EXHIBIT 10.3

SUBSCRIPTION BOOKLET

PACE HEALTH MANAGEMENT SYSTEMS, INC.

Offering of up to $15,000,000 of Units of
Pace Health Management Systems, Inc.

CONTENTS

Instructions for Subscription

Subscription Agreement
Exhibit A: Registration Rights
Exhibit B: Confidential Purchaser Questionnaire
 
 

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PACE HEALTH MANAGEMENT SYSTEMS, INC.

INSTRUCTIONS FOR SUBSCRIPTION

The subscriber must do the following:

1.
Complete, sign and deliver the Subscription Agreement included in this
Subscription Booklet (fill out and sign on page S-1).

2.
Complete, sign and deliver the Confidential Purchaser Questionnaire included in
this Confidential Subscription Booklet and attached hereto as Exhibit B (fill
out (pages 1-5) and sign on page 5).

3.
Deliver payment in the aggregate amount of your subscription.

Delivery of the completed subscription documents described above and checks for
subscription amounts made out to “Continental Stock Transfer & Trust Company, as
Agent for Pace Health Management Systems, Inc.” should be delivered directly to:

Maxim Group LLC
405 Lexington Avenue
New York, New York 10174.
Attention: Andrew Rosen

Subscription amounts may also be sent by wire transfer of immediately available
funds to:

Bank Name:
 
JP Morgan Chase
ABA #:
 
021000021
Acct #:
 
530-062054
Acct. Name:
 
Continental Stock Transfer & Trust Company, as Agent for
Pace Health Management Systems, Inc.

THE COMPANY MAY ACCEPT OR REJECT SUBSCRIPTIONS IN ITS SOLE DISCRETION. THE
OFFERING IS AVAILABLE ONLY TO “ACCREDITED INVESTORS” AS DEFINED UNDER REGULATION
D UNDER THE SECURITIES ACT OF 1933, AS AMENDED. In the event that a subscription
offer is not accepted by the Company, the subscription funds shall be returned
to the subscriber, without interest or deduction thereon.
 
 

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PACE HEALTH MANAGEMENT SYSTEMS, INC.

SUBSCRIPTION AGREEMENT

The undersigned (hereinafter “Subscriber”) hereby confirms his/her/its
subscription for the purchase of Units, each Unit to consist of: (1) 100 shares
of Series B Convertible Preferred Stock of Pace Health Management Systems, Inc.,
an Iowa corporation (the “Company”), (2) a common stock purchase warrant
entitling the holder to purchase up to 10,000 shares of Common Stock of the
Company at an exercise price equal to $0.30 per share and (3) a common stock
purchase warrant entitling the holder to purchase up to 3,320 shares of Common
Stock of the Company at an exercise price equal to $2.50 per share. (“Units”) of
Series B Convertible Preferred Stock, par value $0.01 per share (the “Preferred
Stock”) of Pace Health Management Systems, Inc., on the terms described below:
 
Capitalized terms used and not otherwise defined herein shall have the
respective meanings set forth in the Private Placement Memorandum of the
Company, dated as of January 16, 2007, and its attachments thereto (the
“Memorandum”). The Units and the underlying common stock are sometimes referred
to herein as the “Securities.”

In connection with this subscription, Subscriber and the Company agree as
follows:

1.    Purchase and Sale of the Units.

(a)    The Company hereby agrees to issue and to sell to Subscriber, and
Subscriber hereby agrees to purchase from the Company, such number of Units at a
price of One Thousand Dollars ($1,000.00) per Unit (the “Unit Price”) and for
the aggregate subscription amount set forth on the signature page hereto. The
Subscriber understands that this subscription is not binding upon the Company
until the Company accepts it. The Subscriber acknowledges and understands that
acceptance of this Subscription will be made only by a duly authorized
representative of the Company executing and mailing or otherwise delivering to
the Subscriber at the Subscriber’s address set forth herein, a counterpart copy
of the signature page to this Subscription Agreement indicating the Company’s
acceptance of this Subscription. The Company and Maxim Group LLC (the “Placement
Agent”) reserve the right, in their sole discretion for any reason whatsoever,
to accept or reject this subscription in whole or in part. Following the
acceptance of this Subscription Agreement by the Company, and the receipt and
acceptance by the Company of subscriptions to the Minimum Offering (defined
below), the Company shall instruct its transfer agent to issue and deliver to
Subscriber (i) a share certificate evidencing the applicable number of Shares
subscribed for hereunder against payment in U.S. Dollars of the Purchase Price
(as defined below), (ii) a Common Stock purchase warrant exercisable at $0.30
per share, and (iii) a Common Stock purchase warrant exercisable at $2.50 per
share. If this subscription is rejected, the Company and the Subscriber shall
thereafter have no further rights or obligations to each other under or in
connection with this Subscription Agreement. If this subscription is not
accepted by the Company on or before the last day of the Offering Period, this
subscription shall be deemed rejected.

(b)    Subscriber has hereby delivered and paid concurrently herewith the
aggregate purchase price for the Units set forth on the signature page hereof in
an amount required to purchase and pay for the Units subscribed for hereunder
(the “Purchase Price”), which amount has been paid in U.S. Dollars by wire
transfer or check, subject to collection, to the order of “Continental Stock
Transfer & Trust Company - Pace Health Management Systems, Inc. Escrow Account.”

 
 

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(c)    Subscriber understands and acknowledges that this subscription is part of
a private placement by the Company of up to $15,000,000 of Units, which offering
is being made on a “best efforts” basis, for a minimum of 10,000 Units (the
“Minimum Offering”) and a maximum of 15,000 Units (the “Maximum Offering”).
Subscriber understands that payments hereunder as to the Minimum Offering will
be held in a non-interest bearing escrow account established by the Company with
Continental Stock Transfer & Trust Company as escrow agent, and will be released
to the Company if subscriptions for the Minimum Offering are received and
accepted by the Company within the Offering Period (as described in the
Memorandum), including any extended period. If subscriptions for the Minimum
Offering are not received and accepted by the Company within the Offering Period
(including any extended period), the funds held in such escrow account will be
promptly returned to the subscribers in full without interest or deduction. If
the Company or the Placement Agent rejects all or a portion of any subscription,
a check will be promptly mailed to the subscriber for all, or the appropriate
portion of, the amount submitted with such subscriber’s subscription, without
interest or deduction. All subscriptions received after subscriptions for the
Minimum Offering have been received and accepted by the Company and the
Placement Agent will be deposited in such escrow account until accepted by the
Company and the Placement Agent, whereupon such subscription proceeds will be
released by the escrow agent to the Company.

2.    Representations and Warranties of Subscriber. Subscriber represents and
warrants to the Company and the Placement Agent as follows:

(a)    Subscriber is an “accredited investor” as defined by Rule 501 under the
Securities Act of 1933, as amended (the “Act”), and Subscriber is capable of
evaluating the merits and risks of Subscriber’s investment in the Units and has
the ability and capacity to protect Subscriber’s interests.

(b)    Subscriber understands that the Securities are not presently registered,
but Subscriber is entitled to certain rights with respect to the registration of
the common stock underlying the Units (see Section 6 below). Subscriber
understands that the Securities will not be registered under the Act on the
ground that the issuance thereof is exempt under Section 4(2) of the Act as a
transaction by an issuer not involving any public offering and that, in the view
of the Commission, the statutory basis for the exemption claimed would not be
present if any of the representations and warranties of Subscriber contained in
this Subscription Agreement or those of other purchasers of the Securities are
untrue or, notwithstanding the Subscriber’s representations and warranties, the
Subscriber currently has in mind acquiring any of the Securities for resale upon
the occurrence or non-occurrence of some predetermined event.

(c)    Subscriber is purchasing the Securities subscribed for hereby for
investment purposes and not with a view to distribution or resale, nor with the
intention of selling, transferring or otherwise disposing of all or any part
thereof for any particular price, or at any particular time, or upon the
happening of any particular event or circumstance, except selling, transferring,
or disposing the Securities made in full compliance with all applicable
provisions of the Act, the rules and regulations promulgated by the United
States Securities and Exchange Commission (the “SEC”) thereunder, and applicable
state securities laws; and that an investment in the Securities is not a liquid
investment.

(d)    Subscriber acknowledges that there exists no public market for the
Securities, that no such public market may develop in the future and as a
result, Subscriber acknowledges that the Securities must be held indefinitely
unless subsequently registered under the Act or unless an exemption from such
registration is available. Subscriber is aware of the provisions of Rule 144
promulgated under the Act which permit resales of common stock purchased in a
private placement subject to certain limitations and

 
 

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to the satisfaction of certain conditions provided for thereunder, including,
among other things, the existence of a public market for the common stock, the
availability of certain current public information about the Company, the resale
occurring not less than one year after a party has purchased and paid for the
security to be sold, the sale being effected through a “broker’s transaction” or
in transactions directly with a “market maker” and the number of shares of
common stock being sold during any three-month period not exceeding specified
limitations.
 
