EX-10.1 REGISTRATION RIGHTS AGREEMENT






Exhibit 10.1




REGISTRATION RIGHTS AGREEMENT




     REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of June 4, 2008, by and between
Merge Healthcare Incorporated, a Wisconsin corporation (the “Company”), and Merrick RIS, LLC, a
Delaware limited liability company (the “Buyer”).



     WHEREAS:



     A. In connection with that certain Securities Purchase Agreement dated as of even date
herewith, by and between the Company, certain of its subsidiaries and the Buyer (the “Securities
Purchase Agreement”), the Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to issue and sell on the date hereof to the Buyer certain shares of
the Company’s Common Stock (the “Common Stock”), par value $0.01 per share.



     B. To induce the Buyer to execute and deliver the Securities Purchase Agreement, the Company
has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and
the rules and regulations thereunder, or any similar successor statute (collectively, the “1933
Act”), and applicable state securities laws.



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



     1. DEFINITIONS.



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



          (a) “Effective Date” means the date that the Registration Statement is first declared
effective by the SEC.




          (b) “Effectiveness Deadline” means the date that is ninety (90) days from the Filing Deadline.




          (c) “Filing Deadline” means the date that is thirty (30) days from the Demand Date (as defined
in Section 2(a)).




          (d) “Investor” means the Buyer, any permitted transferee of the shares of Common Stock to whom
the Buyer assigns its rights under this Agreement in accordance with the provisions of this
Agreement (including but not limited to Section 9) and who agrees to become bound by the provisions
of this Agreement in accordance with Section 9, and any transferee or assignee thereof to whom a
transferee or assignee of the shares of Common Stock, as applicable, assigns its rights under this
Agreement in accordance with the provisions of this Agreement (including but not limited to Section
9) and who agrees to become bound by the provisions of this Agreement in accordance with Section 9.




 









 








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




          (f) “Registrable Securities” means (i) 100% of the shares of Common Stock issued under the
Securities Purchase Agreement and (ii) any shares of capital stock issued or issuable with respect
to such shares as a result of any stock split, stock dividend, recapitalization, exchange,
adjustment or similar event or otherwise, until, in the case of any such security, the earliest of:




          (i) the date on which such security has been effectively registered under the 1933 Act and
disposed of in accordance with the Registration Statement relating thereto;




          (ii) the date on which such security may be resold without restriction pursuant to Rule 144 or
any successor provision thereto; or




          (iii) the date on which such security has been publicly sold pursuant to Rule 144 or any
successor provision thereto.




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




          (h) “Required Holders” means the holders of at least a majority of the Registrable Securities.




          (i) “Rule 415” means Rule 415 under the 1933 Act or any successor rule providing for offering
securities on a continuous or delayed basis.




          (j) “SEC” means the United States Securities and Exchange Commission.




     Capitalized terms used herein and not otherwise defined herein shall have the respective
meanings set forth in the Securities Purchase Agreement.



     2. REGISTRATION.



          (a) Mandatory Registration. Subject to Section 2(h), upon the written request by the
Required Holders to the Company (the date of such request, the “Demand Date”), the Company shall
prepare and, as soon as practicable but in no event later than the Filing Deadline, file with the
SEC the Registration Statement on Form S-3 covering the resale of all of the Registrable Securities
(the date of such filing, the “Filing Date”). In the event that Form S-3 is unavailable to the
Company for such a registration, the Company shall use such other form as is available to the
Company for such a registration on Form S-1 or another appropriate form reasonably acceptable to
the Required Holders, subject to the provisions of Section 2(d). The



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Registration Statement prepared pursuant hereto shall register for resale that number of
shares of Common Stock equal to the number of Registrable Securities as of the trading day
immediately preceding the date the Registration Statement is initially filed with the SEC, subject
to adjustment as provided in Section 2(e) and Section 2(h), and shall contain the “Selling
Stockholders” section and “Plan of Distribution” in substantially the form attached hereto as
Annex I (except if otherwise required pursuant to written comments received from the SEC
upon a review of the Registration Statement). The Company shall use its reasonable best efforts to
have the Registration Statement declared effective by the SEC as soon as practicable, but in no
event later than the Effectiveness Deadline. By 9:30 am (New York time) on the second Business Day
following the Effective Date, the Company shall file with the SEC in accordance with Rule 424 under
the 1933 Act the final prospectus to be used in connection with sales pursuant to such Registration
Statement.




          (b) Allocation of Registrable Securities. The initial number of Registrable
Securities included in any Registration Statement and each increase in the number of Registrable
Securities included therein shall be allocated pro rata among the Investors based on the number of
Registrable Securities held by each Investor at the time the Registration Statement covering such
initial number of Registrable Securities or increase thereof is declared effective by the SEC. In
the event that an Investor sells or otherwise transfers any of such Investor’s Registrable
Securities, each transferee that becomes an Investor shall be allocated a pro rata portion of the
then remaining number of Registrable Securities included in the Registration Statement for such
transferor. Any shares of Common Stock included in the Registration Statement and which remain
allocated to any Person which ceases to hold any Registrable Securities covered by such
Registration Statement shall be allocated to the remaining Investors, pro rata based on the number
of Registrable Securities then held by such Investors which are covered by such Registration
Statement. In no event shall the Company include any securities other than Registrable Securities
on any Registration Statement filed pursuant to Section 2(a) hereof without the prior written
consent of the Required Holders.




          (c) Legal Counsel. Subject to Section 5 hereof, the Investors holding at least a
majority of the Registrable Securities shall have the right to select one legal counsel to review
and oversee any registration pursuant to this Section 2 (“Legal Counsel”), which shall be McDermott
Will & Emery LLP or such other counsel as thereafter designated by the holders of at least a
majority of the Registrable Securities. The Company and Legal Counsel shall reasonably cooperate
with each other in performing the Company’s and the Investors’ obligations under this Agreement.




          (d) Ineligibility for Form S-3. In the event that Form S-3 is not available for the
registration of the resale of Registrable Securities hereunder, the Company shall (i) register the
resale of the Registrable Securities on Form S-1 or another appropriate form reasonably acceptable
to the Required Holders and (ii) undertake to register the Registrable Securities on Form S-3 as
soon as such form is available, provided that the Company shall maintain the effectiveness of the
Registration Statement then in effect until such time as a Registration Statement on Form S-3
covering the Registrable Securities has been declared effective by the SEC.




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          (e) Sufficient Number of Shares Registered. In the event the number of shares
available under a Registration Statement filed pursuant to Section 2(a) is insufficient to cover
all of the Registrable Securities required to be covered by such Registration Statement or an
Investor’s allocated portion of the Registrable Securities pursuant to Section 2(b), the Company
shall amend the applicable Registration Statement, or file a new Registration Statement (on the
short form available therefor, if applicable), or both, so as to cover at least 100% of the number
of such Registrable Securities as of the trading day immediately preceding the date of the filing
of such amendment or new or additional Registration Statement, in each case, as soon as
practicable, but in any event not later than twenty (20) days after the Company becomes aware of
the necessity therefor. The Company shall use its reasonable best efforts to cause such amendment
and/or new or additional Registration Statement to become effective as soon as practicable
following the filing thereof. For purposes of the foregoing provision, the number of shares
available under a Registration Statement shall be deemed “insufficient to cover all of the
Registrable Securities” if at any time the number of shares of Common Stock available for resale
under the Registration Statement is less than the number of Registrable Securities.
Notwithstanding the foregoing, in the event the Registration Statement is insufficient to cover all
of the Registrable Securities because the SEC has determined that a registration of the offer and
sale of all of the Registrable Securities may not be made pursuant to Rule 415(a)(1)(i), then the
provisions of Section 2(h) shall apply.




