlying Preferred
Stock shall be registered on a pro rata basis among the holders of the
Underlying Preferred Stock, and (ii) second, the shares of Common Stock issuable
upon exercise of the Warrants shall be registered on a pro rata basis among the
holders of the Warrants. In the event the Commission does not permit the Company
to register all of the Mandatorily Registrable Securities and/or Warrant Shares
(as the case may be) in a Registration Statement, the Company shall use its
reasonable commercial efforts to file subsequent Registration Statements to
register the Mandatorily Registrable Securities and/or Warrant Shares (as the
case may be) that were not registered in such Registration Statement as promptly
as possible and in a manner permitted by the Commission. For purposes of only
this Section 2(d), “Filing Date” means with respect to each subsequent
Registration Statement filed pursuant hereto, the later of (i) sixty
(60) Business Days following the sale of substantially all of the Registrable
Securities included in the initial Registration Statement or any subsequent
Registration Statement and (ii) six (6) months following the effective date of
the initial Registration Statement or any subsequent Registration Statement, as
applicable, or such earlier date as permitted by the Commission. For purposes of
only this Section 2(d), “Effectiveness Date” means with respect to each
subsequent Registration Statement filed pursuant hereto, the earlier of (A) the
one hundred twentieth (120th) Business Day following the filing date of such
Registration Statement (or in the event such Registration Statement receives a
“full review” by the Commission, the one hundred fortieth (140th) Business Day
following such filing date) or (B) the date which is within five (5) Business
Days after the date on which the Commission informs the Company (i) that the
Commission will not review such Registration Statement or (ii) that the Company
may request the acceleration of the effectiveness of such Registration
Statement; provided that, if the Effectiveness Date falls on a Saturday, Sunday
or any other day which shall be a legal holiday or a day on which the Commission
is authorized or required by law or other government actions to close, the
Effectiveness Date shall be the following Business Day.

vi

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

 

     3. Registration Procedures.
          In connection with the Company’s registration obligations hereunder,
the Company shall:
          (a) Prepare and file with the Commission, on or prior to the Filing
Date and/or Demand Filing Date, as applicable, a Registration Statement on Form
SB-2 (or if the Company is not then eligible to register for resale the
Registrable Securities on Form SB-2 such registration shall be on another
appropriate form in accordance herewith and the Securities Act and the rules
promulgated thereunder) in accordance with the plan of distribution as set forth
on Exhibit A hereto and in accordance with applicable law, and cause the
applicable Registration Statement to become effective and remain effective as
provided herein; provided, however, that not less than three (3) Business Days
prior to the filing of the applicable Registration Statement or any related
Prospectus or any amendment or supplement thereto, the Company shall furnish to
the Holders and Special Counsel, copies of all such documents proposed to be
filed, which documents will be subject to the review of such Holders and such
Special Counsel.
          (b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the applicable Registration Statement as
may be necessary to keep the applicable Registration Statement continuously
effective as to the applicable Registrable Securities for the Effectiveness
Period or the Demand Effectiveness Period, as applicable, and prepare and file
with the Commission such additional Registration Statements as necessary in
order to register for resale under the Securities Act all of the Registrable
Securities; (ii) cause the related Prospectus to be amended or supplemented by
any required Prospectus supplement, and as so supplemented or amended to be
filed pursuant to Rule 424 (or any similar provisions then in force);
(iii) respond as promptly as possible, but in no event later than ten
(10) Business Days, to any comments received from the Commission with respect to
the applicable Registration Statement or any amendment thereto and as promptly
as possible provide the Holders true and complete copies of all correspondence
from and to the Commission relating to the applicable Registration Statement;
and (iv) comply in all material respects with the provisions of the Securities
Act and the Exchange Act with respect to the disposition of all Registrable
Securities covered by the applicable Registration Statement during the
Effectiveness Period or the Demand Effectiveness Period, as applicable, in
accordance with the intended methods of disposition by the Holders thereof set
forth in the applicable Registration Statement as so amended or in such
Prospectus as so supplemented.
          (c) Notify the Holders of Registrable Securities and Special Counsel
as promptly as possible (and, in the case of (i)(A) below, not less than three
(3) Business Days prior to such filing, and in the case of (iii) below, on the
same day of receipt by the Company of such notice from the Commission) and
confirm such notice in writing no later than one (1) Business Day following the
day (i)(A) when a Prospectus or any Prospectus supplement or post-effective
amendment to the applicable Registration Statement is filed; (B) when the
Commission notifies the Company whether there will be a “review” of such
Registration Statement and whenever the Commission comments in writing on such
Registration Statement and (C) with respect to such Registration Statement or
any post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the applicable Registration Statement or
Prospectus or for additional information; (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the applicable
Registration Statement covering any or all of the Registrable Securities or the
initiation or threatening of any Proceedings for that purpose; (iv) if at any
time any of the representations and warranties of the Company contained in any
agreement contemplated hereby ceases to be true and correct in all material
respects; (v) of the receipt by the Company of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction, or the initiation or
threatening of any Proceeding for such purpose; and (vi) of the occurrence of
any event that makes any statement made in the applicable Registration Statement
or Prospectus or any document incorporated or deemed to be incorporated therein

vii

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

 

