exv10w4



 










Exhibit 10.4






REGISTRATION RIGHTS AGREEMENT




     
This Registration Rights Agreement (this
“Agreement”) is made and entered into as
of June 30, 2004, among Healthaxis Inc., a Pennsylvania
corporation (the “Company”), and the
parties who have executed this Agreement and whose names appear
on Schedule I hereto (each party listed on
Schedule I hereto is sometimes individually referred
to herein as a “Holder” and all such
parties are sometimes collectively referred to herein as the
“Holders”).




     
This Agreement is made pursuant to the Preferred
Stock Modification Agreement, dated as of May 12, 2004
among the Company and the Holders (the “Preferred
Stock Agreement”), which provides for the amendment
and restatement of the terms of the Company’s Series A
Convertible Preferred Stock and the grant of warrants to the
holders thereof (the “Securities
Transactions”).



     
The Company and the Holders hereby agree as
follows:



     
1. Definitions



     
Capitalized terms used and not otherwise defined
herein shall have the meanings given to such terms in the
Preferred Stock Agreement. As used in this Agreement, the
following terms shall have the following meanings:



     
“Affiliate”
means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under
common control with such Person. For the purposes of this
definition, “control,” when used with
respect to any Person, means the possession, direct or indirect,
of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of
voting securities, by contract or otherwise; and the terms
“affiliated,” “controlling”
and “controlled” have meanings
correlative to the foregoing.



     
“Business
Day” means any day except
Saturday, Sunday and any day which shall be a legal holiday or a
day on which banking institutions in the State of New York
generally are authorized or required by law or other government
actions to close.



     
“Certificate of
Designation” means the
Series A Convertible Preferred Stock Certificate of
Designation, as amended and restated.



     
“Closing
Date” means the Closing Date,
as defined in the Preferred Stock Agreement.



     
“Commission”
means the Securities and Exchange Commission.



     
“Common
Stock” means the
Company’s Common Stock, par value $.10 per share.



     
“Effectiveness
Date” means the earlier of:
(i) ten days after the Company has received notice (written
or oral) from the Commission that the Commission’s staff
will not be reviewing the Registration Statement or has no
further comments on the Registration Statement or
(ii) 120 days following the Filing Date.



     
“Effectiveness
Period” has the meaning set
forth in Section 2(a) hereof.



     
“Exchange
Act” means the Securities
Exchange Act of 1934, as amended.



     
“Fair Market
Value” means the sum of
(a) the product of the sum of the number of shares of
outstanding Registrable Securities plus the number of shares of
Registrable Securities into which the shares of Preferred Stock
are convertible multiplied by the average of the per share
closing price in the Nasdaq or other national market on which
the Company’s stock is traded or quoted for the 10 Trading
Days immediately preceding the date the calculation is made; and
(b) the value of the Warrants that are exercisable for
Registrable Securities as of the date of the valuation,
calculated using the Black-Scholes pricing model and the
following assumptions: (i) the yield on a five year
Treasury Note, as quoted in The Wall Street Journal on the
Trading Day immediately preceding the date the calculation is
made; (ii) expected volatility of 60%; (iii) current
market price of the Company’s common stock is the average
of the closing price on Nasdaq for



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the 10 Trading Days immediately preceding the
date the calculation is made; (iv) dividend yield of 0%;
and (v) expected life of 5 years.




     
“Filing
Date” means the date on which
the Initial Registration Statement is filed with the Commission,
which shall be as soon as practicable after the Closing Date,
but in no event later than the 90th day following the Closing
Date.



     
“Holder”
or “Holders” means the holder or
holders, as the case may be, from time to time of Registrable
Securities.



     
“Indemnified
Party” has the meaning set
forth in Section 5(c) hereof.



     
“Indemnifying
Party” has the meaning set
forth in Section 5(c) hereof.



     
“Initial Registration
Statement” has the meaning
set forth in Section 2(a) hereof.



     
“Losses”
has the meaning set forth in Section 5(a) hereof.



     
“Majority
Holders” means the Holders of
at least sixty (60%) percent of the then outstanding Registrable
Securities (as calculated on an as-converted or as-exercised
basis).