          (f) Effect of Failure to File and Obtain and Maintain Effectiveness of Registration
Statement. If at any time while there are Registrable Securities outstanding, subject to
Section 2(h), (i) a Registration Statement covering all the Registrable Securities required to be
covered thereby and required to be filed by the Company pursuant to this Agreement is (A) not filed
with the SEC on or before the Filing Deadline (a “Filing Failure”), or (B) filed with the SEC but
not declared effective by the SEC on or before the Effectiveness Deadline (an “Effectiveness
Failure”) or (ii) on any day after the Effective Date sales of all of the Registrable Securities
required to be included on such Registration Statement cannot be made (other than during an
Allowable Grace Period (as defined in Section 3(q)) pursuant to such Registration Statement
(including, without limitation, because of a failure to keep such Registration Statement effective,
to disclose such information as is necessary for sales to be made pursuant to such Registration
Statement, a suspension or delisting of the Common Stock on its principal trading market or
exchange, or to register a sufficient number of shares of Common Stock) (a “Maintenance Failure”),
then, as relief for the damages to any holder of Registrable Securities by reason of any such delay
in or reduction of its ability to sell the underlying shares of Common Stock (which remedy shall
not be exclusive of any other remedies available at law or in equity), the Company shall become
liable for payment to each holder of Registrable Securities relating to such Registration Statement
an amount in cash equal to one half of one percent (.5%) of the aggregate outstanding principal
amount of such Investor’s Term Notes (as such term is defined in the Securities Purchase Agreement)
on each of the following dates: (i) the day thirty (30) days after a Filing Failure and on every
thirtieth day (pro rated for periods totaling less than thirty (30) days) thereafter until such
Filing Failure is cured; (ii) the day of an Effectiveness Failure and on every thirtieth day (pro
rated for periods totaling less than thirty (30) days) thereafter until such Effectiveness Failure
is cured; and (iii) the initial day of a Maintenance Failure and on every thirtieth day (pro rated
for periods totaling less than thirty (30) days) thereafter until such



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Maintenance Failure is cured; provided, however, that the Additional Interest Amount shall be
increased to one and one-half percent (1.5%) in the event such Filing Failure, Effectiveness
Failure or Maintenance Failure has not been cured on or before the 90th day following
the date any Additional Interest Amount first became due.




          The payments to which a holder shall be entitled pursuant to this Section 2(f) are referred to
herein as “Registration Delay Payments.” Registration Delay Payments shall be paid on the earlier
of (I) the last day of the calendar month during which such Registration Delay Payments are
incurred and (II) the third Business Day after the event or failure giving rise to the Registration
Delay Payments is cured. Notwithstanding the foregoing, the amount of any Registration Delay
Payment actually payable shall be an amount yielded by multiplying the Registration Delay Payment
by a fraction, (x) the numerator of which shall be the number of Registrable Securities
beneficially owned by the Investors on the date such Registration Delay Payment becomes due and
payable and required by Section 2(a) hereof to be registered by the Company, and (y) the
denominator of which shall be the number of Registrable Securities beneficially owned by the
Investors on the date hereof. In the event the Company fails to make Registration Delay Payments
in a timely manner, such Registration Delay Payments shall bear interest at the rate of one and
one-half percent (1.5%) per month (prorated for partial months) until paid in full.The parties
hereto agree that the additional interest provided in this Section 2(f) constitutes a reasonable
estimate of the damages that may be incurred by Investors by reason of a Filing Failure,
Effectiveness Failure or Maintenance Failure.




          (g) Piggyback Registrations. (i) Each time that the Company proposes for any reason
to register any of its Common Stock under the 1933 Act (a “Proposed Registration”), other than
pursuant to a registration statement on Form S-4 or Form S-8 (or similar or successor forms), the
Company shall promptly give written notice (the “Piggyback Notice”) of such Proposed Registration
to each of the Investors (which notice shall be given not less than thirty (30) days prior to the
expected effective date of the Company’s registration statement) and shall offer the Investors the
right to include any of their Registrable Securities in the Proposed Registration. No registration
pursuant to this Section 2(g) shall relieve the Company of its obligations to register Registrable
Securities pursuant to the foregoing provisions of this Section 2.




          (ii) Each Investor shall have twenty (20) days from the date of receipt of the Piggyback
Notice to deliver to the Company a written request specifying the number of Registrable Securities
such Investor intends to sell and such Investor’s intended method of disposition. Any Investor
shall have the right to withdraw such Investor’s request for inclusion of such Investor’s
Registrable Securities in any registration statement pursuant to this Section 2(g) by giving
written notice to the Company of such withdrawal. Subject to Section 2(g)(iii) and Section 2(h)
below, the Company shall include in such registration statement all such Registrable Securities so
requested to be included therein.




          (iii) If the managing underwriter or underwriters of any Proposed Registration involving
Registrable Securities advises the Company that the total number of Registrable Securities that the
Investors and any other Persons intend to include in the offering



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exceeds the number that can be sold in such offering without being likely to have a material
adverse effect on the price, timing or distribution of the Common Stock offered or the market for
the Common Stock, then the Common Stock to be included in such underwritten offering shall include
the number of Registrable Securities that such managing underwriter or underwriters advises the
Company in writing can be sold without having such adverse effect, with such number to be allocated
(A) first, to the Company, (B) second, pro rata among the Investors who have
requested participation in such underwritten offering and (iii) third, any other holder of
Common Stock of the Company. The pro rata allocations for each Investor who has requested
participation in such underwritten offering shall be the product of (a) the aggregate number of
Registrable Securities proposed to be sold by all Investors in such underwritten offering
multiplied by (b) the fraction derived by dividing (x) the number of Registrable Securities owned
on the Closing Date by such Investor by (y) the aggregate number of Registrable Securities owned on
the Closing Date by all Investors participating in the underwritten offering. All participating
Investors shall have the opportunity to share pro rata that portion of such priority allocable to
any Investor(s) not so participating.




          (h) If the SEC shall determine that a registration of the offer and sale of all of the
Registrable Securities may not be made pursuant to Rule 415(a)(1)(i) (a “Primary Offering
Determination”), then notwithstanding anything to the contrary in this Section 2, the number and
amount of Registrable Securities to be included in the applicable Registration Statement shall be
reduced in accordance with this Section 2(h) to the maximum number and amount of Registrable
Securities whose offer and sale may be registered under the 1933 Act in reliance on such rule. The
Registrable Securities included in such Registration Statement shall be allocated among all
Investors in accordance with Section 2(b). If the number or amount of Registrable Securities
included in any Registration Statement is reduced pursuant to this Section 2(h), then (1) the
Company, to the extent not prohibited by the SEC, shall file a subsequent Registration Statement
with respect to the remaining Registrable Securities on or before earlier of (i) the sixty fifth
(65) day after the Company acquires actual knowledge that the Investors named in the previously
filed Registration Statement have resold substantially all of the Registrable Securities included
in such Registration Statement; (ii) the one-hundred-and-eightieth (180th) day after the date the
previously filed Registration Statement became effective under the 1933 Act; or (iii) such later
date as may be required by the SEC (in each case such date shall be a “Filing Deadline” with
respect to such Registration Statement); and (2) the Company shall use its reasonable best efforts
to cause such subsequent Registration Statement to become effective under the 1933 Act as promptly
as practicable, but in any event by the date (which shall be deemed to be the “Effectiveness
Deadline Date” with respect to such subsequent Registration Statement) that is ninety (90) days
after the date such subsequent Registration Statement is required to be filed with the SEC pursuant
to this Section 2(h).