by reference untrue in any material respect or that requires any revisions to
such Registration Statement, Prospectus or other documents so that, in the case
of such Registration Statement or the Prospectus, as the case may be, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
          (d) Use its reasonable commercial efforts to avoid the issuance of,
or, if issued, obtain the withdrawal of, as promptly as possible, (i) any order
suspending the effectiveness of the applicable Registration Statement or
(ii) any suspension of the qualification (or exemption from qualification) of
any of the Registrable Securities for sale in any jurisdiction.
          (e) If requested by the Holders of a majority in interest of the
applicable Registrable Securities, (i) promptly incorporate in a Prospectus
supplement or post-effective amendment to the applicable Registration Statement
such information as the Company reasonably agrees should be included therein and
(ii) make all required filings of such Prospectus supplement or such
post-effective amendment as soon as practicable after the Company has received
notification of the matters to be incorporated in such Prospectus supplement or
post-effective amendment.
          (f) If requested by any Holder, furnish to such Holder, without
charge, at least one conformed copy of each Registration Statement and each
amendment thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference, and all exhibits
to the extent requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents with the
Commission.
          (g) Promptly deliver to each Holder and Special Counsel, without
charge, as many copies of the Prospectus or Prospectuses (including each form of
prospectus) and each amendment or supplement thereto as such Persons may
reasonably request; and subject to the provisions of Sections 3(m) and 3(n), the
Company hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Holders in connection with the
offering and sale of the Registrable Securities covered by such Prospectus and
any amendment or supplement thereto.
          (h) Prior to any public offering of Registrable Securities, use its
reasonable commercial efforts to register or qualify or cooperate with the
selling Holders and Special Counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions within the United States as any Holder requests in
writing, to keep each such registration or qualification (or exemption
therefrom) effective during the Effectiveness Period or the Demand Effectiveness
Period, as applicable, and to do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the Registrable
Securities covered by a Registration Statement; provided, however, that the
Company shall not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or to take any action that would
subject it to general service of process in any such jurisdiction where it is
not then so subject or subject the Company to any material tax in any such
jurisdiction where it is not then so subject.
          (i) Cooperate with the Holders to facilitate the timely preparation
and delivery of certificates representing Registrable Securities to be sold
pursuant to a Registration Statement, which certificates, to the extent
permitted by the Purchase Agreement and applicable federal and state securities
laws, shall be free of all restrictive legends, and to enable such Registrable
Securities to be in such denominations and registered in such names as any
Holder may request in connection with any sale of Registrable Securities.

viii

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

 

          (j) Upon the occurrence of any event contemplated by Section 3(c)(v),
as promptly as possible, prepare a supplement or amendment, including a
post-effective amendment, to the applicable Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither such Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
          (k) Use its reasonable commercial efforts to cause all Registrable
Securities relating to the applicable Registration Statement to be listed or
quoted on the OTC Bulletin Board or any other securities exchange, quotation
system or market, if any, on which similar securities issued by the Company are
then listed or quoted, as and when required pursuant to the Purchase Agreement.
          (l) Comply in all material respects with all applicable rules and
regulations of the Commission and make generally available to its security
holders earning statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 not later than 45 days after the end of any 12-month
period (or 90 days after the end of any 12-month period if such period is a
fiscal year) commencing on the first day of the first fiscal quarter of the
Company after the effective date of the Registration Statement, which statement
shall conform to the requirements of Rule 158. For the avoidance of doubt, the
filing and continued availability of the information on the EDGAR electronic
filing system shall satisfy the requirements of this subsection (l).
          (m) The Company may require each selling Holder to furnish to the
Company information regarding such Holder and the distribution of such
Registrable Securities as is required by law to be disclosed in the applicable
Registration Statement, Prospectus, or any amendment or supplement thereto, and
the Company may exclude from such registration the Registrable Securities of any
such Holder who fails to furnish such information within a reasonable time after
receiving such request without penalty.
          If a Registration Statement refers to any Holder by name or otherwise
as the holder of any securities of the Company, then such Holder shall have the
right to require (if such reference to such Holder by name or otherwise is not
required by the Securities Act or any similar federal statute then in force) the
deletion of the reference to such Holder in any amendment or supplement to the
Registration Statement filed or prepared subsequent to the time that such
reference is required.
          Each Holder covenants and agrees that it will not sell any Registrable
Securities under a Registration Statement until the Company has electronically
filed the Prospectus as then amended or supplemented as contemplated in
Section 3(g) and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated by
Section 3(c).
          Each Holder agrees by its acquisition of such Registrable Securities
that, upon receipt of a notice from the Company of the occurrence of any event
of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or 3(n),
such Holder will forthwith discontinue disposition of such Registrable
Securities under the applicable Registration Statement until such Holder’s
receipt of the copies of the supplemented Prospectus and/or amended Registration
Statement contemplated by Section 3(j), or until it is advised in writing (the
“Advice”) by the Company that the use of the applicable Prospectus may be
resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus or Registration Statement.

ix

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

 