     
“Nasdaq”
means The Nasdaq Stock Market.



     
“Person”
means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or
an agency or political subdivision thereof) or other entity of
any kind.



     
“Proceeding”
means any action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or
threatened.



     
“Prospectus”
means the prospectus included in the Registration Statement
(including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part
of an effective registration statement in reliance upon
Rule 430A promulgated under the Securities Act), as amended
or supplemented by any prospectus supplement, with respect to
the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other
amendments and supplements to the Prospectus, including
post-effective amendments, and all material incorporated by
reference in such Prospectus.



     
“Registrable
Securities” means:
(i) the shares of Common Stock issued or issuable upon the
conversion or exercise of the Securities and (ii) any
shares of the Company’s capital stock issued with respect
to the Securities as a result of any stock split, stock
dividend, recapitalization, exchange or similar event or
otherwise; provided, that, a security shall cease to be a
Registrable Security upon (A) such security becoming
eligible for sale by the Holders pursuant to Rule 144(k)
and (B) the Holder of such security is not deemed to be an
Affiliate under Rule 144(k) as determined by the mutual
written Agreement of the Company and such Holder, as set forth
in Section 2(a).



     
“Registration Delay
Payment” has the meaning set
forth in Section 2(c) hereof.



     
“Registration
Statement” means the Initial
Registration Statement and any additional registration
statements contemplated by Sections 2(a) or 2(b), including
(in each case) the Prospectus, amendments and supplements to
such Registration Statement or Prospectus, including
pre-effective and post-effective amendments, all exhibits
thereto, and all material incorporated by reference in such
Registration Statement.



     
“Rule 144”
means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such rule may be amended from time to
time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such rule.



     
“Rule 158”
means Rule 158 promulgated by the Commission pursuant to
the Securities Act, as such rule may be amended from time to
time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such rule.



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“Rule 415”
means Rule 415 promulgated by the Commission pursuant to
the Securities Act, as such rule may be amended from time to
time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such rule.



     
“Securities”
means the Company’s Preferred Stock (as amended and
restated) and the Warrants granted to the Holders in connection
with the Securities Transactions.



     
“Securities
Act” means the Securities Act
of 1933, as amended.



     
“Special
Counsel” means one special
counsel to the Holders, as identified by the Majority Holders.



     
“Trading
Day” means a day on which
Nasdaq (or in the event the Common Stock is not listed or quoted
on Nasdaq, such other securities market on which the Common
Stock is listed or quoted) is open for trading.



     
“Underlying
Shares” means the shares of
Common Stock issuable upon conversion or exercise of the
Securities.



     
2. Registration Requirements



     
(a) Filing and Effectiveness
Obligations. On or prior to the Filing Date, the Company
shall prepare and file with the Commission a Registration
Statement (the “Initial Registration
Statement”) which shall cover all Registrable
Securities for an offering to be made on a continuous basis
pursuant to a “shelf” registration statement under
Rule 415. The Initial Registration Statement shall be on
Form S-3 or any successor form (except if the Company is
not then eligible to register the Registrable Securities for
resale on Form S-3, in which case such registration shall
be on another appropriate form reasonably acceptable to the
Majority Holders). The Company shall: (i) not permit any
securities other than the Registrable Securities to be included
in the Initial Registration Statement (except pursuant to the
exercise of other registration rights outstanding on the date of
this Agreement), (ii) use its best efforts to cause the
Initial Registration Statement to be declared effective under
the Securities Act as promptly as possible after the Filing
Date, but in any event on or prior to the Effectiveness Date,
and (iii) keep such Initial Registration Statement
continuously effective under the Securities Act (subject to
Section 3(r)) for a period that will terminate upon the
date on which all Registrable Securities covered by such
Registration Statement that are held by a Holder may be sold
pursuant to Rule 144(k) and such Holder is not deemed to be
an Affiliate under Rule 144(k), as determined by the mutual
written agreement of the Company and such Holder (it being
understood that the Company and a Holder may reach such a mutual
agreement with respect to less than all of the Registrable
Securities held by such Holder, and in such event the
Company’s registration obligations with respect thereto
shall cease) (the “Effectiveness
Period”). Once the Company is no longer required to
keep the Initial Registration Statement effective with respect
to all or a portion of the Registrable Securities of a given
Holder, the Company shall have no further obligations hereunder
with respect to the registration for resale of such shares of
Registrable Securities and such shares shall no longer be deemed
“Registrable Securities” hereunder; provided,
that the termination of any such registration obligations shall
not affect the Company’s obligations with respect to any
then accrued Registration Delay Payment obligations arising
under Section 2(c) hereof).