     3. RELATED OBLIGATIONS.



     In connection with its obligations pursuant to Section 2, the Company shall have the following
obligations:



          (a) The Company shall use its reasonable best efforts to respond to written comments received
from the SEC upon a review of the Registration Statement within



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five (5) Business Days. The Company shall submit to the SEC, within three (3) Business Days
after the Company learns that no review of a particular Registration Statement will be made by the
staff of the SEC or that the staff of the SEC has no further comments on a particular Registration
Statement, as the case may be, a request for acceleration of effectiveness of such Registration
Statement to a time and date not later than two (2) Business Days after the submission of such
request. The Company shall keep each Registration Statement effective pursuant to Rule 415 at all
times until the earlier of (i) the date as of which all of the Investors may sell all of the
Registrable Securities covered by such Registration Statement without restriction pursuant to Rule
144 (or successor thereto) promulgated under the 1933 Act, or (ii) the date on which the Investors
shall have sold all of the Registrable Securities covered by such Registration Statement (the
“Registration Period”). The Company shall ensure that each Registration Statement (including any
amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue
statement of a material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein (in the case of prospectuses, in the light of the
circumstances in which they were made) not misleading.




          (b) The Company shall prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to the Registration Statement and the prospectus used in connection
with such Registration Statement, which prospectus is to be filed pursuant to Rule 424 promulgated
under the 1933 Act, as may be necessary to keep such Registration Statement effective at all times
during the Registration Period (except pursuant to Sections 3(f) and 3(q)), and, during such
period, comply with the provisions of the 1933 Act with respect to the disposition of all
Registrable Securities of the Company covered by such Registration Statement until such time as all
of such Registrable Securities shall have been disposed of in accordance with the intended methods
of disposition by the seller or sellers thereof as set forth in such Registration Statement. In
the case of amendments and supplements to a Registration Statement which are required to be filed
pursuant to this Agreement (including pursuant to this Section 3(b)) by reason of the Company
filing a report on Form 10-K, Form 10-Q or Form 8-K or any analogous report under the Securities
Exchange Act of 1934, as amended (the “1934 Act”), the Company shall have incorporated such report
by reference into such Registration Statement, if applicable, or shall file such amendments or
supplements with the SEC as expeditiously as practicable on or following the date on which the 1934
Act report is filed which created the requirement for the Company to amend or supplement such
Registration Statement.




          (c) The Company shall (A) permit Legal Counsel to review and comment upon (i) a Registration
Statement at least five (5) Business Days prior to its filing with the SEC and (ii) all amendments
and supplements to all Registration Statements (except for Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K and any similar or successor reports) within a
reasonable number of days prior to their filing with the SEC, and (B) not file any Registration
Statement or amendment or supplement thereto in a form to which Legal Counsel reasonably objects;
provided, that, the failure of any Investor or his, her or its counsel to respond to such proposed
documents within five (5) Business Days after receipt thereof shall be deemed approval of same.
The Company shall not submit a request for acceleration of the effectiveness of a Registration
Statement or any



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amendment or supplement thereto without the prior approval of Legal Counsel, which consent shall not be
unreasonably withheld. The Company shall furnish to Legal Counsel, without charge, copies of any
correspondence from the SEC or the staff of the SEC to the Company or its representatives relating
to any Registration Statement (redacted to eliminate material non-public information, if any, in
such correspondence) The Company shall reasonably cooperate with Legal Counsel in performing the
Company’s obligations pursuant to this Section 3.




          (d) The Company shall furnish to Legal Counsel and each Investor whose Registrable Securities
are included in any Registration Statement, without charge, (i) promptly after the same is prepared
and filed with the SEC, if requested by an Investor and not otherwise available on the EDGAR
system, at least one copy of such Registration Statement and any amendments or supplement thereto,
including financial statements and schedules, all documents incorporated therein by reference, all
exhibits and each preliminary prospectus (redacted to eliminate material non-public information, if
any, in any such exhibit or other document) and (ii) upon the effectiveness of any Registration
Statement, ten (10) copies of the prospectus included in such Registration Statement and all
amendments and supplements thereto (or such other number of copies as such Investor may reasonably
request).




          (e) The Company shall use its reasonable best efforts to (i) register and qualify, unless an
exemption from registration and qualification applies, the resale by Investors of the Registrable
Securities covered by a Registration Statement under such other securities or “blue sky” laws of
all applicable jurisdictions in the United States, (ii) prepare and file in those jurisdictions
such amendments (including post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof during the Registration
Period, (iii) take such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such
jurisdictions; provided, however, that the Company shall not be required in connection therewith or
as a condition thereto to (x) qualify to do business in any jurisdiction, (y) subject itself to
general taxation in any jurisdiction, or (z) file a general consent to service of process in any
jurisdiction in which it is not currently so qualified or subject to general taxation or has not
currently so consented. The Company shall promptly notify Legal Counsel and each Investor who
holds Registrable Securities of the receipt by the Company of any notification with respect to the
suspension of the registration or qualification of any of the Registrable Securities for sale under
the securities or “blue sky” laws of any jurisdiction in the United States or its receipt of actual
notice of the initiation or threatening of any proceeding for such purpose.




          (f) The Company shall notify Legal Counsel and each Investor in writing (each such notice to
Legal Counsel and the Investors, a “Suspension Notice”) of the happening of any of the following
events, as promptly as practicable after becoming aware of such event: (i) any request by the SEC
or any other federal or state governmental authority during the period of effectiveness of the
Registration Statement for amendments or supplements to a Registration Statement or related
prospectus or for additional information; (ii) the issuance by the SEC or any other federal or
state governmental authority of any stop order suspending the effectiveness of a Registration
Statement or the initiation of any proceedings for that purpose;




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(iii) 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; (iv) any event or
circumstance which necessitates the making of any changes in the Registration Statement or
prospectus, or any document incorporated or deemed to be incorporated therein by reference, so
that, in the case of the Registration Statement, it will not include any untrue statement of a
material fact or omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and that in the case of the prospectus, it will not
contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were made, not
misleading and (v) the Company determines that, in the good faith judgment of its Board of
Directors, the registration or offering of Registrable Securities would reasonably be expected to
materially adversely affect or materially interfere with any bona fide material financing of the
Company or any material transaction under consideration by the Company or would require disclosure
of information that has not been and is not otherwise required to be, disclosed to the public, the
premature disclosure of which could materially adversely affect the Company (provided, that in each
case, no such notice contain any material, nonpublic information), and, subject to Section 3(q), if
applicable, promptly prepare a supplement or amendment to such Registration Statement to correct
any such untrue statement or omission, and deliver a copy of such supplement or amendment to Legal
Counsel and each Investor (or such other number of copies as Legal Counsel or such Investor may
reasonably request). The Company shall also promptly notify Legal Counsel and each Investor in
writing (i) when any prospectus or any prospectus supplement or post-effective amendment has been
filed, and when a Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to Legal Counsel and each Investor by
facsimile on the same day of such effectiveness and by overnight mail), (ii) of the Company’s
reasonable determination that a post-effective amendment to a Registration Statement would be
appropriate or (iii) that the Investor may continue use of the applicable registration statement
and related prospectus.