          (n) If (i) there is material non-public information regarding the
Company which the Company’s Board of Directors (the “Board”) reasonably
determines not to be in the Company’s best interest to disclose and which the
Company is not otherwise required to disclose, (ii) there is a significant
business opportunity (including, but not limited to, the acquisition or
disposition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or other similar transaction) available to
the Company which the Board reasonably determines not to be in the Company’s
best interest to disclose, or (iii) the Company is required to file a
post-effective amendment to a Registration Statement to incorporate the
Company’s quarterly and annual reports and audited financial statements on Forms
10-QSB and 10-KSB, then the Company may postpone or suspend filing or
effectiveness of a registration statement for a period not to exceed thirty
(30) consecutive days; provided that the Company may not postpone or suspend
filing or effectiveness of a registration statement under this Section 3(n) for
more than sixty (60) days in the aggregate during any three hundred sixty
(360) day period; provided, however, that no such postponement or suspension
shall be permitted for consecutive thirty (30) day periods arising out of the
same set of facts, circumstances or transactions.
     4. Registration Expenses.
          All fees and expenses incident to the performance of or compliance
with this Agreement by the Company, except as and to the extent specified in
this Section 4, shall be borne by the Company whether or not any Registration
Statement is filed or becomes effective and whether or not any Registrable
Securities are sold pursuant to any Registration Statement. The fees and
expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without limitation,
fees and expenses (A) with respect to filings required to be made with the OTC
Bulletin Board and each other securities exchange or market on which Registrable
Securities are required hereunder to be listed, (B) with respect to filing fees
required to be paid to the Financial Industry Regulatory Authority (“FINRA),
(including, without limitation, pursuant to FINRA Rule 2710) and (C) in
compliance with state securities or Blue Sky laws (including, without
limitation, fees and disbursements of counsel for the Holders in connection with
Blue Sky qualifications of the Registrable Securities and determination of the
eligibility of the Registrable Securities for investment under the laws of such
jurisdictions as the Holders of a majority of Registrable Securities may
designate)), (ii) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities and of printing prospectuses if
the printing of prospectuses is requested by the holders of a majority of the
Registrable Securities included in the Registration Statement), (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel for the
Company and Special Counsel for the Holders, in the case of the Special Counsel,
up to a maximum amount of $5,000 for each Registration Statement filed pursuant
to this Agreement, (v) Securities Act liability insurance, if the Company
desires such insurance, and (vi) fees and expenses of all other Persons retained
by the Company in connection with the consummation of the transactions
contemplated by this Agreement, including, without limitation, the Company’s
independent public accountants (including the expenses of any comfort letters or
costs associated with the delivery by independent public accountants of a
comfort letter or comfort letters). In addition, the Company shall be
responsible for all of its internal expenses incurred in connection with the
consummation of the transactions contemplated by this Agreement (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, the
fees and expenses incurred in connection with the listing of the Registrable
Securities on any securities exchange as required hereunder. The Company shall
not be responsible for any discounts, commissions, transfer taxes or other
similar expenses incurred by the Holders in connection with the sale of the
Registrable Securities.

x

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

 

     5. Indemnification.
          (a) Indemnification by the Company. The Company shall, notwithstanding
any termination of this Agreement, indemnify and hold harmless each Holder, the
officers, directors, managers, partners, members, shareholders, agents, brokers,
investment advisors and employees of each of them, each Person who controls any
such Holder (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) and the officers, directors, managers, partners,
members, shareholders, agents and employees of each such controlling Person, to
the fullest extent permitted by applicable law, from and against any and all
losses, claims, damages, liabilities, costs (including, without limitation,
costs of preparation and attorneys’ fees) and expenses (collectively, “Losses”),
as incurred, arising out of or relating to (i) any violation by the Company of
the Securities Act, the Exchange Act, any state securities laws, or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any state
securities laws, or (ii) untrue or alleged untrue statement of a material fact
contained in any Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in the light of the circumstances under which they were
made) not misleading, except to the extent, but only to the extent, that such
untrue statements or omissions are based upon information regarding Holder or
such other Indemnified Party furnished to the Company by such Holder for use
therein, which information was relied on by the Company for use therein,
provided, however, that the foregoing indemnity and disbursements, agreement
with respect to any preliminary prospectus will not inure to the benefit of any
Person indemnified pursuant to this Section 5(a) from whom the person asserting
any such losses, claims, damages or liabilities purchased shares in the
offering, if a copy of the prospectus (as then amended or supplemented if the
Company will have furnished any amendments or supplements thereto) was not sent
or given by or on behalf of such Indemnified Person to such person, if required
by law so to have been delivered, at or prior to the written confirmation of the
sale of the shares to such person, and if the prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage or liability. The Company shall notify the Holders promptly of the
institution, threat or assertion of any Proceeding of which the Company is aware
in connection with the transactions contemplated by this Agreement.
          (b) Indemnification by Holders. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, its directors, managers,
partners, members, shareholders, officers, agents and employees, each Person who
controls the Company (within the meaning of Section 15 of the Securities Act and
Section 20 of the Exchange Act), and the directors, managers, partners, members,
shareholders, officers, agents and employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses, as
incurred, based solely upon any untrue or alleged untrue statement of a material
fact contained in any Registration Statement, any Prospectus, or any form of
prospectus, or in any amendment or supplement thereto or in any preliminary
prospectus, or based solely upon any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
(in the case of any Prospectus or form of prospectus or supplement thereto, in
the light of the circumstances under which they were made) not misleading, to
the extent, but only to the extent, that such untrue statement or omission is
contained in any information so furnished by such Holder to the Company
expressly for use therein and that such information was reasonably relied upon
by the Company for use therein and was reviewed and expressly approved in
writing by such Holder expressly for the use in the applicable Registration
Statement or such Prospectus or such form of Prospectus or any amendment or
supplement thereto. Notwithstanding anything to the contrary contained herein,
each Holder shall be liable under this Section 5(b) for only that amount as does
not exceed the net proceeds to such Holder as a result of the sale of
Registrable Securities pursuant to the applicable Registration Statement.

xi

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

 