(e)    Subscriber acknowledges that Subscriber has had the opportunity to ask
questions of, and receive answers from, each of the Company and ConMed, Inc., a
Maryland corporation (“ConMed”), or any authorized person acting on behalf of
such entity concerning such entity and its business and to obtain any additional
information, to the extent possessed by the Company and ConMed (or to the extent
it could have been acquired by the Company or ConMed without unreasonable effort
or expense) necessary to verify the accuracy of the information received by
Subscriber. In connection therewith, Subscriber acknowledges that Subscriber has
had the opportunity to discuss each of the Company’s and ConMed’s business,
management and financial affairs with such entity’s management or any authorized
person acting on its behalf. Subscriber has received and reviewed the Memorandum
and all the information concerning the Company, ConMed and the Units, both
written and oral, that Subscriber desires. Without limiting the generality of
the foregoing, Subscriber has been furnished with or has had the opportunity to
acquire, and to review: all information, both written and oral, that Subscriber
desires with respect to each of the Company’s and ConMed’s business, management,
financial affairs and prospects. In determining whether to make this investment,
Subscriber has relied solely on (i) Subscriber’s own knowledge and understanding
of the Company, ConMed and the business of each such entity based upon
Subscriber’s own due diligence investigations and the information furnished
pursuant to this paragraph, and (ii) the information described in subparagraph
2(g) below. Subscriber understands that no person has been authorized to give
any information or to make any representations which were not contained in the
Memorandum and Subscriber has not relied on any other representations or
information.

(f)    Subscriber has all requisite legal and other power and authority to
execute and deliver this Subscription Agreement and to carry out and perform
Subscriber’s obligations under the terms of this Subscription Agreement. This
Subscription Agreement constitutes a valid and legally binding obligation of
Subscriber, enforceable in accordance with its terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other general
principals of equity, whether such enforcement is considered in a proceeding in
equity or law.

(g)    Subscriber has carefully considered and has discussed with the
Subscriber’s legal, tax, accounting and financial advisors, to the extent the
Subscriber has deemed necessary, the suitability of this investment and the
transactions contemplated by this Subscription Agreement for the Subscriber’s
particular federal, state, local and foreign tax and financial situation and has
independently determined that this investment and the transactions contemplated
by this Subscription Agreement are a suitable investment for the Subscriber.
Subscriber has relied solely on such advisors and not on any statements or
representations of the Company or any of its agents. Subscriber understands that
Subscriber (and not the Company) shall be responsible for Subscriber’s own tax
liability that may arise as a result of this investment or the transactions
contemplated by this Subscription Agreement.

(h)    This Subscription Agreement and the Confidential Purchaser Questionnaire
accompanying this Subscription Agreement do not contain any untrue statement of
a material fact or omit any material fact concerning Subscriber.

 
 

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(i)    There are no actions, suits, proceedings or investigations pending
against Subscriber or Subscriber’s assets before any court or governmental
agency (nor, to Subscriber’s knowledge, is there any threat thereof) which would
impair in any way Subscriber’s ability to enter into and fully perform
Subscriber’s commitments and obligations under this Subscription Agreement or
the transactions contemplated hereby.

(j)    The execution, delivery and performance of and compliance with this
Subscription Agreement and the issuance of the Securities will not result in any
violation of, or conflict with, or constitute a default under, any of
Subscriber’s articles of incorporation or by-laws, if applicable, or any
agreement to which Subscriber is a party or by which it is bound, nor result in
the creation of any mortgage, pledge, lien, encumbrance or charge against any of
the assets or properties of Subscriber or the Securities.

(k)    Subscriber acknowledges that an investment in the Securities is
speculative and involves a high degree of risk and that Subscriber can bear the
economic risk of the purchase of the Securities, including a total loss of
his/her/its investment.

(l)    Subscriber acknowledges that he/she/it has carefully reviewed and
considered the risk factors discussed in the “Risk Factors” section of the
Memorandum.
 
(m)    Subscriber recognizes that no federal, state or foreign agency has
recommended or endorsed the purchase of the Securities.

(n)    Subscriber is aware that the Securities are and will be, when issued,
“restricted securities” as that term is defined in Rule 144 of the general rules
and regulations under the Act.

(o)    Subscriber understands that any and all certificates representing the
Securities and any and all securities issued in replacement thereof or in
exchange therefor shall bear the following legend or one substantially similar
thereto, which Subscriber has read and understands:

“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES
NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS
WHICH, IN THE OPINION OF COUNSEL FOR THIS CORPORATION, IS AVAILABLE.”

(p)    In addition, the certificates representing the Securities, and any and
all securities issued in replacement thereof or in exchange therefor, shall bear
such legend as may be required by the securities laws of the jurisdiction in
which Subscriber resides.

(q)    Because of the legal restrictions imposed on resale, Subscriber
understands that the Company shall have the right to note stop-transfer
instructions in its stock transfer records, and Subscriber has been informed of
the Company’s intention to do so. Any sales, transfers, or other

 
 

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dispositions of the Securities by Subscriber, if any, will be made in compliance
with the Act and all applicable rules and regulations promulgated thereunder.

(r)    Subscriber acknowledges that Subscriber has such knowledge and experience
in financial and business matters that Subscriber is capable of evaluating the
merits and risks of an investment in the Securities and of making an informed
investment decision with respect thereto.

(s)    Subscriber represents that: (i) Subscriber is able to bear the economic
risks of an investment in the Securities and to afford a complete loss of the
investment, and (ii) (A) Subscriber could be reasonably assumed to have the
ability and capacity to protect his/her/its interests in connection with this
subscription; or (B) Subscriber has a pre-existing personal or business
relationship with either the Company or any affiliate thereof of such duration
and nature as would enable a reasonably prudent purchaser to be aware of the
character, business acumen and general business and financial circumstances of
the Company or such affiliate and is otherwise personally qualified to evaluate
and assess the risks, nature and other aspects of this subscription.

(t)    Subscriber further represents that the address of Subscriber set forth
below is his/her principal residence (or, if Subscriber is a company,
partnership or other entity, the address of its principal place of business);
that Subscriber is purchasing the Securities for Subscriber’s own account and
not, in whole or in part, for the account of any other person; Subscriber is
purchasing the Securities for investment and not with a view to the resale or
distribution thereof; and that Subscriber has not formed any entity, and is not
an entity formed, for the purpose of purchasing the Securities.

(u)    Subscriber understands that the Company and the Placement Agent shall
have the unconditional right to accept or reject this subscription, in whole or
in part, for any reason or without a specific reason, in the sole and absolute
discretion of the Company (even after receipt and clearance of Subscriber’s
funds). This Subscription Agreement is not binding upon the Company until
accepted in writing by an authorized officer of the Company. In the event that
this subscription is rejected, then Subscriber’s subscription funds (to the
extent of such rejection) will be promptly returned in full without interest
thereon or deduction therefrom.

(v)    Subscriber has not been furnished with any oral representation or oral
information in connection with the offering of the Securities that is not
contained in, or is in any way contrary to or inconsistent with, statements made
in the Memorandum and this Subscription Agreement.

(w)    Subscriber represents that Subscriber is not subscribing for the
Securities as a result of or subsequent to any advertisement, article, notice or
other communication published in any newspaper, magazine or similar media or
broadcast over the Internet, television or radio or presented at any seminar or
meeting or any public announcement or filing of or by the Company.
 
(x)    Subscriber has carefully read this Subscription Agreement and the
Memorandum, and Subscriber has accurately completed the Confidential Purchaser
Questionnaire which accompanies this Subscription Agreement.

(y)    No representations or warranties have been made to Subscriber by the
Company, or any officer, employee, agent, affiliate or subsidiary of the
Company, other than the representations of the Company contained herein, and in
subscribing for the Securities the Subscriber is not relying upon any
representations other than those contained in the Memorandum or in this
Subscription Agreement.

 
 

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(z)    Subscriber represents and warrants, to the best of Subscriber’s
knowledge, that other than the Placement Agent, no finder, broker, agent,
financial advisor or other intermediary, nor any purchaser representative or any
broker-dealer acting as a broker, is entitled to any compensation in connection
with the transactions contemplated by this Subscription Agreement.

(aa)    Subscriber represents and warrants that Subscriber has: (i) not
distributed or reproduced the Memorandum, in whole or in part, at any time,
without the prior written consent of the Company and the Placement Agent, (ii)
kept confidential and non-public the existence of the Memorandum and the
information contained therein or made available in connection with any further
investigation of the Company, and Subscriber has not used such information for
the Subscriber’s personal benefit (other than in connection with this
subscription), nor has disclosed such information to any third party for any
reason, notwithstanding that the Subscriber’s subscription may not be accepted
by the Company, and (iii) refrained and shall refrain from trading in the
publicly-traded securities of the Company for so long as such recipient has been
in possession of the material non-public information contained in the
Memorandum.

(bb)    If the Subscriber is a corporation, partnership, limited liability
company, trust, or other entity, the person executing this Subscription
Agreement hereby represents and warrants that the above representations and
warranties shall be deemed to have been made on behalf of such entity and the
Subscriber has made the same after due inquiry to determine the truthfulness of
such representations and warranties.

(cc)    If the Subscriber is a corporation, partnership, limited liability
company, trust, or other entity, it represents that: (i) it is duly organized,
validly existing and in good standing in its jurisdiction of incorporation or
organization and has all requisite power and authority to execute and deliver
this Subscription Agreement and purchase the Shares as provided herein; (ii) its
purchase of the Shares will not result in any violation of, or conflict with,
any term or provision of the charter, By-Laws or other organizational documents
of Subscriber or any other instrument or agreement to which the Subscriber is a
party or is subject; (iii) the execution and delivery of this Subscription
Agreement and Subscriber’s purchase of the Shares has been duly authorized by
all necessary action on behalf of the Subscriber; and (iv) all of the documents
relating to the Subscriber’s subscription to the Shares have been duly executed
and delivered on behalf of the Subscriber and constitute a legal, valid and
binding agreement of the Subscriber.