          (g) The Company shall use its reasonable best efforts to prevent the issuance of any stop
order or other suspension of effectiveness of the Registration Statement (other than during an
Allowable Grace Period), or the suspension of the qualification of any of the Registrable
Securities for sale in any jurisdiction and, if such an order or suspension is issued, to obtain
the withdrawal of such order or suspension as soon as reasonably practicable consistent with the
provisions of Section 3(f) and to notify Legal Counsel and each Investor who holds Registrable
Securities being sold of the issuance of such order and the resolution thereof or its receipt of
actual notice of the initiation or threat of any proceeding for such purpose.




          (h) If any Investor is required under applicable securities law to be described in the
Registration Statement as an underwriter, at the reasonable request of such Investor, the Company
shall furnish to such Investor, on the date of the effectiveness of the Registration Statement and
thereafter from time to time on such dates as an Investor may reasonably request (i) a letter,
dated such date, from the Company’s independent certified public accountants in form and substance
as is customarily given by independent certified public accountants to underwriters in an
underwritten public offering, addressed to the Investors, and




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(ii) an opinion, dated as of such date, of counsel representing the Company for purposes of
such Registration Statement, in form, scope and substance as is customarily given in an
underwritten public offering, addressed to the Investors.




          (i) Upon the written request of any Investor in connection with any Investor’s due diligence
requirements, if any, the Company shall make available for inspection by (i) any Investor, (ii)
Legal Counsel and (iii) one firm of accountants or other agents retained by the Investors
(collectively, the “Inspectors”), all pertinent financial, corporate and other records
(collectively, the “Records”), as shall be reasonably deemed necessary by each Inspector to fulfill
a due diligence obligation by an Investor, and cause the Company’s chief executive officer, chief
financial officer and executive vice president and secretary to be reasonably available to the
Inspectors for questions regarding the Records and to supply all information which any Inspector
may reasonably request; provided, however, that each Inspector shall agree in writing to hold in
strict confidence and shall not make any disclosure (except to an Investor) or use of any Record or
other information which the Company determines in good faith to be confidential, and of which
determination the Inspectors are so notified, unless (a) the release of such Records is ordered
pursuant to a final, non-appealable subpoena or order from a court or government body of competent
jurisdiction, or (b) the information in such Records has been made generally available to the
public other than by disclosure in violation of this or any other Transaction Document. Nothing
herein (or in any other confidentiality agreement between the Company and any Investor) shall be
deemed to limit the Investors’ ability to sell Registrable Securities in a manner which is
otherwise consistent with this Agreement and the other Transaction Documents, applicable laws and
regulations.




          (j) The Company shall hold in confidence and not make any disclosure of information concerning
an Investor provided to the Company unless (i) disclosure of such information is necessary to
comply with federal or state securities laws, (ii) the disclosure of such information is necessary
to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other final, non-appealable order from a
court or governmental body of competent jurisdiction, or (iv) such information has been made
generally available to the public other than by disclosure in violation of this Agreement or any
other agreement. The Company agrees that it shall, upon learning that disclosure of such
information concerning an Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt written notice to such Investor and allow such
Investor, at the Investor’s expense, to undertake appropriate action to prevent disclosure of, or
to obtain a protective order for, such information.




          (k) The Company shall use its reasonable best efforts to cause all the Registrable Securities
covered by the Registration Statement to be listed on each securities exchange on which securities
of the same class or series issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange. The Company shall pay
all fees and expenses in connection with satisfying its obligation under this Section 3(k).




          (l) The Company shall cooperate with the Investors who hold Registrable Securities being
offered and, to the extent applicable pursuant to the Transaction



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Documents, facilitate the timely preparation and delivery of certificates (not bearing any
restrictive legend) representing the Registrable Securities to be offered pursuant to a
Registration Statement and enable such certificates to be in such denominations or amounts, as the
case may be, as the Investors may reasonably request and registered in such names as the Investors
may request.




          (m) If requested by an Investor and if the Company’s counsel deems such inclusion not
inconsistent with the 1933 Act or the 1934 Act or other applicable law, the Company shall (i) as
soon as practicable incorporate in a prospectus supplement or post-effective amendment such
information as an Investor reasonably requests to be included therein relating to the sale and
distribution of Registrable Securities, including, without limitation, information with respect to
the number of Registrable Securities being offered or sold, the purchase price being paid therefor
and any other terms of the offering of the Registrable Securities to be sold in such offering; (ii)
as soon as practicable make all required filings of such prospectus supplement or post-effective
amendment after being notified of the matters to be incorporated in such prospectus supplement or
post-effective amendment; and (iii) as soon as practicable, supplement or make amendments to any
Registration Statement if reasonably requested by an Investor holding any Registrable Securities.




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




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




          (p) Within two (2) Business Days after the Registration Statement which covers Registrable
Securities is declared effective by the SEC, the Company shall deliver, and shall cause legal
counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with
copies to the Investors whose Registrable Securities are included in such Registration Statement)
confirmation that such Registration Statement has been declared effective by the SEC in the form
attached hereto as Exhibit A.




          (q) Notwithstanding anything to the contrary herein, at any time after the Effective Date, (A)
upon any event or circumstance which necessitates the making of any changes in the Registration
Statement or prospectus, or any document incorporated or deemed to be incorporated therein by
reference, so that, in the case of the Registration Statement, it will not include any untrue
statement of a material fact or omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of the prospectus, it
will not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances under which they were made, not
misleading or (B) if the Company determines that, in the good faith