          (c) Conduct of Indemnification Proceedings. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
“Indemnified Party”), such Indemnified Party promptly shall notify the Person
from whom indemnity is sought (the “Indemnifying Party”) in writing, and the
Indemnifying Party shall be entitled to assume the defense thereof, including
the employment of counsel reasonably satisfactory to the Indemnified Party and
the payment of all fees and expenses incurred in connection with defense
thereof; provided that the failure of any Indemnified Party to give such notice
shall not relieve the Indemnifying Party of its obligations or liabilities
pursuant to this Agreement, except (and only) to the extent that it shall be
finally determined by a court of competent jurisdiction (which determination is
not subject to appeal or further review) that such failure shall have
proximately and materially adversely prejudiced the Indemnifying Party.
          An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and any such party shall have
been advised by counsel that a conflict of interest is likely to exist if the
same counsel were to represent such Indemnified Party and the Indemnifying Party
(in which case, if such Indemnified Party notifies the Indemnifying Party in
writing that it elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the right to assume
the defense thereof and such counsel shall be at the expense of the Indemnifying
Party). The Indemnifying Party shall not be liable for any settlement of any
such Proceeding effected without its written consent, which consent shall not be
unreasonably withheld or delayed. No Indemnifying Party shall, without the prior
written consent of the Indemnified Party, effect any settlement of any pending
or threatened Proceeding in respect of which any Indemnified Party is a party
and indemnity has been sought hereunder, unless such settlement includes an
unconditional release of such Indemnified Party from all liability on claims
that are the subject matter of such Proceeding.
          All fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within ten
(10) Business Days of written notice thereof to the Indemnifying Party
(regardless of whether it is ultimately determined that an Indemnified Party is
not entitled to indemnification hereunder; provided that the Indemnified Party
shall reimburse all such fees and expenses to the extent it is finally
judicially determined that such Indemnified Party is not entitled to
indemnification hereunder).
          (d) Contribution. If a claim for indemnification under Section 5(a) or
5(b) is due but unavailable to an Indemnified Party because of a failure or
refusal of a governmental authority to enforce such indemnification in
accordance with its terms (by reason of public policy or otherwise), then each
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses, in such proportion as is appropriate to reflect the relative
benefits received by the Indemnifying Party on the one hand and the Indemnified
Party on the other from the offering of the Preferred Stock and Warrants. If,
but only if, the allocation provided by the foregoing sentence is not permitted
by applicable law, the allocation of contribution shall be made in such
proportion as is appropriate to reflect not only the relative benefits referred
to in the foregoing sentence but also the relative fault, as applicable, of the
Indemnifying Party and Indemnified Party in connection with the actions,
statements or omissions that resulted in such Losses as well as any other
relevant equitable considerations. The relative fault of such Indemnifying Party
and Indemnified Party shall be determined by reference to, among other things,
whether any action in question, including any

xii

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

 

untrue or alleged untrue statement of a material fact or omission or alleged
omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties’ relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 5(c), any reasonable attorneys’ or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms. In no event shall any selling Holder be
required to contribute an amount under this Section 5(d) in excess of the net
proceeds received by such Holder upon sale of such Holder’s Registrable
Securities pursuant to the Registration Statement giving rise to such
contribution obligation.
          The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
          The indemnity and contribution agreements contained in this Section
are in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties pursuant to the law.
     6. Rule 144.
          As long as any Holder owns Registrable Securities, the Company
covenants to timely file (or obtain extensions in respect thereof and file
within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to Section 13(a) or 15(d) of the Exchange
Act. As long as any Holder owns Registrable Securities, if the Company is not
required to file reports pursuant to Section 13(a) or 15(d) of the Exchange Act,
it will prepare and furnish to the Holders and make publicly available in
accordance with Rule 144(c) promulgated under the Securities Act annual and
quarterly financial statements, together with a discussion and analysis of such
financial statements in form and substance substantially similar to those that
would otherwise be required to be included in reports required by Section 13(a)
or 15(d) of the Exchange Act, as well as any other information required thereby,
in the time period that such filings would have been required to have been made
under the Exchange Act. The Company further covenants that it will take such
further action as any Holder may reasonably request, all to the extent required
from time to time to enable such Person to sell Conversion Shares and Warrant
Shares without registration under the Securities Act within the limitation of
the exemptions provided by Rule 144 promulgated under the Securities Act,
including providing any legal opinions relating to such sale pursuant to
Rule 144. Upon the request of any Holder, the Company shall delivery to such
Holder a written certification of a duly authorized officer as to whether it has
complied with such requirements.
     7. Miscellaneous.
          (a) Remedies. In the event of a breach by the Company or by a Holder,
of any of their obligations under this Agreement, such Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law and under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.

xiii

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

 