(dd)    The Subscriber acknowledges that if he or she is a registered
representative of an NASD member firm, he or she must give such firm the notice
required by the NASD Rules of Fair Practice, receipt of which must be
acknowledged by such firm.

(ee)    The Subscriber understands that all information regarding the Offering
is confidential and represents that it will not be used for any purpose other
than in connection with his, her or its consideration of a purchase of the
Securities and agrees to treat it in a confidential manner. The Subscriber has
not, during the last thirty (30) days prior to the date hereof, directly or
indirectly, nor has any party acting on behalf of or pursuant to any
understanding with such Subscriber, effected or agreed to effect any short sale,
whether or not against the box, established any “put equivalent position” (as
defined in Rule 16(a)-1(h) under the Exchange Act) with respect to any security
of the Company, granted any other right (including, without limitation, any put
or call option) with respect to any security of the Company or with respect to
any security that includes, relates to, or derives any significant part of its
value from any security of the Company or otherwise sought to hedge its
positioning of the Company’s Securities. For purposes of this Section 2(ee),
short sales and hedging activities include, without limitation, all types of
direct and indirect stock pledges, forward sale contracts, options, puts, calls,
short

 
 

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sales, swaps, and similar arrangements (including on a total return basis), and
sales and other transactions through non-U.S. broker-dealers or foreign
regulated brokers having the effect of hedging the securities or investment made
under this Agreement. The Subscriber acknowledges and agrees that in order to
enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to any shares Preferred Stock or the common stock
underlying such shares or any other securities exchangeable, convertible or
exercisable for shares of Preferred Stock.

(ff)    Subscriber represents and warrants that he/she/it will have no open
position in the Company’s common stock at the time a Registration Statement is
filed with the SEC to register the Securities (the “Registration Statement”) and
is aware of the following Telephone Interpretation in the SEC Manual of Publicly
Available Telephone Interpretations (July 1997):

A.65. Section 5

An issuer filed a Form S-3 registration statement for a secondary offering of
common stock which is not yet effective. One of the selling shareholders wanted
to do a short sale of common stock “against the box” and cover the short sale
with registered shares after the effective date. The issuer was advised that the
short sale could not be made before the registration statement becomes
effective, because the shares underlying the short sale are deemed to be sold at
the time such sale is made. There would, therefore, be a violation of section 5
if the shares were effectively sold prior to the effective date.

(gg)    Subscriber acknowledges that it will execute and deliver to the Company
a completed selling stockholder questionnaire in connection with the filing of
the Registration Statement, prior to the filing thereof.

(hh)    Subscriber represents and warrants that he/she/it has complied with all
applicable provisions of the Act, the rules and regulations promulgated by the
SEC thereunder, including Regulation M and applicable state securities laws, and
will comply at the time of sale pursuant to the Registration Statement

(ii)    The Subscriber acknowledges that the Placement Agent (including any of
its members, managers, employees, agents or representatives) has not made any
representations or warranties to the Subscriber concerning the Company or any
subsidiary and their respective businesses, condition (financial or otherwise)
or prospects.

3.    Representations and Warranties of the Company. The Company represents and
warrants to Subscriber as follows:

(a)    The Company is duly organized and validly exists as a corporation in good
standing under the laws of the State of Iowa.

(b)    The Company has all such corporate power and authority to enter into,
deliver and perform this Subscription Agreement.

(c)    All necessary corporate action has been duly and validly taken by the
Company to authorize the execution, delivery and performance of this
Subscription Agreement by the Company, and the issuance and sale of the
Securities to be sold by the Company pursuant to this Subscription Agreement.
This Subscription Agreement has been duly and validly authorized, executed and
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company enforceable against the Company in accordance with its terms,
except as the enforceability thereof may be limited by

 
 

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bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors’ rights generally and by general
equitable principles.

(d)    In addition to the foregoing, Subscriber shall be entitled to rely on all
of the representations, warranties and covenants made by the Company to the
Placement Agent in that certain Placement Agency Agreement, as the same may be
amended, entered into between the Placement Agent and the Company in connection
with the Offering as if such representations, warranties and covenants were made
directly to the Subscriber.

4.    Condition to Obligations of Subscriber. The Subscriber’s obligations
hereunder are subject to the closing of the transactions contemplated by the
Stock Purchase Agreement, and the Company owning all of the issued and
outstanding common stock of ConMed.

5.    Indemnification. Subscriber agrees to indemnify and hold harmless the
Company, the Placement Agent, and their respective officers, directors,
employees, shareholders, agents, attorneys, representatives and affiliates, and
any person acting for or on behalf of the Company or the Placement Agent, from
and against any and all damage, loss, liability, cost and expense (including
reasonable attorneys’ fees and disbursements) which any of them may incur by
reason of the failure by Subscriber to fulfill any of the terms and conditions
of this Subscription Agreement, or by reason of any breach of the
representations and warranties made by Subscriber herein, or in any other
document provided by Subscriber to the Company in connection with this
investment. All representations, warranties and covenants of each of Subscriber
and the Company contained herein shall survive the acceptance of this
subscription and the Closings.

6.    Registration Rights.

(a)    In consideration of the investment in the Units described in this
Subscription Agreement and the Memorandum, the Company hereby grants to the
Subscriber, and Subscriber hereby agrees to and accepts from the Company, the
registration rights set forth in the Registration Rights Agreement,
substantially in the form attached hereto as Exhibit A (the “Registration Rights
Agreement”).

(b)    In connection with the exercise by Subscriber of the registration rights
set forth in the Registration Rights Agreement, and with respect to the
Securities held by such Subscriber, Subscriber hereby covenants that, prior to
filing a Registration Statement or Prospectus (each as defined in Registration
Rights Agreement) or any amendments or supplements thereto, Subscriber shall
promptly and truthfully complete and execute a selling security-holder
questionnaire provided by the Company, and provide any and all such other
material information as the Company may require in order to prepare and file
such Registration Statement, Prospectus or any amendment or supplement thereto.

7.    Covenants. Subscriber hereby agrees to vote all shares of the Company
voting stock over which Subscriber has voting control in favor of any resolution
presented to the shareholders of the Company with respect to Plan of
Recapitalization (as defined in the Memorandum).

 
 

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8.    Miscellaneous.

(a)    Subscriber agrees not to transfer or assign this Subscription Agreement
or any of Subscriber’s interest herein and further agrees that the transfer or
assignment of the Securities acquired pursuant hereto shall be made only in
accordance with all applicable laws.

(b)    Subscriber agrees that Subscriber cannot cancel, terminate, or revoke
this Subscription Agreement or any agreement of Subscriber made hereunder, and
this Subscription Agreement shall survive the death or legal disability of
Subscriber and shall be binding upon Subscriber’s heirs, executors,
administrators, successors, and permitted assigns.

(c)    Subscriber has read and has accurately completed this entire Subscription
Agreement.

(d)    This Subscription Agreement, together with the Memorandum, constitutes
the entire agreement between the parties hereto with respect to the subject
matter hereof and may be amended or waived only by a written instrument signed
by all parties.

(e)    Subscriber acknowledges that it has been advised and has had the
opportunity to consult with Subscriber’s own attorney regarding this
subscription and Subscriber has done so to the extent that Subscriber deems
appropriate.

(f)    Any notice or other document required or permitted to be given or
delivered to the parties hereto shall be in writing and sent: (i) by fax if the
sender on the same day sends a confirming copy of such notice by a recognized
overnight delivery service (charges prepaid), or (ii) by registered or certified
mail with return receipt requested (postage prepaid) or (iii) by a recognized
overnight delivery service (with charges prepaid).

If to the Company:

PACE Health Management Systems, Inc.
666 Walnut Street, Suite 2116
Des Moines, IA 50309
Attention: John Pappajohn
Telephone: (515) 244-5746

With a copy to:

Ellenoff Grossman & Schole LLP
370 Lexington Avenue
New York, NY 10017
Attn: Barry I. Grossman, Esq.
Tel: (212) 370-1300, Fax: (212) 370-7889

If to the Holder, to the Address Set Forth In the Records of the Company

With copies to:

Maxim Group LLC
405 Lexington Avenue
New York, New York 10174

Tel: (212) 895-3500
Fax: (212) 895-3555
Attn: Andrew Rosen
 
 

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(g)    Failure of the Company to exercise any right or remedy under this
Subscription Agreement or any other agreement between the Company and the
Subscriber, or otherwise, or any delay by the Company in exercising such right
or remedy, will not operate as a waiver thereof. No waiver by the Company will
be effective unless and until it is in writing and signed by the Company.

(h)    This Subscription Agreement shall be enforced, governed and construed in
all respects in accordance with the laws of the State of New York, as such laws
are applied by the New York courts except with respect to the conflicts of law
provisions thereof, and shall be binding upon the Subscriber and the
Subscriber’s heirs, estate, legal representatives, successors and permitted
assigns and shall inure to the benefit of the Company, and its successors and
assigns.