11









 






judgment of its Board of Directors, the registration or offering would reasonably be expected
to materially adversely affect or materially interfere with any bona fide material financing of the
Company or any material transaction under consideration by the Company or would require disclosure
of information that has not been and is not otherwise required to be, disclosed to the public, the
premature disclosure of which could materially adversely affect the Company, the suspension
pursuant to the Company’s Suspension Notice will not trigger any payment or liability for payment
by the Company of any Registration Delay Payments otherwise payable or owing by the Company
pursuant to Section 2(f) of this Agreement (a “Grace Period”); provided, that the Company shall (i)
promptly notify the Investors in writing of the existence of a Grace Period in conformity with the
provisions of this Section 3(q) (provided, that in each notice the Company will not disclose the
content of such material, non-public information to the Investors) and the date on which the Grace
Period will begin, and (ii) as soon as such date may be determined, promptly notify the Investors
in writing of the date on which the Grace Period ends; and, provided, further, that no Grace Period
shall exceed thirty (30) consecutive days and during any three hundred sixty five (365) day period
such Grace Periods shall not exceed an aggregate of sixty (60) days and the first day of any Grace
Period must be at least five (5) trading days after the last day of any prior Grace Period (each,
an “Allowable Grace Period”). For purposes of determining the length of a Grace Period above, the
Grace Period shall begin on and include the date the Investors receive the notice referred to in
clause (i) and shall end on and include the later of the date the Investors receive the notice
referred to in clause (ii) and the date referred to in such notice. For the avoidance of doubt, no
Maintenance Failure shall occur during an Allowable Grace Period. The provisions of Section 3(g)
hereof shall not be applicable during the period of any Allowable Grace Period. Upon expiration of
the Grace Period, the Company shall again be bound by the first sentence of Section 3(f) with
respect to the information giving rise thereto unless such material, non-public information is no
longer applicable. Notwithstanding anything to the contrary, the Company shall cause its transfer
agent to deliver unlegended shares of Common Stock to a transferee of an Investor in accordance
with the terms of the Securities Purchase Agreement in connection with any sale of Registrable
Securities with respect to which an Investor has entered into a contract for sale, and delivered a
copy of the prospectus included as part of the applicable Registration Statement, in each case
prior to the Investor’s receipt of the Suspension Notice related to the Grace Period and for which
the Investor has not yet settled.




     4. OBLIGATIONS AND COVENANTS OF THE INVESTORS.



          (a) At least five (5) Business Days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify each Investor in writing of any additional
information the Company requires from each such Investor. It shall be a condition precedent to the
obligations of the Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall furnish to the Company
such information regarding itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably required to effect and
maintain the effectiveness of the registration of such Registrable Securities and shall execute
such documents in connection with such registration as the Company may reasonably request.




12









 








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




          (c) Each Investor agrees that, upon receipt of any Suspension Notice from the Company, such
Investor will immediately discontinue disposition of Registrable Securities pursuant to any
Registration Statement covering such Registrable Securities until such Investor’s receipt of the
copies of the supplemented or amended prospectus contemplated by Section 3(f) or receipt of notice
from the Company in writing that no supplement or amendment is required. Notwithstanding anything
to the contrary, the Company shall cause its transfer agent to deliver unlegended shares of Common
Stock to a transferee of an Investor in accordance with the terms of the Securities Purchase
Agreement in connection with any sale of Registrable Securities under all of the circumstances
described in the last sentence of Section 3(q).




          (d) Each Investor acknowledges that there may occasionally be times when the Company must
suspend the use of the prospectus forming a part of the Registration Statement, and each Investor
covenants and agrees that it will not make any sale of Registrable Securities under the
Registration Statement without complying with the provisions of this Agreement (including but not
limited to the prohibition on sales after the Effective Date beginning with delivery of a
Suspension Notice to such Investor and ending at the time the Company gives such Investor written
notice that such Investor may thereafter effect sales pursuant to said prospectus or an amended or
supplemented prospectus forming part of a Registration Statement) and each Investor covenants and
agrees that it will comply with any applicable prospectus delivery requirements of the 1933 Act as
applicable to it in connection with sales of Registrable Securities pursuant to the Registration
Statement. Upon receipt of a Suspension Notice, each Investor will refrain from selling any
Registrable Securities pursuant to a Registration Statement until the Investor’s receipt of copies
of a supplemented or amended prospectus prepared and filed by the Company, or until it is advised
in writing by the Company that the current prospectus may be used.




          (e) Upon a request by the Company, each Investor will, as soon as practicable, but in no event
later than two (2) Business Days after such request, notify the Company whether such Investor
continues to hold Registrable Securities.




     5. EXPENSES OF REGISTRATION.



     All reasonable expenses, other than underwriting discounts and commissions, incurred in
connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including,
without limitation, all registration, listing and qualifications fees, printers and accounting
fees, and fees and disbursements of counsel for the Company shall be paid by the Company. The
Company shall also reimburse the Investors for up to $10,000.00 for the fees and disbursements of
Legal Counsel in connection with registration, filing or qualification pursuant to Sections 2 and 3
of this Agreement.



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     6. INDEMNIFICATION.



     In the event any Registrable Securities are included in the Registration Statement (provided,
that for the purpose of this Section 6, the term “Registration Statement” shall include any
preliminary prospectus, final prospectus, exhibit, supplement or amendment included in or relating
to, and any document incorporated by reference in, the Registration Statement as such term is
defined in Section 1) under this Agreement:



          (a) The Company agrees to indemnify, hold harmless and defend each Investor, the directors,
officers, partners, members, employees, agents, representatives of, and each Person, if any, who
controls any Investor within the meaning of the 1933 Act or the 1934 Act (each, an “Indemnified
Person”), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges,
costs, reasonable attorneys’ fees, amounts paid in settlement (if such settlement is effected with
the written consent of the party from whom indemnification is sought, which consent shall not be
unreasonably withheld, conditioned or delayed) or expenses, joint or several (collectively,
“Claims”), incurred in investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before any court or
governmental, administrative or other regulatory agency, body or the SEC, whether pending or
threatened (“Indemnified Damages”), to which any of them may become subject insofar as such Claims
(or actions or proceedings, whether commenced or threatened, in respect thereof) or Indemnified
Damages arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a
material fact in the Registration Statement or any post-effective amendment thereto or in any
filing made in connection with the qualification of the offering under the securities or other
“blue sky” laws of any jurisdiction in which Registrable Securities are offered (“Blue Sky
Filing”), or the omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, (ii) any untrue statement or
alleged untrue statement of a material fact contained in any preliminary prospectus if used prior
to the effective date of such Registration Statement, or contained in the final prospectus (as
amended or supplemented, if the Company files any amendment thereof or supplement thereto with the
SEC) or the omission or alleged omission to state therein any material fact necessary to make the
statements made therein, in the light of the circumstances under which the statements therein were
made, not misleading, (iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable Securities pursuant to a
Registration Statement or (iv) any violation of this Agreement (the matters in the foregoing
clauses (i) through (iv) being, collectively, “Violations”). Subject to Section 6(c), the Company
shall reimburse the Indemnified Persons, promptly as such expenses are incurred and are due and
payable, for any legal fees or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (i) shall not apply to a
Claim or Indemnified Damages sought by an Indemnified Person arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information furnished in writing to
the Company by such Indemnified Person for such Indemnified Person expressly for use in connection
with the preparation of the Registration Statement or any such amendment thereof or supplement
thereto;




14









 







(ii) shall not apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be unreasonably withheld,
conditioned or delayed; and (iii) shall not apply to the extent that any Claim arises out of or is
based upon an untrue statement or alleged untrue statement or omission or alleged omission in the
prospectus, if such untrue statement or alleged untrue statement or omission or alleged omission is
corrected in an amendment or supplement to the prospectus and the seller of Registrable Securities
thereafter fails to deliver such prospectus as so amended or supplemented prior to or concurrently
with the sale of Registrable Securities to the person asserting such Claim after the Company had
furnished such seller with a sufficient number of copies of the same or if the seller received
notice from the Company of the existence of such untrue statement or alleged untrue statement or
omission or alleged omission and the seller continued to dispose of Registrable Securities prior to
the time of the receipt of either (A) an amended or supplemented prospectus which completely
corrected such untrue statement or omission or (B) a notice from the Company that the use of the
existing prospectus may be resumed. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Person and shall survive
the transfer of the Registrable Securities by the Investors pursuant to Section 9.