          (b) No Inconsistent Agreements. Neither the Company nor any of its
subsidiaries has, as of the date hereof entered into and currently in effect,
nor shall the Company or any of its subsidiaries, on or after the date of this
Agreement, enter into any agreement with respect to its securities that is
inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. Except as disclosed in the
Purchase Agreement, neither the Company nor any of its subsidiaries has
previously entered into any agreement currently in effect granting any
registration rights with respect to any of its securities to any Person. Without
limiting the generality of the foregoing, without the written consent of the
Holders of a majority of the then outstanding Registrable Securities, the
Company shall not grant to any Person the right to request the Company to
register any securities of the Company under the Securities Act unless the
rights so granted are subject in all respects to the prior rights in full of the
Holders set forth herein, and are not otherwise in conflict with the provisions
of this Agreement.
          (c) Failure to File Registration Statement and Other Events. The
Company and the Holders agree that the Holders will suffer damages if a
Registration Statement is not filed on or prior to the Filing Date and/or the
Demand Filing Date, as applicable, and not declared effective by the Commission
on or prior to the Effectiveness Date and/or the Demand Effectiveness Date, as
applicable and maintained in the manner contemplated herein during the
Effectiveness Period and/or the Demand Effectiveness Period, as applicable, or
if certain other events occur. The Company and the Holders further agree that it
would not be feasible to ascertain the extent of such damages with precision.
Accordingly, if (A) the applicable Registration Statement is not filed on or
prior to the Filing Date and/or the Demand Filing Date, as applicable, or
(B) the applicable Registration Statement is not declared effective by the
Commission on or prior to the Effectiveness Date and/or the Demand Effectiveness
Date, as applicable, or (C) the Company fails to respond in writing to any and
all comments from the Commission within ten (10) Business Days of receipt of
such comments or (D) the Company fails to file with the Commission a request for
acceleration in accordance with Rule 461 promulgated under the Securities Act
within five (5) Business Days of the date that the Company is notified (orally
or in writing, whichever is earlier) by the Commission that a Registration
Statement will not be “reviewed,” or is not subject to further review, or
(E) the applicable Registration Statement is filed with and declared effective
by the Commission but thereafter ceases to be effective as to all applicable
Registrable Securities, as the case may be, at any time prior to the expiration
of the Effectiveness Period and/or the Demand Effectiveness Period, as the case
may be, without being succeeded immediately by a subsequent Registration
Statement filed with and declared effective by the Commission in accordance with
Section 2 hereof, or (F) the Company has breached Section 3(n), or (G) trading
in the Common Stock shall be suspended or if the Common Stock is no longer
quoted on or is delisted from the OTC Bulletin Board (or other principal
exchange on which the Common Stock is traded) for any reason for more than ten
(10) Business Days in the aggregate (any such failure or breach being referred
to as an “Event,” and for purposes of clauses (A) and (B) the date on which such
Event occurs, or for purposes of clause (C) the date on which such ten
(10) Business Day period is exceeded, or for purposes of clause (D) the date on
which such five (5) Business Day period is exceeded, or for purposes of clause
(E) after more than fifteen (15) Business Days, or for purposes of clause (G)
the date on which such ten (10) Business Day period is exceeded, being referred
to as “Event Date”), the Company shall pay an amount in cash or registered
Common Stock (at the Company’s sole discretion) to each Holder, as partial
liquidated damages and not as a penalty, equal to one and a half percent (1.5%)
of the amount of the Holder’s initial investment in the Preferred Stock and
Warrants for each calendar month or portion thereof thereafter from the Event
Date until the applicable Event is cured; provided, however, that (x) if there
is a delay in a Registration Statement being declared effective due to comments
concerning the Merger or the status of the Company prior to consummation of the
Merger, the penalties pursuant to this Section shall be waived until such
comments have been satisfied, (y) should any Registrable Securities be freely
tradable pursuant to Rule 144, the Company shall have no obligation to pay
penalties pursuant to this Section, and (z) in no event shall the amount of
liquidated damages payable at any time and from time to time to any Holder
pursuant to this Section 7(c) exceed an aggregate of

xiv

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

 

twelve percent (12%) of the amount of the Holder’s initial investment in the
Preferred Stock and Warrants. Notwithstanding anything to the contrary in this
paragraph (e), if (i) any of the Events described in clauses (A), (B), (C), (D),
(E) or (G) shall have occurred, (ii) on or prior to the applicable Event Date,
the Company shall have exercised its rights under Section 3(n) hereof and
(iii) the postponement or suspension permitted pursuant to such Section 3(n)
shall remain effective as of such applicable Event Date, then the applicable
Event Date shall be deemed instead to occur on the third Business Day following
the termination of such postponement or suspension. Liquidated damages payable
by the Company pursuant to this Section 7(c) shall be payable on the first (1st)
Business Day of each thirty (30) day period following the Event Date. In the
event that the Company exercises its right to pay the amounts due under this
Section 7(c) in registered Common Stock, such shares shall be valued in a manner
consistent with valuation of such shares in the Purchase Agreement.
Notwithstanding the foregoing provisions of this Section 7(c), the Company may
not exercise its right to pay the amounts due under this Section 7(c) in
registered Common Stock, unless such shares meet all the requirements under this
Agreement for transferability set forth in this Agreement applicable to shares
of Common Stock registered in accordance with this Agreement.
          (d) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of a majority of the Registrable Securities outstanding. No
consideration shall be offered or paid to any Holders of Preferred Stock or
Holders of the Warrants to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration also
is offered to all of the parties to the Transaction Documents, Holders of
Preferred Stock or Holders of the Warrants, as the case may be. The Company has
not, directly or indirectly, made any agreements with any Purchasers relating to
the terms or conditions of the transactions contemplated by the Transaction
Documents except as set forth in the Transaction Documents. No failure or delay
on the part of the Holder in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege, nor shall any waiver
by the Holder of any such right or rights on any one occasion be deemed a waiver
of the same right or rights on any future occasion.
          (e) Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery or by facsimile at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:

     
If to the Company:
  NovaRay Medical, Inc
1850 Embarcadero Road
 
  Palo Alto, CA 94303
 
  Attention: Chief Executive Officer
 
  Tel. No.: (408) 966-5738
 
  Fax No.: (650) 565-8601

xv

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

 

     
with copies to:
  Morrison & Foerster LLP
 
  755 Page Mill Road
 
  Palo Alto, California 94304-1018
 
  Attn: Michael C. Phillips
 
  Facsimile: (650) 494-0792
 
   
If to any Purchaser:
  At the address of such Purchaser set forth on
 
  Schedule I to this Agreement, with copies to
 
  Purchaser’s counsel (which copies shall not
 
  constitute notice to such purchaser) as set forth
 
  on Schedule I or as specified in writing by such
 
  Purchaser.
 
   
with copies to
  Sadis & Goldberg LLP
Special Counsel:
  551 Fifth Avenue, 21st Floor
 
  New York, New York 10176
 
  Attention: Paul Fasciano, Esq.
 