(i)    Any legal suit, action or proceeding arising out of or relating to this
Subscription Agreement or the transactions contemplated hereby shall be
instituted exclusively in New York Supreme Court, County of New York, or in the
United States District Court for the Southern District of New York. The parties
hereto hereby: (i) waive any objection which they may now have or hereafter have
to the venue of any such suit, action or proceeding, and (ii) irrevocably
consent to the jurisdiction of the New York Supreme Court, County of New York,
and the United States District Court for the Southern District of New York in
any such suit, action or proceeding. The parties further agree to accept and
acknowledge service of any and all process which may be served in any such suit,
action or proceeding in the New York Supreme Court, County of New York, or in
the United States District Court for the Southern District of New York and agree
that service of process upon a party which is mailed by certified mail to such
party’s address shall be deemed in every respect effective service of process
upon such party in any such suit, action or proceeding.

(j)    If any provision of this Subscription Agreement is held to be invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed modified to conform with such statute or rule of law. Any
provision hereof that may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provisions hereof.

(k)    The parties understand and agree that money damages would not be a
sufficient remedy for any breach of this Subscription Agreement by the Company
or the Subscriber and that the party against which such breach is committed
shall be entitled to equitable relief, including an injunction and specific
performance, as a remedy for any such breach, without the necessity of
establishing irreparable harm or posting a bond therefor. Such remedies shall
not be deemed to be the exclusive remedies for a breach by either party of this
Subscription Agreement but shall be in addition to all other remedies available
at law or equity to the party against which such breach is committed.

(l)    All pronouns and any variations thereof used herein shall be deemed to
refer to the masculine, feminine, singular or plural, as identity of the person
or persons may require.

(m)    This Subscription Agreement may be executed in counterparts and by
facsimile, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
 
 

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Signature Page for Individuals:

IN WITNESS WHEREOF, Subscriber has caused this Subscription Agreement to be
executed as of the date indicated below.

 
$___________________________________
 
___________________________________
Purchase Price
Number of Units
____________________________________
___________________________________
Print or Type Name
Print or Type Name (Joint-owner)
____________________________________
___________________________________
Signature
Signature (Joint-owner)
____________________________________
___________________________________
Date
Date (Joint-owner)
____________________________________
___________________________________
Social Security Number
Social Security Number (Joint-owner)
____________________________________
___________________________________
____________________________________
___________________________________
Address
Address (Joint-owner)
       
_______ Joint Tenancy
______ Tenants in Common

 
 
 

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Signature Page for Partnerships, Corporations or Other Entities:

IN WITNESS WHEREOF, Subscriber has caused this Subscription Agreement to be
executed as of the date indicated below.
 
$ __________________________
___________________________________
Total Purchase Price
Number of Units
       
_________________________________
 
Print or Type Name of Entity
         
___________________________________________________________________________________________________________
Address
         
_________________________________
____________________________________
Taxpayer I.D. No. (if applicable)
Date
           
_________________________________
____________________________________
Signature
Print or Type Name and Indicate
 
Title or Position with Entity
       
_________________________________
____________________________________
Signature (other authorized signatory)
Print or Type Name and Indicate
 
Title or Position with Entity

 
 
 

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Acceptance:

IN WITNESS WHEREOF, the Company has caused this Subscription Agreement to be
executed, and the foregoing subscription accepted, as of the date indicated
below, as to _______ Units.

PACE HEALTH MANAGEMENT SYSTEMS, INC.

 
By: __________________________________
Name:
Title:

Date: __________________________, 200__
 
 

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EXHIBIT A

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (this “Agreement”) is made and entered into
as of January ___, 2007 among Pace Health Management Systems, Inc., an Iowa
corporation (the “Company”), and the several purchasers signatory hereto (each
such purchaser is a “Purchaser” and collectively, the “Purchasers”).

This Agreement is made pursuant to the Securities Purchase Agreement, dated as
of the date hereof between the Company and each Purchaser (the “Purchase
Agreement”).

The Company and each Purchaser hereby agrees as follows:

1.    Definitions.Capitalized terms used and not otherwise defined herein that
are defined in the Purchase Agreement 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 the meaning set forth in Section 6(d).

“Effectiveness Date” means, with respect to the initial Registration Statement
required to be filed hereunder, June 1, 2007 and, with respect to any additional
Registration Statements which may be required pursuant to Section 3(c), the 90th
calendar day following the date on which the Company first knows, or reasonably
should have known, that such additional Registration Statement is required
hereunder; provided, however, that in the event the Company is notified by the
Commission that one of the above Registration Statements will not be reviewed or
is no longer subject to further review and comments, the Effectiveness Date as
to such Registration Statement shall be the fifth Trading Day following the date
on which the Company is so notified if such date precedes the dates required
above.

“Effectiveness Period” shall have the meaning set forth in Section 2(a).

“Event” shall have the meaning set forth in Section 2(b).

“Event Date” shall have the meaning set forth in Section 2(b).

“Filing Date” means, with respect to the initial Registration Statement required
hereunder, April 1, 2007 and, with respect to any additional Registration
Statements which may be required pursuant to Section 3(c), the 30th calendar day
following the earlier of: (i) the date on which the Company first knows, or
reasonably should have known that such additional Registration Statement is
required hereunder and (ii) the date any such additional Registration Statement
is permitted to be filed with the Commission.

 
 

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“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).

“Losses” shall have the meaning set forth in Section 5(a).

“Plan of Distribution” shall have the meaning set forth in Section 2(a).

“Prospectus” means the prospectus included in a 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 a
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.

“Registrable Securities” means, as of the date in question, (i) all of the
shares of Common Stock issuable upon conversion in full of the shares of
Preferred Stock, (ii) all Warrant Shares, (iii) any additional shares issuable
in connection with any anti-dilution provisions associated with the Preferred
Stock and Warrants (in each case, without giving effect to any limitations on
conversion set forth in the Certificate of Designation or limitations on
exercise set forth in the Warrant) and (iv) any securities issued or issuable
upon any stock split, dividend or other distribution, recapitalization or
similar event with respect to the foregoing.

“Registration Statement” means the registration statements required to be filed
hereunder and any additional registration statements contemplated by Section
3(c), including (in each case) the Prospectus, amendments and supplements to
such registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference in such registration statement.

“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 purpose and 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 purpose and effect as such Rule.

 
 

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“Selling Shareholder Questionnaire” shall have the meaning set forth in Section
3(a).

 2.    Shelf Registration

(a)    On or prior to each Filing Date, the Company shall prepare and file with
the Commission a “Shelf” Registration Statement covering the resale of the
Registrable Securities on such Filing Date for an offering to be made on a
continuous basis pursuant to Rule 415. The Registration Statement shall be on
Form S-3 (except if the Company is not then eligible to register for resale the
Registrable Securities on Form S-3, in which case such registration shall be on
another appropriate form in accordance herewith) and shall contain (unless
otherwise directed by at least an 85% majority in interest of the Holders)
substantially the “Plan of Distribution” attached hereto as Annex A. Subject to
the terms of this Agreement, the Company shall use its best efforts to cause a
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
applicable Effectiveness Date, and shall use its best efforts to keep such
Registration Statement continuously effective under the Securities Act until all
Registrable Securities covered by such Registration Statement have been sold, or
may be sold without volume restrictions pursuant to Rule 144(k), as determined
by the counsel to the Company pursuant to a written opinion letter to such
effect, addressed and acceptable to the Company’s transfer agent and the
affected Holders (the “Effectiveness Period”). The Company shall telephonically
request effectiveness of a Registration Statement as of 5:00 pm Eastern time on
a Trading Day. The Company shall immediately notify the Holders via facsimile of
the effectiveness of a Registration Statement on the same Trading Day that the
Company telephonically confirms effectiveness with the Commission, which shall
be the date requested for effectiveness of a Registration Statement. The Company
shall, by 9:30 am Eastern time on the second Trading Day after the Effective
Date (as defined in the Purchase Agreement), file a final Prospectus with the
Commission as required by Rule 424. Failure to so notify the Holder within two
Trading Days of such notification of effectiveness or failure to file a final
Prospectus as aforesaid shall be deemed an Event under Section 2(b). All selling
shareholders included on the applicable Registration Statement shall be given
notice of the effectiveness of such Registration Statement substantially at the
same time.

(b)    If: (i) a Registration Statement is not filed on or prior to the 15th day
following its Filing Date (if the Company files a Registration Statement without
affording the Holders the opportunity to review and comment on the same as
required by Section 3(a) herein, the Company shall be deemed to not have
satisfied this clause (i)), or (ii) the Company fails to file with the
Commission a request for acceleration in accordance with Rule 461 promulgated
under the Securities Act, within five Trading 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 not subject to further
review, or (iii) prior to the 30th day following its Effectiveness Date, the
Company fails to file a pre-effective amendment and otherwise respond in writing
to comments made by the

 
 