          (b) In connection with any Registration Statement in which an Investor is participating, each
such Investor agrees to severally and not jointly indemnify, hold harmless and defend the Company,
each of its directors, each of its officers who signs the Registration Statement and each Person,
if any, who controls the Company within the meaning of the 1933 Act (each, an “Indemnified Party”)
to the same extent and in the same manner as is set forth in Section 6(a) with respect to the
Indemnified Persons, against any Claim or Indemnified Damages to which any of them may become
subject insofar as such Claim or Indemnified Damages arise out of or are based upon: (i) any
Violation, to the extent, and only to the extent, that such Violation occurs in reliance upon and
in conformity with written information furnished to the Company by or on behalf of such Investor
expressly for use in connection with such Registration Statement; or (ii) the use by such Investor
of an outdated or defective prospectus after the Company has notified such Investor in writing that
the prospectus is outdated or defective; and, subject to Section 6(c), such Investor will reimburse
any legal or other expenses reasonably incurred by an Indemnified Party in connection with
investigating or defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 6(b) and the agreement with respect to contribution contained in Section
7 shall not apply to amounts paid in settlement of any Claim or Indemnified Damages if such
settlement is effected without the prior written consent of such Investor, which consent shall not
be unreasonably withheld, conditioned or delayed; provided, further, however, that an Investor
shall be liable under this Section 6(b) for only that amount of a Claim or Indemnified Damages as
does not exceed the net proceeds to such Investor as a result of the sale of Registrable Securities
pursuant to such Registration Statement giving rise to such indemnification obligation. Such
indemnity shall remain in full force and effect regardless of any investigation made by or on
behalf of such Indemnified Party and shall survive the transfer of the Registrable Securities by
the Investors pursuant to Section 9.




15









 








          (c) Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6
of the written threat of or notice of the commencement of any action or proceeding (including any
governmental action or proceeding) involving a Claim or Indemnified Damages, such Indemnified
Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, promptly deliver to the indemnifying party a written
notice of the written threat of or notice of the commencement of such action. In case any such
action is brought against any Indemnified Party or Indemnified Person and such Indemnified Party or
Indemnified Person seeks or intends to seek indemnity from an indemnifying party, the indemnifying
party shall have the right to participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, to assume control of the defense
thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an Indemnified Party or
Indemnified Person shall have the right to retain its own counsel with the fees and expenses of
such counsel for such Indemnified Party or Indemnified Person (as applicable) to be paid by the
indemnifying party, if the defendants in any such action include both the Indemnified Party or
Indemnified Person, on the one hand, and the indemnifying party, on the other hand, and the
Indemnified Party or Indemnified Person (as applicable) shall have reasonably concluded, based on
an opinion of counsel reasonably satisfactory to the indemnifying party, that the representation by
such counsel of the Indemnified Person or Indemnified Party (as applicable) and the indemnifying
party would be inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such counsel in such
proceeding and/or that there may be legal defenses available to it and/or any other Indemnified
Party or Indemnified Person which are different from or additional to those available to the
indemnifying party; provided, further, that the indemnifying party shall not be responsible for the
reasonable fees and expenses of more than one (1) separate legal counsel for all such Indemnified
Persons or Indemnified Parties. In the case of an Indemnified Person, legal counsel referred to in
the immediately preceding sentence shall be selected by the Investors holding at least 70% of the
Registrable Securities included in the Registration Statement to which the Claim or Indemnified
Damages relate. The Indemnified Party or Indemnified Person shall reasonably cooperate with the
indemnifying party in connection with any negotiation or defense of any such action or Claim or
Indemnified Damages by the indemnifying party and shall furnish to the indemnifying party all
information reasonably available to the Indemnified Party or Indemnified Person which relates to
such action or Claim or Indemnified Damages. The indemnifying party shall keep the Indemnified
Party or Indemnified Person reasonably apprised at all times as to the status of the defense or any
settlement negotiations with respect thereto. No indemnifying party shall be liable for any
settlement of any action, claim, investigation, inquiry or proceeding effected without its prior
written consent, provided, however, that the indemnifying party shall not unreasonably withhold,
delay or condition its consent. No indemnifying party shall, without the prior written consent of
the Indemnified Party or Indemnified Person, consent to entry of any judgment or enter into any
settlement or other compromise which does not include as an unconditional term thereof the giving
by the claimant or plaintiff
 to such Indemnified Party or Indemnified Person of a release from all
liability with respect to such Claim, Indemnified Damages or litigation. Following indemnification
as provided for hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms or



16









 






corporations relating to the matter for which indemnification has been made. The failure to
deliver written notice to the indemnifying party within a reasonable time of the commencement of
any such action shall not relieve such indemnifying party of any liability to the Indemnified
Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party
is materially prejudiced in its ability to defend such action as a result of such failure.




          (d) No Person involved in the sale of Registrable Securities who is guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) in connection with such
sale shall be entitled to indemnification from any Person who is not guilty of such fraudulent
misrepresentation.




          (e) The indemnification required by this Section 6 shall be made by periodic payments of the
amount thereof during the course of the investigation or defense, as and when bills are received or
Indemnified Damages are incurred.




          (f) The indemnity agreements contained herein shall be in addition to (i) any cause of action
or similar right of the Indemnified Party or Indemnified Person against the indemnifying party or
others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law.
Notwithstanding the foregoing, in the event that any of the provisions of Section 9(k) of the
Securities Purchase Agreement and this Section 6 may be deemed to both be applicable to any of the
same losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, reasonable
attorneys’ fees, amounts paid in settlement or expenses incurred in investigating, preparing or
defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the
foregoing by or before any court or governmental, administrative or other regulatory agency, body
or the SEC, whether pending or threatened, the provisions of this Section 6 shall control and such
provisions of Section 9(k) of the Securities Purchase Agreement shall be inoperative.




     7. CONTRIBUTION.



     To the extent any indemnification by an indemnifying party is prohibited or limited by law,
the indemnifying party agrees to, in lieu of indemnifying such Indemnified Person or Indemnified
Party, as applicable, make the maximum contribution with respect to any amounts for which it would
otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however,
that: (i) no contribution shall be made under circumstances where the maker would not have been
liable for indemnification under the fault standards set forth in Section 6 of this Agreement, (ii)
no Person involved in the sale of Registrable Securities which Person is guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) in connection with such
sale shall be entitled to contribution from any Person who was not guilty of such fraudulent
misrepresentation; and (iii) contribution by any seller of Registrable Securities shall be limited
in amount to the net amount of proceeds received by such seller from the sale of such Registrable
Securities pursuant to such Registration Statement.