  Facsimile: (212) 573-8026

          Any party hereto may from time to time change its address for notices
by giving at least ten (10) days written notice of such changed address to the
other parties hereto.
          (f) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns
and shall inure to the benefit of each Holder and its successors and assigns.
The Company may not assign this Agreement or any of its rights or obligations
hereunder without the prior written consent of each Holder.
          (g) Assignment of Registration Rights. The rights of each Holder
hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall be
automatically assignable by each Holder to any Person who acquires all or a
portion of the Registrable Securities to any Person if: (i) the Holder 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, (ii) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (A) the name and address of such
transferee or assignee, and (B) the securities with respect to which such
registration rights are being transferred or assigned, (iii) following such
transfer or assignment the further disposition of such securities by the
transferee or assignees is restricted under the Securities Act and applicable
state securities laws unless such securities are registered in a Registration
Statement under this Agreement (in which case the Company shall be obligated to
amend such Registration Statement to reflect such transfer or assignment) or are
otherwise exempt from registration, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this Section, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions of this Agreement, and (v) such transfer shall have been made in
accordance with the applicable requirements of the Purchase Agreement. In
addition, each Holder shall have the right to assign its rights hereunder to any
other person with the prior written consent of the Company, which consent shall
not unreasonably be withheld. The rights to assignment shall apply to the
Holders (and to subsequent) successors and assigns.
          (h) Termination of Registration Rights. No Holder shall be entitled to
exercise any right provided for in this Agreement following the earlier of:
(i) the fifth (5th) anniversary of the date of this Agreement, or (ii) as to any
Holder, such earlier time at which all Registrable Securities held by such

xvi

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

 

Holder (and any affiliate of the Holder with whom such Holder must aggregate its
sales under Rule 144) can be sold in any ninety (90) day period without
registration in compliance with Rule 144 of the Act.
          (i) Underwriter Status. The Company may not deem any Holder to be an
“underwriter” within the meaning of the Securities Act within any Registration
Statement without the prior written consent of such Holder.
          (j) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other parties hereto, it being understood that all parties need
not sign the same counterpart. In the event that any signature is delivered by
facsimile or electronic mail transmission, such signature shall create a valid
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile or
electronic mail signature were the original thereof.
          (k) Governing Law; Jurisdiction. The parties acknowledge and agree
that any claim, controversy, dispute or action relating in any way to this
agreement or the subject matter of this agreement shall be governed solely by
the laws of the State of New York, without regard to any conflict of laws
doctrines. The parties irrevocably consent to being served with legal process
issued from the state and federal courts located in New York and irrevocably
consent to the exclusive personal jurisdiction of the federal and state courts
situated in the State of New York. The parties irrevocably waive any objections
to the personal jurisdiction of these courts. Said courts shall have sole and
exclusive jurisdiction over any and all claims, controversies, disputes and
actions which in any way relate to this agreement or the subject matter of this
agreement. The parties also irrevocably waive any objections that these courts
constitute an oppressive, unfair, or inconvenient forum and agree not to seek to
change venue on these grounds or any other grounds. The parties hereby agree
that the prevailing party in any suit, action or proceeding arising out of or
relating to this Agreement or the Purchase Agreement, shall be entitled to
reimbursement for reasonable legal fees from the non-prevailing party. The
parties hereby waive all rights to a trial by jury. Nothing in this Section 7(k)
shall affect or limit any right to serve process in any other manner permitted
by law.
          (l) Cumulative Remedies. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.
          (m) Additional Purchasers. Upon the sale of Additional Securities to
Additional Purchasers in accordance with the Purchase Agreement, the Company,
without prior action on the part of any Holder, shall require each Additional
Purchaser to execute and deliver this Agreement. Each such Additional Purchaser,
upon execution and delivery of this Agreement by the Company and such Additional
Purchaser, shall be added to Schedule I attached hereto and deemed a Purchaser
hereunder.
          (n) Severability. The provisions of this Agreement are severable and,
in the event that any court of competent jurisdiction shall determine that any
one or more of the provisions or part of the provisions contained in this
Agreement shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision or part of a provision of this Agreement and such provision
shall be reformed and construed as if such invalid or illegal or unenforceable
provision, or part of such provision, had never been contained herein, so that
such provisions would be valid, legal and enforceable to the maximum extent
possible.

xvii

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

 

          (o) Headings. The article, section and subsection headings in this
Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
[remainder of page intentionally left blank]

xviii

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

 

     IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed by their respective authorized persons as of the
date first indicated above.

            NOVARAY MEDICAL, INC.
      By:   /s/ Jack Price       Name:   Jack Price        Title:   Chief
Executive Officer   

xix

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

 

         

     IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed by their respective authorized persons as of the
date first indicated above.