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Commission in respect of such Registration Statement within 15 calendar days
after the receipt of comments by or notice from the Commission that such
amendment is required in order for a Registration Statement to be declared
effective, or (iv) a Registration Statement filed or required to be filed
hereunder is not declared effective by the Commission by its Effectiveness Date,
or (v) after the Effectiveness Date, a Registration Statement ceases for any
reason to remain continuously effective as to all Registrable Securities for
which it is required to be effective, or the Holders are otherwise not permitted
to utilize the Prospectus therein to resell such Registrable Securities for more
than 20 consecutive calendar days or more than an aggregate of 30 calendar days
during any 12-month period (which need not be consecutive calendar days) (any
such failure or breach being referred to as an “Event”, and for purposes of
clause (i) or (iv) the date on which such Event occurs, or for purposes of
clause (ii) the date on which such five Trading Day period is exceeded, or for
purposes of clause (iii) the date which such 15 calendar day period is exceeded,
or for purposes of clause (v) the date on which such 20 or 30 calendar day
period, as applicable, is exceeded being referred to as “Event Date”), then in
addition to any other rights the Holders may have hereunder or under applicable
law, on each such Event Date and on each monthly anniversary of each such Event
Date (if the applicable Event shall not have been cured by such date) until the
applicable Event is cured, the Company shall pay to each Holder an amount in
cash, as partial liquidated damages and not as a penalty, equal to 1.0% of the
aggregate purchase price paid by such Holder pursuant to the Purchase Agreement
for any Registrable Securities then held by such Holder and not then registered
for resale pursuant to an effective Registration Statement (calculated as
calculated as if all convertible securities had been fully converted). The
parties agree that (1) in no event shall the Company be liable for liquidated
damages under this Agreement in excess of 1.0% of the aggregate Subscription
Amount of the Holders in any 30-day period and (2) the maximum aggregate
liquidated damages payable to a Holder under this Agreement shall be 10.0% of
the aggregate Subscription Amount paid by such Holder pursuant to the Purchase
Agreement. Notwithstanding anything herein to the contrary and subject to the
payment of liquidated damages as set forth above, in the event the Commission
determines any Registration Statement filed pursuant hereto constitutes a
primary offering of securities by the Company and/or requires any Holder to be
named as an underwriter, or otherwise restricts the number of Registrable
Securities that can be registered in a given Registration Statement citing the
percentage of Registrable Securities to be registered as compared to the
then-current public float or market capital of the Company (“SEC Caused Event”),
Holders understand and agree that the Company may reduce, on a pro-rata basis,
the total number of Registrable Securities to be registered on behalf of each
such Holder. Notwithstanding anything herein to the contrary, the Company will
not be liable for liquidated damages under this Agreement with respect to any
Warrants or Warrant Shares. In the event of such reduction, the affected Holders
shall have demand registration rights during the term of the Effectiveness
Period and the Holders acknowledge and agree the provisions of this paragraph
may apply to more than one Registration Statement and that the Commission may
limit or condition any subsequent Registration Statement. If the Company fails
to pay any partial liquidated damages pursuant to this Section in full within
seven days after the date payable, the Company will

 
 

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pay interest thereon at a rate of 18% per annum (or such lesser maximum amount
that is permitted to be paid by applicable law) to the Holder, accruing daily
from the date such partial liquidated damages are due until such amounts, plus
all such interest thereon, are paid in full. The partial liquidated damages
pursuant to the terms hereof shall apply on a daily pro-rata basis for any
portion of a month prior to the cure of an Event.

 3.    Registration Procedures.

In connection with the Company’s registration obligations hereunder, the Company
shall:

(a)    Not less than five Trading Days prior to the filing of each Registration
Statement and not less than one Trading Day prior to the filing of any related
Prospectus or any amendment or supplement thereto (including any document that
would be incorporated or deemed to be incorporated therein by reference), the
Company shall, (i) furnish to each Holder copies of all such documents proposed
to be filed, which documents (other than those incorporated or deemed to be
incorporated by reference) will be subject to the review of such Holders, and
(ii) cause its officers and directors, counsel and independent certified public
accountants to respond to such inquiries as shall be necessary, in the
reasonable opinion of respective counsel to each Holder to conduct a reasonable
investigation within the meaning of the Securities Act. The Company shall not
file a Registration Statement or any such Prospectus or any amendments or
supplements thereto to which the Holders of a majority of the Registrable
Securities shall reasonably object in good faith, provided that, the Company is
notified of such objection in writing no later than 5 Trading Days after the
Holders have been so furnished copies of a Registration Statement or 1 Trading
Day after the Holders have been so furnished copies of any related Prospectus or
amendment or supplement thereto. Each Holder agrees to furnish to the Company a
completed Questionnaire in the form attached to this Agreement as Annex B (a
“Selling Shareholder Questionnaire”) not less than two Trading Days prior to the
Filing Date or by the end of the fourth Trading Day following the date on which
such Holder receives draft materials in accordance with this Section.

(b)(i)    Prepare and file with the Commission such amendments, including
post-effective amendments, to a Registration Statement and the Prospectus used
in connection therewith as may be necessary to keep a Registration Statement
continuously effective as to the applicable Registrable Securities for the
Effectiveness Period and prepare and file with the Commission such additional
Registration Statements 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 (subject to the
terms of this Agreement), and as so supplemented or amended to be filed pursuant
to Rule 424; (iii) respond as promptly as reasonably possible to any comments
received from the Commission with respect to a Registration Statement or any
amendment thereto and as promptly as reasonably possible provide the Holders
true and complete copies of all correspondence from and to the Commission
relating to a Registration Statement (provided that the Company may excise any
information

 
 

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contained therein which would constitute material non-public information as to
any Holder which has not executed a confidentiality agreement with the Company);
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 a Registration Statement during the applicable period in
accordance (subject to the terms of this Agreement) with the intended methods of
disposition by the Holders thereof set forth in such Registration Statement as
so amended or in such Prospectus as so supplemented.

(c)    If during the Effectiveness Period, the number of Registrable Securities
at any time exceeds the number of shares of Common Stock then registered in a
Registration Statement, then the Company shall file as soon as reasonably
practicable but in any case prior to the applicable Filing Date, an additional
Registration Statement covering the resale by the Holders of not less than 100%
of the number of such Registrable Securities.

(d)    Notify the Holders of Registrable Securities to be sold (which notice
shall, pursuant to clauses (iii) through (vi) hereof, shall also be accompanied
by an instruction to suspend the use of the Prospectus until the requisite
changes have been made) as promptly as reasonably possible (and, in the case of
(i)(A) below, not less than 1 Trading Day prior to such filing) and (if
requested by any such Person) confirm such notice in writing no later than one
Trading Day following the day (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment to a Registration Statement is proposed
to be 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 a
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 a Registration Statement
or Prospectus or for additional information; (iii) of the issuance by the
Commission or any other federal or state governmental authority of any stop
order suspending the effectiveness of a Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) 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; (v) of the occurrence of any
event or passage of time that makes the financial statements included in a
Registration Statement ineligible for inclusion therein or any statement made in
a Registration Statement or Prospectus or any document incorporated or deemed to
be incorporated therein by reference untrue in any material respect or that
requires any revisions to a Registration Statement, Prospectus or other
documents so that, in the case of a 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 light of the circumstances under which they were
made, not misleading; and (vi) the occurrence or existence of any pending
corporate development with respect to the Company that the Company believes may
be material and that, in the determination of the

 
 

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Company, makes it not in the best interest of the Company to allow continued
availability of a Registration Statement or Prospectus; provided that any and
all of such information shall remain confidential to each Holder until such
information otherwise becomes public, unless disclosure by a Holder is required
by law; provided, further, that notwithstanding each Holder’s agreement to keep
such information confidential, the Holders make no acknowledgement that any such
information is material, non-public information.

(e)    Use its best efforts to avoid the issuance of, or, if issued, obtain the
withdrawal of (i) any order suspending the effectiveness of a Registration
Statement, or (ii) any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.

(f)    Furnish to each Holder, without charge, at least one conformed copy of
each such Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference to the extent requested by such Person, 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)    Subject to the terms of this Agreement, 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,
except after the giving of any notice pursuant to Section 3(d).

(h)    The Company shall effect a filing with respect to the public offering
contemplated by the Registration Statement (an “Issuer Filing”) with the
National Association of Securities Dealers, Inc. (“NASD”) Corporate Financing
Department pursuant to NASD Rule 2710(b)(4) within one Trading Day of the date
that the Registration Statement is first filed with the Commission and pay the
filing fee required by such Issuer Filing. The Company shall use commercially
reasonable efforts to pursue the Issuer Filing until the NASD issues a letter
confirming that it does not object to the terms of the offering contemplated by
the Registration Statement.

(i)    Prior to any resale of Registrable Securities by a Holder, use its
commercially reasonable efforts to register or qualify or cooperate with the
selling Holders in connection with the registration or qualification (or
exemption from the Registration or qualification) of such Registrable Securities
for the resale by the Holder under the securities or Blue Sky laws of such
jurisdictions within the United States as any Holder reasonably requests in
writing, to keep each registration or qualification (or exemption therefrom)
effective during the Effectiveness Period and to do any and all other acts or
things reasonably necessary to enable the disposition in such jurisdictions of
the Registrable Securities covered by each Registration Statement; provided,
that the Company shall not be required to qualify generally to do business in
any jurisdiction

 
 

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where it is not then so qualified, subject the Company to any material tax in
any such jurisdiction where it is not then so subject or file a general consent
to service of process in any such jurisdiction.

(j)    If requested by the Holders, cooperate with the Holders to facilitate the
timely preparation and delivery of certificates representing Registrable
Securities to be delivered to a transferee pursuant to a Registration Statement,
which certificates shall be free, to the extent permitted by the Purchase
Agreement, of all restrictive legends, and to enable such Registrable Securities
to be in such denominations and registered in such names as any such Holders may
request.