17









 





     8. REPORTS UNDER THE 1934 ACT.



     With a view to making available to the Investors the benefits of Rule 144 promulgated under
the 1933 Act or any other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration (“Rule 144”), at all
times during which there are Registrable Securities outstanding which have not been previously (a)
sold to or through a broker or dealer or underwriter in a public distribution, or (b) sold in a
transaction exempt from the registration and prospectus delivery requirements of the 1933 Act under
Section 4(l) thereof, in the case of either clause (a) or clause (b) in such a manner that, upon
the consummation of such sale, all transfer restrictions and restrictive legends with respect to
such shares are removed upon the consummation of such sale, the Company agrees to:



          (a) make and keep public information available, as contemplated by Rule 144;




          (b) file with the SEC in a timely manner all reports and other documents required of the
Company under the 1933 Act and the 1934 Act, so long as the Company remains subject to such
requirements and the filing of such reports and other documents is required for the applicable
provisions of Rule 144; and




          (c) furnish to each Investor so long as such Investor owns Registrable Securities, promptly
upon request, (i) a written statement by the Company, if true, that it has complied with the
reporting requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to permit the Investors to
sell such securities pursuant to Rule 144 without registration.




     9. ASSIGNMENT OF REGISTRATION RIGHTS.



     The rights under this Agreement shall be automatically assignable by the Investors to any
transferee of all or any portion of such Investor’s Registrable Securities if: (i) the Investor
agrees in writing with the transferee or assignee to assign such rights, and a copy of such
agreement is furnished to the Company within a reasonable time after such assignment; (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) immediately
following such transfer or assignment the further disposition of such securities by the transferee
or assignee is restricted under the 1933 Act or applicable state securities laws; (iv) at or before
the time the Company receives the written notice contemplated by clause (ii) of this sentence the
transferee or assignee agrees in writing with the Company to be bound by all of the provisions
contained herein; and (v) such transfer shall have been made in accordance with the applicable
requirements of the Securities Purchase Agreement, including but not limited to those in Section
9(g) thereof.



18









 





     10. AMENDMENT OF REGISTRATION RIGHTS.



     Provisions of this Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Required Holders. Any amendment or waiver effected in
accordance with this Section 10 shall be binding upon each Investor and the Company. No such
amendment shall be effective to the extent that it applies to less than all of the holders of the
Registrable Securities. No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of this Agreement unless the same
consideration also is offered to all of the parties to this Agreement.



     11. MISCELLANEOUS.



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




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



If to the Company:



Merge Healthcare Incorporated

6737 West Washington Street, Suite 2250, Milwaukee,

Wisconsin 53214—5650

Facsimile:      (770) 810-7520

Attention:      Chief Financial Officer



with a copy (for informational purposes only) to:



Alston & Bird LLP

1201 West Peachtree Street

Atlanta, Georgia 30309

Telephone:   (404) 881-7000

Facsimile:     (404) 881-7777

Attention:     W. Scott Ortwein





19









 







If to the Buyer:



Merrick Ventures, LLC

233 North Michigan Ave., Suite 2330

Chicago, Illinois 60601

Telephone:    (312) 994-9410

Facsimile:      (312.994.9495

Attention:      Justin Dearborn



If to Legal Counsel:



McDermott Will & Emery LLP

227 West Monroe Street

Chicago, Illinois 60606

Telephone:    (312) 984-2121

Facsimile:      (312) 984-7700

Attention:      Mark A. Harris

                        Ryan D. Harris



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




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




          (d) All questions concerning the construction, validity, enforcement and interpretation of
this Agreement shall be governed by the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of the State of New York
or any other jurisdictions) that would cause the application of the laws of any jurisdictions other
than the State of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of
the state and federal courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is brought in an inconvenient forum or that
the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address for such notices to it under this
Agreement and agrees that such service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or



20









 






unenforceability shall not affect the validity or enforceability of the remainder of this
Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement
in any other jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES
NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION
HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.




          (e) This Agreement, the other Transaction Documents (as defined in the Securities Purchase
Agreement), the Confidentiality Agreement between the Company and the Buyer and the instruments
referenced herein and therein constitute the entire agreement among the parties hereto with respect
to the subject matter hereof and thereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and therein. This Agreement, the
other Transaction Documents and the instruments referenced herein and therein supersede all prior
agreements and understandings among the parties hereto with respect to the subject matter hereof
and thereof.




          (f) Subject to the requirements of Section 9, this Agreement shall inure to the benefit of and
be binding upon the permitted successors and assigns of each of the parties hereto.




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




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




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




          (j) All consents and other determinations required to be made by the Investors pursuant to
this Agreement shall be made, unless otherwise specified in this Agreement, by the Required
Holders.




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




21









 








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




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



* * * * * *




22









 








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



	 	 	 	 	 
	 	COMPANY:





MERGE HEALTHCARE INCORPORATED

 	 
	 	By:  	\s\ Kenneth D. Rardin
 	 
	 	 	Title:  Chief Executive Officer 	 
	 	 	 	 
	 




 









 





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



	 	 	 	 	 
	 	BUYER:



MERRICK RIS, LLC

 	 
	 	By:  	\s\ Justin Dearborn
 	 
	 	 	Title:  Director 	 
	 	 	 	 



 









 






	 	 	 	 	 



EXHIBIT A




FORM OF NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT




[TRANSFER AGENT]

Attention:



Re: Merge Healthcare Incorporated



Ladies and Gentlemen:





     [We are][I am] counsel to Merge Healthcare Incorporated, a Wisconsin corporation (the
“Company”), and have represented the Company in connection with that certain Securities Purchase
Agreement, dated as of April [___], 2008 (the “Securities Purchase Agreement”), entered into by and
among the Company and the buyer named therein (the “Buyer”) pursuant to which the Company issued to
the Buyer shares of its Common Stock (the “Common Stock”). Pursuant to the Securities Purchase
Agreement, the Company also has entered into a Registration Rights Agreement with the Buyer (the
“Registration Rights Agreement”) pursuant to which the Company agreed, among other things, to
register the resale of the Registrable Securities (as defined in the Registration Rights Agreement)
under the Securities Act of 1933, as amended (the “1933 Act”). In connection with the Company’s
obligations under the Registration Rights Agreement, on ___, 2008, the Company filed a
Registration Statement on Form [S-3] (File No. 333-___) (the “Registration Statement”)
with the Securities and Exchange Commission (the “SEC”) relating to the Registrable Securities
which names the Buyer and each of the other holders of Registrable Securities (the “Holders”) as a
selling stockholder thereunder.



     In connection with the foregoing, [we][I] advise you that a member of the SEC’s staff has
advised [us][me] by telephone that the SEC has entered an order declaring the Registration
Statement effective under the 1933 Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF
EFFECTIVENESS] and we have no knowledge, after telephonic inquiry of a member of the SEC’s staff,
that any stop order suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable Securities are available
for resale under the 1933 Act pursuant to the Registration Statement.



     This letter shall serve as our standing advice to you that you may issue or reissue shares of
Common Stock without legend to the Holders as contemplated by the Company’s Irrevocable Transfer
Agent Instructions dated [___], 2008 (the “Transfer Agent Instructions”) and you need not require
further letters from us to effect any future legend-free issuance or reissuance of shares of Common
Stock to the Holders as contemplated by the Transfer Agent Instructions.