            VISION OPPORTUNITY MASTER FUND, LTD.
      By:   /s/ Adam Benowitz       Name:   Adam Benowitz       Title:  
Director  

 

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

 

         

     IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed by their respective authorized persons as of the
date first indicated above.

            LYNDA WIJCIK
      By:   /s/ Lynda Wijcik       Name:   Lynda Wijcik       Title:      

 

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

 

         

     IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed by their respective authorized persons as of the
date first indicated above.

            COMMERCE AND INDUSTRY INSURANCE COMPANY

By: AIG Global Investment Corp.,
its investment advisor
      By:   /s/ F.T. Chong       Name:   F.T. Chong       Title:   Managing
Director  

 

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

 

     IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed by their respective authorized persons as of the
date first indicated above.

            AIU INSURANCE COMPANY

By: AIG Global Investment Corp.,
its investment advisor
      By:   /s/ F.T. Chong       Name:   F.T. Chong       Title:   Managing
Director  

 

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

 

         

     IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed by their respective authorized persons as of the
date first indicated above.

            AIG PRIVATE EQUITY PORTFOLIO, L.P.

By: AIG PEP GP, L.P., its General Partner

By: AIG PEP, LLC, its General Partner

By: AIG Global Investment Corp., its Sole Member
      By:   /s/ F.T. Chong       Name:   F.T. Chong       Title:   Managing
Director  

 

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

 

         

     IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed by their respective authorized persons as of the
date first indicated above.

            AIG HORIZON PARTNERS FUND, L.P.

By: AIG Horizon Partners GP, L.P., its General Partner

By: AIG Horizon Partners LLC, its General Partner

By: AIG Global Investment Corp., its Managing Member
      By:   /s/ F.T. Chong       Name:   F.T. Chong       Title:   Managing
Director  

 

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

 

         

     IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed by their respective authorized persons as of the
date first indicated above.

            AIG HORIZON SIDE-BY-SIDE FUND, L.P.

By: AIG Horizon SBS GP, L.P.,
its General Partner

By: AIG Horizon Partners, LLC,
its General Partner

By: AIG Global Investment Corp.,
its Managing Member
      By:   /s/ F.T. Chong       Name:   F.T. Chong       Title:   Managing
Director     

 

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

 

     IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed by their respective authorized persons as of the
date first indicated above.

            WHEATLEY MEDTECH PARTNERS, L.P.
      By:   /s/ Barry Rubenstein       Name:   Barry Rubenstein       Title:  
CEO, Wheatley Medtech Partners, LLC
General Partner  

 

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

 

         

     IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed by their respective authorized persons as of the
date first indicated above.

            LLOYD INVESTMENTS, L.P.
      By:   /s/ L.J. Lloyd       Name:   L.J. Lloyd       Title:   G.P.  

 

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

 

         

     IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed by their respective authorized persons as of the
date first indicated above.

            HEARTSTREAM CAPITAL B.V.
      By:   /s/ George Hersbach       Name:   George Hersbach       Title:  
President & CEO  

 

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

 

         

     IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed by their respective authorized persons as of the
date first indicated above.

            BIOBRIDGE LLC
      By:   /s/ Lynda Wijcik       Name:   Lynda Wijcik       Title:   Mng.
Partner    

 

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

 

     IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed by their respective authorized persons as of the
date first indicated above.

            ARIE JACOB MANINTVELD
      By:   /s/ Arie Jacob Manintveld       Name:   Arie Jacob Manintveld      
Title:        

 

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

 

Schedule I

              Names and Addresses of the           Preferred Stock & Purchasers
  Investment Amount   Warrants Purchased
Vision Opportunity Master Fund, Ltd.
c/o Vision Capital Advisors, LLC
20 West 55th Street
New York, NY 10019
Attn: Antti Uusiheimala

  $ 10,000,001.73     Preferred Shares: 3,745,319
Series A Warrants: 1,248,439
Series J Warrants: 2,309,469
Series J-A Warrants: 769,823

 
           
Lynda Wijcik
15941 Overlook Way
Los Gatos, CA 95070

  $ 325,577.13     Preferred Shares: 121,939
Series A Warrants: 40,646

 
           
Commerce and Industry Insurance Company
c/o Mellon Securities Trust Company
Attn: Mike Visone
Ref: AGIFCII11102/Commerce &
Industry Insurance Company
120 Broadway, 13th Floor
New York, NY 10271
  $ 582,658.08     Preferred Shares: 218,224
Series A Warrants: 72,741

 
           
AIU Insurance Company
c/o Mellon Securities Trust Company
Attn: Mike Visone
Ref: AGIFAIU10902/AIU Insurance
Company 120 Broadway, 13th Floor
New York, NY 10271

  $ 308,232.81     Preferred Shares: 115,443
Series A Warrants: 38,481

 
           
AIG Private Equity Portfolio, L.P.
Attn: Matt Joyce
Mellon Bank One Mellon Bank Center
Rm 151-0510
Pittsburgh, PA 15258

  $ 102,439.89     Preferred Shares: 38,367
Series A Warrants: 12,789

 
           
AIG Horizon Partners Fund L.P.
Attn: Matt Joyce
Mellon Bank One Mellon Bank Center
Rm 151-0510
Pittsburgh, PA 15258
  $ 58,537.08     Preferred Shares: 21,924
Series A Warrants: 7,308

 

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

 