(k)    Upon the occurrence of any event contemplated by this Section 3, as
promptly as reasonably possible under the circumstances taking into account the
Company’s good faith assessment of any adverse consequences to the Company and
its stockholders of the premature disclosure of such event, prepare a supplement
or amendment, including a post-effective amendment, to a 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 a 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 light of the circumstances under which they were made,
not misleading. If the Company notifies the Holders in accordance with clauses
(iii) through (vi) of Section 3(d) above to suspend the use of any Prospectus
until the requisite changes to such Prospectus have been made, then the Holders
shall suspend use of such Prospectus. The Company will use its best efforts to
ensure that the use of the Prospectus may be resumed as promptly as is
practicable. The Company shall be entitled to exercise its right under this
Section 3(k) to suspend the availability of a Registration Statement and
Prospectus, subject to the payment of partial liquidated damages pursuant to
Section 2(b), for a period not to exceed 60 calendar days (which need not be
consecutive days) in any 12 month period.

(l)    Comply with all applicable rules and regulations of the Commission.

(m)    The Company may require each selling Holder to furnish to the Company a
certified statement as to the number of shares of Common Stock beneficially
owned by such Holder and, if required by the Commission, the natural persons
thereof that have voting and dispositive control over the Shares. During any
periods that the Company is unable to meet its obligations hereunder with
respect to the registration of the Registrable Securities solely because any
Holder fails to furnish such information within three Trading Days of the
Company’s request, any liquidated damages that are accruing at such time as to
such Holder only shall be tolled and any Event that may otherwise occur solely
because of such delay shall be suspended as to such Holder only, until such
information is delivered to the Company.

 
 

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4.    Registration Expenses. All fees and expenses incident to the performance
of or compliance with this Agreement by the Company shall be borne by the
Company whether or not any Registrable Securities are sold pursuant to a
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 any Trading Market on which the Common Stock is then
listed for trading, (B) in compliance with applicable state securities or Blue
Sky laws reasonably agreed to by the Company in writing (including, without
limitation, fees and disbursements of counsel for the Company in connection with
Blue Sky qualifications or exemptions of the Registrable Securities) and (C) if
not previously paid by the Company in connection with an Issuer Filing, with
respect to any filing that may be required to be made by any broker through
which a Holder intends to make sales of Registrable Securities with NASD
Regulation, Inc. pursuant to the NASD Rule 2710, so long as the broker is
receiving no more than a customary brokerage commission in connection with such
sale, (ii) printing expenses of the Company (including, without limitation,
expenses of printing certificates for Registrable Securities, (iii) messenger,
telephone and delivery expenses of the Company, (iv) fees and disbursements of
counsel for the Company, (v) Securities Act liability insurance, if the Company
so 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. 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 and the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder. In no event shall the Company be
responsible for any broker or similar commissions of any Holder or, except to
the extent provided for in the Transaction Documents, any legal fees or other
costs of the Holders.

 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, members, partners, agents, brokers (including brokers who
offer and sell Registrable Securities as principal as a result of a pledge or
any failure to perform under a margin call of Common Stock), investment advisors
and employees (and any other Persons with a functionally equivalent role of a
Person holding such titles, notwithstanding a lack of such title or any other
title) 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, members, shareholders, partners, agents and
employees (and any other Persons with a functionally equivalent role of a Person
holding such titles, notwithstanding a lack of such title or any other title) 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, reasonable attorneys’ fees) and expenses
(collectively, “Losses”), as incurred, arising out of or relating to (1) any
untrue or alleged untrue statement of a material fact contained in a
Registration Statement, any Prospectus or any form of prospectus or in any

 
 

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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 light of the
circumstances under which they were made) not misleading, or (2) any violation
or alleged violation by the Company of the Securities Act, Exchange Act or any
state securities law, or any rule or regulation thereunder, in connection with
the performance of its obligations under this Agreement, except to the extent,
but only to the extent, that (i) such untrue statements or omissions are based
solely upon information regarding such Holder furnished in writing to the
Company by such Holder expressly for use therein, or to the extent that such
information relates to such Holder or such Holder’s proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in a Registration Statement, such
Prospectus or such form of Prospectus or in any amendment or supplement thereto
(it being understood that the Holder has approved Annex A hereto for this
purpose) or (ii) in the case of an occurrence of an event of the type specified
in Section 3(d)(iii)-(vi), the use by such Holder of an outdated or defective
Prospectus after the Company has notified such Holder in writing that the
Prospectus is outdated or defective and prior to the receipt by such Holder of
the Advice contemplated in Section 6(d). The Company shall notify the Holders
promptly of the institution, threat or assertion of any Proceeding arising from
or in connection with the transactions contemplated by this Agreement of which
the Company is aware.

(b)    Indemnification by Holders. Each Holder shall, severally and not jointly,
indemnify and hold harmless the Company, its directors, 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,
officers, agents or employees of such controlling Persons (and any other Persons
with a functionally equivalent role of a Person holding such titles,
notwithstanding a lack of such title or any other title, to the fullest extent
permitted by applicable law, from and against all Losses, as incurred, to the
extent arising out of or based solely upon: (x) such Holder’s failure to comply
with the prospectus delivery requirements of the Securities Act or (y) 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 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 not misleading
(i) to the extent, but only to the extent, that such untrue statement or
omission is contained in any information so furnished in writing by such Holder
to the Company specifically for inclusion in such Registration Statement or such
Prospectus or (ii) to the extent that such information relates to such Holder’s
proposed method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Holder expressly for use in a Registration
Statement (it being understood that the Holder has approved Annex A hereto for
this purpose), such Prospectus or such form of Prospectus or in any amendment or
supplement thereto or (iii) in the case of an occurrence of an event of the type
specified in Section 3(d)(iii)-(vi), the use by such Holder of an outdated or
defective Prospectus after the Company has notified

 
 

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such Holder in writing that the Prospectus is outdated or defective and prior to
the receipt by such Holder of the Advice contemplated in Section 6(d). In no
event shall the liability of any selling Holder hereunder be greater in amount
than the dollar amount of the net proceeds received by such Holder upon the sale
of the Registrable Securities giving rise to such indemnification obligation.

(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 shall promptly notify the Person
from whom indemnity is sought (the “Indemnifying Party”) in writing, and the
Indemnifying Party shall have the right 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 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; (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 counsel to the Indemnified Party shall
reasonably believe that a material 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 the reasonable fees and expenses of no more than one
separate 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
Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such Proceeding.

Subject to the terms of this Agreement, all reasonable 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 Trading Days of written notice thereof to the
Indemnifying Party; provided, that the

 
 

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

 

Indemnified Party shall promptly reimburse the Indemnifying Party for that
portion of such fees and expenses applicable to such actions for which such
Indemnified Party is judicially determined to be not entitled to indemnification
hereunder.

(d)    Contribution. If the indemnification under Section 5(a) or 5(b) is
unavailable to an Indemnified Party or insufficient to hold an Indemnified Party
harmless for any Losses, then each Indemnifying Party shall contribute to the
amount paid or payable by such Indemnified Party, in such proportion as is
appropriate to reflect the relative fault 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 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 this Agreement, any reasonable attorneys’ or
other 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.

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.
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
net proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission, except in the case of fraud by
such Holder.

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.

 6.    Miscellaneous

(a)    Remedies. In the event of a breach by the Company or by a Holder, of any
of their respective obligations under this Agreement, each 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 not assert or shall waive the defense that a
remedy at law would be adequate.

(b)    No Piggyback on Registrations. Except as set forth on Schedule 6(b)
attached hereto, neither the Company nor any of its security holders (other than
the Holders in such capacity pursuant hereto) may include securities of the
Company in any Registration Statement other than the Registrable Securities. The
Company shall not file any other registration statements until there is an
effective Registration Statement(s) pursuant to which the Holders are permitted
to utilize a Prospectus to resell all Registrable Securities or such Registrable
Securities may be resold by the Holders pursuant to Rule 144(k), provided that
this Section 6(b) shall not prohibit the Company from filing amendments to
registration statements filed prior to the date of this Agreement.

(c)    Compliance. Each Holder covenants and agrees that it will comply with the
prospectus delivery requirements of the Securities Act as applicable to it in
connection with sales of Registrable Securities pursuant to a Registration
Statement.

(d)    Discontinued Disposition. Each Holder agrees by its acquisition of
Registrable Securities that, upon receipt of a notice from the Company of the
occurrence of any event of the kind described in Section 3(d)(iii) through (vi),
such Holder will forthwith discontinue disposition of such Registrable
Securities under a Registration Statement until it is advised in writing (the
“Advice”) by the Company that the use of the applicable Prospectus (as it may
have been supplemented or amended) may be resumed. The Company will use its best
efforts to ensure that the use of the Prospectus may be resumed as promptly as
it practicable. The Company agrees and acknowledges that any periods during
which the Holder is required to discontinue the disposition of the Registrable
Securities hereunder shall be subject to the provisions of Section 2(b).

(e)    Piggy-Back Registrations. If at any time during the Effectiveness Period
there is not an effective Registration Statement covering all of the Registrable
Securities and 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 the stock option or other employee
benefit plans, then the Company shall send to each Holder a written notice of
such determination and, if within fifteen days after the date of such notice,
any such Holder shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
Holder requests to be registered; provided, however, that, the Company shall not
be required to register any Registrable Securities pursuant to this

 
 

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

 

Section 6(e) that are eligible for resale pursuant to Rule 144(k) promulgated
under the Securities Act or that are the subject of a then effective
Registration Statement.

(f)    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 Holders
holding at least 67% of the then outstanding Registrable Securities.
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of
Holders and that does not directly or indirectly affect the rights of other
Holders may be given by Holders of all of the Registrable Securities to which
such waiver or consent relates; provided, however, that the provisions of this
sentence may not be amended, modified, or supplemented except in accordance with
the provisions of the immediately preceding sentence.