	 	 	 	 	 
	 	Very truly yours,



[ISSUER’S COUNSEL]

 	 
	 	By:  	 	 
	 	 	 	 
	 	 	 	 
	 



CC: [LIST NAMES OF HOLDERS]





 









 





ANNEX I




SELLING STOCKHOLDERS




     The shares of common stock being offered by the selling stockholders are those issued to the
selling stockholders in connection with a private placement of debentures and shares of common
stock. For additional information regarding such private placement, see “Private Placement of Term
Notes and Shares” above. We are registering the shares of common stock in order to permit the
selling stockholders to offer the shares for resale from time to time. Except for the ownership of
the shares of common stock, the selling stockholders have not had any material relationship with us
within the past three years.



     The table below lists the selling stockholders and other information regarding the beneficial
ownership of the shares of common stock by each of the selling stockholders. The second column
lists the number of shares of common stock beneficially owned by each selling stockholder.



     In accordance with the terms of registration rights agreement with the selling stockholders,
this prospectus generally covers the resale of shares of common stock issued to the selling
stockholders, as of the trading day immediately preceding the date this registration statement was
initially filed with the SEC. The third column assumes the sale of all of the shares offered by
the selling stockholders pursuant to this prospectus.



     The selling stockholders may sell all, some or none of their shares in this offering. See
“Plan of Distribution.”



	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Number of Shares of	 	Maximum Number of Shares	 	Number of Shares of
	 	 	Common Stock Owned	 	of Common Stock to be Sold	 	Common Stock Owned
	Name of Selling Stockholder	 	Prior to Offering	 	Pursuant to this Prospectus	 	After Offering
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Merrick RIS, LLC
	 	 	 	 	 	 	 	 	 	 	0	 






 









 






PLAN OF DISTRIBUTION




     We are registering the shares of common stock to permit the resale of these shares of common
stock by the selling stockholders from time to time after the date of this prospectus. We will not
receive any of the proceeds from the sale by the selling stockholders of the shares of common
stock. We will bear all fees and expenses incident to our obligation to register the shares of
common stock.



     The selling stockholders may sell all or a portion of the shares of common stock beneficially
owned by them and offered hereby from time to time directly or through one or more underwriters,
broker-dealers or agents. If the shares of common stock are sold through underwriters or
broker-dealers, the selling stockholders will be responsible for underwriting discounts or
commissions or agent’s commissions. The shares of common stock may be sold in one or more
transactions at fixed prices, at prevailing market prices at the time of the sale, at varying
prices determined at the time of sale, or at negotiated prices. These sales may be effected in
transactions, which may involve crosses or block transactions,




	 	•	 	on any national securities exchange or quotation service on which the securities may
be listed or quoted at the time of sale;
	 
	 	•	 	in the over-the-counter market;
	 
	 	•	 	in transactions otherwise than on these exchanges or systems or in the
over-the-counter market;
	 
	 	•	 	through the writing of options, whether such options are listed on an options
exchange or otherwise;
	 
	 	•	 	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 resale by the broker-dealer for its
account;
	 
	 	•	 	an exchange distribution in accordance with the rules of the applicable exchange;
	 
	 	•	 	privately negotiated transactions;
	 
	 	•	 	short sales;
	 
	 	•	 	sales pursuant to Rule 144;
	 
	 	•	 	broker-dealers may agree with the selling securityholders to sell a specified number
of such shares at a stipulated price per share;




 









 






	 	•	 	a combination of any such methods of sale; and
	 
	 	•	 	any other method permitted pursuant to applicable law.





     If the selling stockholders effect such transactions by selling shares of common stock to or
through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may
receive commissions in the form of discounts, concessions or commissions from the selling
stockholders or commissions from purchasers of the shares of common stock for whom they may act as
agent or to whom they may sell as principal (which discounts, concessions or commissions as to
particular underwriters, broker-dealers or agents may be in excess of those customary in the types
of transactions involved). In connection with sales of the shares of common stock or otherwise,
the selling stockholders may enter into hedging transactions with broker-dealers, which may in turn
engage in short sales of the shares of common stock in the course of hedging in positions they
assume. The selling stockholders may also sell shares of common stock short and deliver shares of
common stock covered by this prospectus to close out short positions and to return borrowed shares
in connection with such short sales. The selling stockholders may also loan or pledge shares of
common stock to broker-dealers in connection with bona fide margin accounts secured by the shares
of common stock, which shares broker-dealers could in turn sell if the selling stockholders default
in the performance of their secured obligations.



     The selling stockholders may pledge or grant a security interest in some or all of the shares
of common stock owned by them and, if they default in the performance of their secured obligations,
the pledgees or secured parties may offer and sell the shares of common stock from time to time
pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act of 1933, amending, if necessary, the list of selling
stockholders to include the pledgee, transferee or other successors in interest as selling
stockholders under this prospectus. The selling stockholders also may transfer and donate the
shares of common stock in other circumstances in which case the transferees, donees, pledgees or
other successors in interest will be the selling beneficial owners for purposes of this prospectus.



     The selling stockholders and any broker-dealer participating in the distribution of the shares
of common stock may be deemed to be “underwriters” within the meaning of the Securities Act of
1933, and any commission paid, or any discounts or concessions allowed to, any such broker-dealer
may be deemed to be underwriting commissions or discounts under the Securities Act of 1933. At the
time a particular offering of the shares of common stock is made, a prospectus supplement, if
required, will be distributed which will set forth the aggregate amount of shares of common stock
being offered and the terms of the offering, including the name or names of any broker-dealers or
agents, any discounts, commissions and other terms constituting compensation from the selling
stockholders and any discounts, commissions or concessions allowed or reallowed or paid to
broker-dealers.



     Under the securities laws of some states, the shares of common stock may be sold in such
states only through registered or licensed brokers or dealers. In addition, in some states the
shares of common stock may not be sold unless such shares have been registered or qualified for



 









 







sale in such state or an exemption from registration or qualification is available and is
complied with.



     There can be no assurance that any selling stockholder will sell any or all of the shares of
common stock registered pursuant to the registration statement, of which this prospectus forms a
part.



     The selling stockholders and any other person participating in such distribution will be
subject to applicable provisions of the Securities Exchange Act of 1934, and the rules and
regulations thereunder, including, without limitation, Regulation M of the Securities Exchange Act
of 1934, which may limit the timing of purchases and sales of any of the shares of common stock by
the selling stockholders and any other participating person. Regulation M may also restrict the
ability of any person engaged in the distribution of the shares of common stock to engage in
market-making activities with respect to the shares of common stock. All of the foregoing may
affect the marketability of the shares of common stock and the ability of any person or entity to
engage in market-making activities with respect to the shares of common stock.



     We will pay all expenses of the registration of the shares of common stock pursuant to the
registration rights agreement, including, without limitation, Securities and Exchange Commission
filing fees and expenses of compliance with state securities or “blue sky” laws; provided, however,
that the selling stockholders will pay all underwriting discounts and selling commissions, if any.
We will indemnify the selling stockholders against liabilities, including some liabilities under
the Securities Act of 1933, in accordance with the registration rights agreements, or the selling
stockholders will be entitled to contribution. We may be indemnified by the selling stockholders
against civil liabilities, including liabilities under the Securities Act of 1933, that may arise
from any written information furnished to us by the selling stockholder specifically for use in
this prospectus, in accordance with the related registration rights agreements, or we may be
entitled to contribution.



     Once sold under the registration statement, of which this prospectus forms a part, the shares
of common stock will be freely tradable in the hands of persons other than our affiliates.