              Names and Addresses of the           Preferred Stock & Purchasers
  Investment Amount   Warrants Purchased
AIG Horizon Side-by-Side Fund L.P.
Attn: Matt Joyce
Mellon Bank One Mellon Bank Center
Rm 151-0510
Pittsburgh, PA 15258
  $    130,792.62     Preferred Shares: 48,986
Series A Warrants: 16,328

 
           
Wheatley MedTech Partners, L.P.
Attn: David R. Dantzker, M.D.
825 Third Ave. 32nd Floor
  $ 367,670.21     Preferred Shares: 142,632
Series A Warrants: 47,544

 
           
Lloyd Investments, L.P.
Attn: Jack Lloyd
7 Haciendas Road
Orinda, CA 94563-1714
  $ 65,329.56     Preferred Shares: 24,468
Series A Warrants: 8,156

 
           
Heartstream Capital B.V.
Attn: George J.M. Hersbach
President & CEO
Gooise Poort
Gooimeer 3 - 25
1411 DC Naarden
Netherlands
  $ 580,769.86     Preferred Shares: 271,896
Series A Warrants: 90,632

 
           
BioBridge LLC
Attn: Lynda Wijcik
15941 Overlook Dr.
Los Gatos, CA 95070
  $ 211,745.95     Preferred Shares: 99,132
Series A Warrants: 33,044

 
           
Arie Jacob Manintveld
c/o Heartstream Capital BV
Gooise Poort
Gooimeer 3 - 25
1411 DC Naarden
Netherlands
  $ 210,519.89     Preferred Shares: 98,558
Series A Warrants: 32,852

 

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

 

EXHIBIT A
Plan of Distribution
     The selling security holders and any of their pledgees, donees, assignees
and successors-in-interest may, from time to time, sell any or all of their
shares of common stock being offered under this prospectus on any stock
exchange, market or trading facility on which shares of our common stock are
traded or in private transactions. These sales may be at fixed or negotiated
prices. The selling security holders may use any one or more of the following
methods when disposing of shares:

  •   ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;     •   block trades in which the
broker-dealer will attempt to sell the shares as agent but may position and
resell a portion of the block as principal to facilitate the transaction;     •
  purchases by a broker-dealer as principal and resales by the broker-dealer for
its account;     •   an exchange distribution in accordance with the rules of
the applicable exchange;     •   privately negotiated transactions;     •   to
cover short sales made after the date that the registration statement of which
this prospectus is a part is declared effective by the Commission;     •  
broker-dealers may agree with the selling security holders to sell a specified
number of such shares at a stipulated price per share;     •   a combination of
any of these methods of sale; and     •   any other method permitted pursuant to
applicable law.

     The shares may also be sold under Rule 144 under the Securities Act of
1933, as amended (“Securities Act”), if available, rather than under this
prospectus. The selling security holders have the sole and absolute discretion
not to accept any purchase offer or make any sale of shares if they deem the
purchase price to be unsatisfactory at any particular time.
     The selling security holders may pledge their shares to their brokers under
the margin provisions of customer agreements. If a selling security holder
defaults on a margin loan, the broker may, from time to time, offer and sell the
pledged shares.
     Broker-dealers engaged by the selling security holders may arrange for
other broker-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling security holders (or, if any
broker-dealer acts as agent for the purchaser of shares, from the purchaser) in
amounts to be negotiated, which commissions as to a particular broker or dealer
may be in excess of customary commissions to the extent permitted by applicable
law.
     If sales of shares offered under this prospectus are made to broker-dealers
as principals, we would be required to file a post-effective amendment to the
registration statement of which this prospectus is a part. In the post-effective
amendment, we would be required to disclose the names of any participating
broker-dealers and the compensation arrangements relating to such sales.

 

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

 

     The selling security holders and any broker-dealers or agents that are
involved in selling the shares offered under this prospectus may be deemed to be
“underwriters” within the meaning of the Securities Act in connection with these
sales. Commissions received by these broker-dealers or agents and any profit on
the resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Any broker-dealers or agents
that are deemed to be underwriters may not sell shares offered under this
prospectus unless and until we set forth the names of the underwriters and the
material details of their underwriting arrangements in a supplement to this
prospectus or, if required, in a replacement prospectus included in a
post-effective amendment to the registration statement of which this prospectus
is a part.
     The selling security holders and any other persons participating in the
sale or distribution of the shares offered under this prospectus will be subject
to applicable provisions of the Exchange Act, and the rules and regulations
under that act, including Regulation M. These provisions may restrict activities
of, and limit the timing of purchases and sales of any of the shares by, the
selling security holders or any other person. Furthermore, under Regulation M,
persons engaged in a distribution of securities are prohibited from
simultaneously engaging in market making and other activities with respect to
those securities for a specified period of time prior to the commencement of
such distributions, subject to specified exceptions or exemptions. All of these
limitations may affect the marketability of the shares.
     If any of the shares of common stock offered for sale pursuant to this
prospectus are transferred other than pursuant to a sale under this prospectus,
then subsequent holders could not use this prospectus until a post-effective
amendment or prospectus supplement is filed, naming such holders. We offer no
assurance as to whether any of the selling security holders will sell all or any
portion of the shares offered under this prospectus.
     We have agreed to pay all fees and expenses we incur incident to the
registration of the shares being offered under this prospectus. However, each
selling security holder and purchaser is responsible for paying any discounts,
commissions and similar selling expenses they incur.
     We and the selling security holders have agreed to indemnify one another
against certain losses, damages and liabilities arising in connection with this
prospectus, including liabilities under the Securities Act.