(g)    Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be delivered as set forth
in the Purchase Agreement.

(h)    Successors and Assigns. This Agreement shall inure to the benefit of and
be binding upon the successors and permitted assigns of each of the parties and
shall inure to the benefit of each Holder. The Company may not assign (except by
merger) its rights or obligations hereunder without the prior written consent of
all of the Holders of the then-outstanding Registrable Securities. Each Holder
may assign their respective rights hereunder in the manner and to the Persons as
permitted under the Purchase Agreement.

(i)    No Inconsistent Agreements. Neither the Company nor any of its
Subsidiaries has entered, as of the date hereof, 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 would have the effect of
impairing the rights granted to the Holders in this Agreement or otherwise
conflicts with the provisions hereof. Except as set forth on Schedule 6(i),
neither the Company nor any of its subsidiaries has previously entered into any
agreement granting any registration rights with respect to any of its securities
to any Person that have not been satisfied in full.

(j)    Execution and Counterparts. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission or by e-mail delivery of a “.pdf” format
data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile or “.pdf” signature page were an original
thereof.

 
 

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

 
 
(k)    Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be determined in
accordance with the provisions of the Purchase Agreement.

(l)    Cumulative Remedies. The remedies provided herein are cumulative and not
exclusive of any other remedies provided by law.

(m)    Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.

(n)    Headings. The headings in this Agreement are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.

(o)    Independent Nature of Holders’ Obligations and Rights. The obligations of
each Holder hereunder are several and not joint with the obligations of any
other Holder hereunder, and no Holder shall be responsible in any way for the
performance of the obligations of any other Holder hereunder. Nothing contained
herein or in any other agreement or document delivered at any closing, and no
action taken by any Holder pursuant hereto or thereto, shall be deemed to
constitute the Holders as a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Holders are in any way
acting in concert with respect to such obligations or the transactions
contemplated by this Agreement. Each Holder shall be entitled to protect and
enforce its rights, including without limitation the rights arising out of this
Agreement, and it shall not be necessary for any other Holder to be joined as an
additional party in any proceeding for such purpose.

********************

 
 

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IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as of the date first written above.

 
PACE HEALTH MANAGEMENT SYSTEMS, INC.
 
By:__________________________________________
Name:
Title:

 

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

 
 

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[SIGNATURE PAGE OF HOLDERS TO PACE RRA]

Name of Holder: __________________________
Signature of Authorized Signatory of Holder: __________________________
Name of Authorized Signatory: _________________________
Title of Authorized Signatory: __________________________
 

[SIGNATURE PAGES CONTINUE]

 

 
 

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ANNEX A

Plan of Distribution
 
Each Selling Stockholder (the “Selling Stockholders”) of the common stock and
any of their pledgees, assignees and successors-in-interest may, from time to
time, sell any or all of their shares of common stock on the OTC Bulletin Board
or any other stock exchange, market or trading facility on which the shares are
traded or in private transactions. These sales may be at fixed or negotiated
prices. A Selling Stockholder may use any one or more of the following methods
when selling 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 resale by the broker-dealer for
its account;

 

 
·
an exchange distribution in accordance with the rules of the applicable
exchange;

 

 
·
privately negotiated transactions;

 

 
·
settlement of short sales entered into after the effective date of the
registration statement of which this prospectus is a part;

 

 
·
broker-dealers may agree with the Selling Stockholders to sell a specified
number of such shares at a stipulated price per share;

 

 
·
through the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise;

 

 
·
a combination of any such methods of sale; or

 

 
·
any other method permitted pursuant to applicable law.

 
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act of 1933, as amended (the “Securities Act”), if available, rather
than under this prospectus.
 
Broker-dealers engaged by the Selling Stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the Selling Stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated, but, except as set forth in a supplement to this Prospectus, in the
case of an agency transaction not in excess of a customary brokerage

 
 

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commission in compliance with NASDR Rule 2440; and in the case of a principal
transaction a markup or markdown in compliance with NASDR IM-2440.
 
In connection with the sale of the common stock or interests therein, the
Selling Stockholders may enter into hedging transactions with broker-dealers or
other financial institutions, which may in turn engage in short sales of the
Common Stock in the course of hedging the positions they assume. The Selling
Stockholders may also sell shares of the common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The Selling
Stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
 
The Selling Stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such 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. Each Selling Stockholder has informed the
Company that it does not have any written or oral agreement or understanding,
directly or indirectly, with any person to distribute the Common Stock. In no
event shall any broker-dealer receive fees, commissions and markups which, in
the aggregate, would exceed eight percent (8%).
 
The Company is required to pay certain fees and expenses incurred by the Company
incident to the registration of the shares. The Company has agreed to indemnify
the Selling Stockholders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.
 
Because Selling Stockholders may be deemed to be “underwriters” within the
meaning of the Securities Act, they will be subject to the prospectus delivery
requirements of the Securities Act including Rule 172 thereunder. In addition,
any securities covered by this prospectus which qualify for sale pursuant to
Rule 144 under the Securities Act may be sold under Rule 144 rather than under
this prospectus. There is no underwriter or coordinating broker acting in
connection with the proposed sale of the resale shares by the Selling
Stockholders.
 
We agreed to keep this prospectus effective until the earlier of (i) the date on
which the shares may be resold by the Selling Stockholders without registration
and without regard to any volume limitations by reason of Rule 144(k) under the
Securities Act or any other rule of similar effect or (ii) all of the shares
have been sold pursuant to this prospectus or Rule 144 under the Securities Act
or any other rule of similar effect. The resale shares will be sold only through
registered or licensed brokers or dealers if required under applicable state
securities laws. In addition, in certain states, the resale shares may not be
sold unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is
available and is complied with.

 
 

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Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the resale shares may not simultaneously engage
in market making activities with respect to the common stock for the applicable
restricted period, as defined in Regulation M, prior to the commencement of the
distribution. In addition, the Selling Stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases and
sales of shares of the common stock by the Selling Stockholders or any other
person. We will make copies of this prospectus available to the Selling
Stockholders and have informed them of the need to deliver a copy of this
prospectus to each purchaser at or prior to the time of the sale (including by
compliance with Rule 172 under the Securities Act).

 
 

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Annex B
 
PACE HEALTH MANAGEMENT SYSTEMS, INC.
 
Selling Securityholder Notice and Questionnaire
 
The undersigned beneficial owner of common stock (the “Registrable Securities”)
of Pace Health Management Systems, Inc., an Iowa corporation (the “Company”),
understands that the Company has filed or intends to file with the Securities
and Exchange Commission (the “Commission”) a registration statement (the
“Registration Statement”) for the registration and resale under Rule 415 of the
Securities Act of 1933, as amended (the “Securities Act”), of the Registrable
Securities, in accordance with the terms of the Registration Rights Agreement
(the “Registration Rights Agreement”) to which this document is annexed. A copy
of the Registration Rights Agreement is available from the Company upon request
at the address set forth below. All capitalized terms not otherwise defined
herein shall have the meanings ascribed thereto in the Registration Rights
Agreement.
 
Certain legal consequences arise from being named as a selling securityholder in
the Registration Statement and the related prospectus. Accordingly, holders and
beneficial owners of Registrable Securities are advised to consult their own
securities law counsel regarding the consequences of being named or not being
named as a selling securityholder in the Registration Statement and the related
prospectus.
 
NOTICE
 
The undersigned beneficial owner (the “Selling Securityholder”) of Registrable
Securities hereby elects to include the Registrable Securities owned by it in
the Registration Statement.

 
 

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The undersigned hereby provides the following information to the Company and
represents and warrants that such information is accurate:
 
QUESTIONNAIRE
 
1.Name.
 

 
(a)
Full Legal Name of Selling Securityholder

    

 
(b)
Full Legal Name of Registered Holder (if not the same as (a) above) through
which Registrable Securities are held:

    

 
(c)
Full Legal Name of Natural Control Person (which means a natural person who
directly or indirectly alone or with others has power to vote or dispose of the
securities covered by the questionnaire):

     

2. Address for Notices to Selling Securityholder:
 

        
Telephone:
Fax:
Contact Person:

 
3. Broker-Dealer Status:
 

 
(a)
Are you a broker-dealer?

 
Yes o   No o
 

 
(b)
If “yes” to Section 3(a), did you receive your Registrable Securities as
compensation for investment banking services to the Company.

 
Yes o       No o

 
 

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Note:If no, the Commission’s staff has indicated that you should be identified
as an underwriter in the Registration Statement.
 

 
(c)
Are you an affiliate of a broker-dealer?

 
Yes o       No o
 

 
(d)
If you are an affiliate of a broker-dealer, do you certify that you bought the
Registrable Securities in the ordinary course of business, and at the time of
the purchase of the Registrable Securities to be resold, you had no agreements
or understandings, directly or indirectly, with any person to distribute the
Registrable Securities?

 
Yes o       No o
 

 
Note:
If no, the Commission’s staff has indicated that you should be identified as an
underwriter in the Registration Statement.

 
4. Beneficial Ownership of Other Securities of the Company Owned by the Selling
Securityholder.
 
Except as set forth below in this Item 4, the undersigned is not the beneficial
or registered owner of any securities of the Company other than the securities
issuable pursuant to the Purchase Agreement.
 

 
(a)
Type and Amount of other securities beneficially owned by the Selling
Securityholder:

 

       

5. Relationships with the Company:
 
Except as set forth below, neither the undersigned nor any of its affiliates,
officers, directors or principal equity holders (owners of 5% of more of the
equity securities of the undersigned) has held any position or office or has had
any other material relationship with the Company (or its predecessors or
affiliates) during the past three years.
 
State any exceptions here:
 

        

 
 

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The undersigned agrees to promptly notify the Company of any inaccuracies or
changes in the information provided herein that may occur subsequent to the date
hereof at any time while the Registration Statement remains effective.
 
By signing below, the undersigned consents to the disclosure of the information
contained herein in its answers to Items 1 through 5 and the inclusion of such
information in the Registration Statement and the related prospectus and any
amendments or supplements thereto. The undersigned understands that such
information will be relied upon by the Company in connection with the
preparation or amendment of the Registration Statement and the related
prospectus.
 
IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this
Notice and Questionnaire to be executed and delivered either in person or by its
duly authorized agent.
 
Dated: ______________________________________
Beneficial Owner:________________________________
 
By: __________________________________________
Name:
Title:

PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND
RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:
 
 

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EXHIBIT B

CONFIDENTIAL PURCHASER QUESTIONNAIRE

PACE HEALTH MANAGEMENT SYSTEMS, INC.

THIS QUESTIONNAIRE MUST BE ANSWERED FULLY AND RETURNED ALONG WITH YOUR COMPLETED
SUBSCRIPTION AGREEMENT IN CONNECTION WITH YOUR PROSPECTIVE PURCHASE OF
SECURITIES FROM PACE HEALTH MANAGEMENT SYSTEMS, INC. (THE “COMPANY”).

THE INFORMATION SUPPLIED IN THIS QUESTIONNAIRE WILL BE HELD IN STRICT
CONFIDENCE. NO INFORMATION WILL BE DISCLOSED EXCEPT TO THE EXTENT THAT SUCH
DISCLOSURE IS REQUIRED BY LAW OR REGULATION, OTHERWISE DEMANDED BY PROPER LEGAL
PROCESS OR IN LITIGATION INVOLVING THE COMPANY.

Capitalized terms used herein without definition shall have the respective
meanings given such terms as set forth in the Subscription Agreement between
Pace Health Management Systems, Inc. and the subscriber signatory thereto (the
“Subscription Agreement”) or in the Company’s Confidential Private Placement
Memorandum, dated as of January 16, 2007 (as amended or supplemented, and
together with all exhibits attached thereto, the “Memorandum”).

(1)
The undersigned represents and warrants that he, she or it comes within at least
one category marked below, and that for any category marked, he, she or it has
truthfully set forth, where applicable, the factual basis or reason the
undersigned comes within that category. The undersigned agrees to furnish any
additional information which the Company deems neces-sary in order to verify the
answers set forth below.

Category A ___
The undersigned is an individual (not a partnership, corporation, etc.) whose
individual net worth, or joint net worth with his or her spouse, presently
exceeds $1,000,000.

Explanation. In calculating net worth you may include equity in personal
property and real estate, including your principal residence, cash, short-term
investments, stock and securities. Equity in personal property and real estate
should be based on the fair market value of such property less debt secured by
such property.

Category B ___
The undersigned is an individual (not a partnership, corporation, etc.) who had
an income in excess of $200,000 in each of the two most recent years, or joint
income with his or her spouse in excess of $300,000 in each of those years (in
each case including foreign income, tax exempt income and full amount of capital
gains and losses but excluding any income of other family members and any
unrealized capital appreciation) and has a reasonable expectation of reaching
the same income level in the current year.

 

Category C ___
The undersigned is a director or executive officer of the Company which is
issuing and selling the Securities.

 
 

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Category D ___
The undersigned is a bank, as defined in Section 3(a)(2) of the Securities Act
of 1933, as amended (the “Act”); a savings and loan associa-tion or other
institution as defined in Section 3(a)(5)(A) of the Act, whether acting in its
individual or fiduciary capacity; any insurance company as defined in
Section 2(13) of the Act; any investment company registered under the Investment
Company Act of 1940 or a business development company as defined in
Section 2(a)(48) of that Act; any Small Business Investment Company licensed by
the U.S. Small Business Administration under Section 301(c) or (d) of the Small
Business Investment Act of 1958; any plan established and maintained by a state,
its political subdivisions, or any agency or instrumentality of a state or its
political subdivisions, for the benefit of its employees, if such plan has total
assets in excess of $5,000,000; any employee benefit plan within the meaning of
the Employee Retirement Income Security Act of 1974 if the investment decision
is made by a plan fiduciary, as defined in Section 3(21) of such act, which is
either a bank, savings and loan association, insurance company, or registered
investment advisor, or if the employee benefit plan has total assets in excess
of $5,000,000 or, if a self-directed plan, with investment decisions made solely
by persons that are accredited investors (describe entity).

______________________________________________________________
______________________________________________________________

Category E ___
The undersigned is a private business development company as defined in section
202(a) (22) of the Investment Advisors Act of 1940 (describe entity)

______________________________________________________________
______________________________________________________________

Category F ___
The undersigned is either a corporation, partnership, Massachusetts business
trust, or non-profit organization within the meaning of Section 501(c)(3) of the
Internal Revenue Code, in each case not formed for the specific purpose of
acquiring the Securities and with total assets in excess of $5,000,000 (describe
entity)

______________________________________________________________
______________________________________________________________

Category G ___
The undersigned is a trust with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring the Securities, where the purchase is
directed by a “sophisticated investor” as defined in Regulation
506(b)(2)(ii) under the Act.

Category H ___
The undersigned is an entity in which all of the equity owners are “accredited
investors” within one or more of the above categories. If relying upon this
Category alone, each equity owner must complete a separate copy of this
Purchaser Questionnaire (describe entity). If the entity is a trust, a copy the
trust documents must be provided and in the case of a revocable trust, the
grantor must provide a copy of the Purchaser Questionnaire.

______________________________________________________________
______________________________________________________________
 
 
 

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The undersigned agrees that the undersigned will notify the Company at any time
on or prior to the applicable Closing (as defined in the Memorandum) in the
event that the representations and warranties in this Purchaser Questionnaire
shall cease to be true, accurate and complete.

(2)
Suitability (please answer each question)

 
(a)
For an individual, please describe your current employment, including the
company by which you are employed and its principal business:

______________________________________________________________
______________________________________________________________
______________________________________________________________
 

 
(b)
For an individual, please describe any college or graduate degrees held by you:

______________________________________________________________
______________________________________________________________
______________________________________________________________
 
(c)    For all subscribers, please list types of prior investments:
 
______________________________________________________________
______________________________________________________________
______________________________________________________________
 

 
(d)
For all subscribers, please state whether you have you participated in other
private placements before:

YES
    
NO
  

 
(e)
If your answer to question (d) page #3 was “YES”, please indicate frequency of
such prior participation in private placements of:

   
Public
Companies
 
Private
Companies
Frequently
             
Occasionally
         
Never
         

 
(f)
For individuals, do you expect your current level of income to significantly
decrease in the foreseeable future?

YES
    
NO
   

(g)
For trust, corporate, partnership and other institutional subscribers, do you
expect your total assets to significantly decrease in the foreseeable future?

YES
       
NO
     

 
 
 

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(h)
For all subscribers, do you have any other investments or contingent liabilities
which you reasonably anticipate could cause you to need sudden cash requirements
in excess of cash readily available to you?

YES
    
NO
   

 
(i)
For all subscribers, are you familiar with the risk aspects and the
non-liquidity of investments such as the Securities for which you seek to
purchase?

YES
    
NO
   

 
(j)
For all subscribers, do you understand that there is no guarantee of financial
return on this investment and that you run the risk of losing your entire
investment?

YES
     
NO
   

(3)
Manner in which title is to be held: (circle one)

(a)
Individual Ownership

(b)
Community Property

(c)
Joint Tenant with Right of Survivorship (both parties must sign)

(d)
Partnership

(e)
Tenants in Common

(f)
Company

(g)
Trust

(h)
Other

(4)
NASD Affiliation.

Are you affiliated or associated with an NASD member firm (please check one):

YES
      
NO
    

If Yes, please describe:

_________________________________________________________
_________________________________________________________
_________________________________________________________
 
 

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*If subscriber is a Registered Representative with an NASD member firm, have the
following acknowledgment signed by the appropriate party:

The undersigned NASD member firm acknowledges receipt of the notice required by
the NASD Conduct Rules.

_________________________________
Name of NASD Member Firm

By: ______________________________
Authorized Officer

Date: _____________________________

The undersigned has been informed of the significance to the Company of the
foregoing representations and answers contained in this Confidential Purchaser
Questionnaire and such representations and answers have been provided with the
understanding that the Company and the Placement Agent will rely on them.
 
 
Individual
   
Date:________________________
______________________________
 
Name of Individual
 
(Please type or print)
     
_______________________________
 
Signature of Individual
         
_______________________________
 
Name of Joint Owner
 
(Please type or print)
         
_______________________________
 
Signature (Joint Owner)
     
Partnership, Corporation or
 
Other Entity
   
Date: _______________________ 
_______________________________
 
Print or Type Entity Name
     
By:____________________________
 
Print or Type Name
 
Title:
     
_______________________________
 
Signature
   
 
Title: __________________________
     
_______________________________
 
Signature (other authorized signatory)

 
 
 

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