     
(b) Piggyback Registrations. Except
as otherwise provided in this Section 2(b), if at any time
when there is not an effective Registration Statement covering
the Registrable Securities, and the Company decides 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-equivalent forms
relating to equity securities to be issued in connection with
any acquisition of any entity or business or equity securities
issuable in connection with stock option or other employee
benefit plans, the Company shall send to each Holder of
Registrable Securities written notice of such decision and, if
within ten (10) days after receipt of such notice, any such
Holder shall so request in writing (which request shall specify
the Registrable Securities intended to be disposed of by the
Holders), the Company will use reasonable best efforts to effect
the registration under the Securities Act of all Registrable
Securities which the Company has been so requested to register
by such Holder; provided, however,that if at any time
after giving written notice of its intention to register any
securities and prior to the effective date of the Registration
Statement filed in connection with such registration, the
Company shall decide for any reason not to register or to delay
registration of such securities,



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the Company may, at its election, give written
notice of such decision to such Holder and, thereupon:
(i) in the case of a determination not to register, shall
be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from
its obligation to pay expenses in accordance with Section 4
hereof) and (ii) in the case of a determination to delay
registering, shall be permitted to delay registering any
Registrable Securities being registered pursuant to this
Section 2(b) for the same period as the delay in
registering such other securities. The Company shall include in
such registration statement all or any part of such Registrable
Securities that such Holder requests to be registered;
provided, however, that the Company shall not be required
to register any Registrable Securities pursuant to this
Section 2(b) that are eligible for sale pursuant to
Rule 144(k) of the Securities Act, as determined by the
mutual written agreement of the Company and such Holder (it
being understood that the Company and a Holder may reach such a
mutual agreement with respect to less than all of the
Registrable Securities held by such Holder, and in such event
the Company’s registration obligations with respect thereto
shall cease). In the case of an underwritten public offering, if
the managing underwriter(s) or underwriter(s) reasonably object
to the inclusion of the Registrable Securities in such
Registration Statement, then if the Company, after consultation
with the underwriter’s representative, reasonably
determines that the inclusion of such Registrable Securities
would materially adversely affect the offering contemplated by
such Registration Statement, and based on such determination
recommends inclusion in such Registration Statement of fewer
Registrable Securities than proposed to be sold by the Holders,
then (x) the number of Registrable Securities of the
Holders included in such registration statement shall be reduced
pro rata among such Holders (based upon the number of
Registrable Securities requested to be included in the
registration) or (y) none of the Registrable Securities of the
Holders shall be included in such Registration Statement if the
Company, after consultation with the underwriter(s), recommends
the inclusion of none of such Registrable Securities;
provided, however, that if securities are being offered
for the account of other per sons or entities as well as the
Company, such reduction shall not represent a greater fraction
of the number of Registrable Securities intended to be offered
by the Holders than the fraction of similar reductions imposed
on such other persons or entities (other than the Company).




     
(c) Liquidated Damages.




		
	 	     
    (i) If: (A) the Initial Registration
    Statement covering all of the applicable Registrable Securities
    and required to be filed by the Company pursuant to this
    Agreement is not (1) filed with the Commission on or before
    the Filing Date or (2) the Company fails to use its
    reasonable best efforts to cause the Initial Registration
    Statement to be declared effective by the Commission on or
    before the Effectiveness Date, or (B) subject to
    Section 2(c)(ii) and Section 3(r) of this Agreement,
    on any day after the Initial Registration Statement has been
    declared effective by the Commission sales of all the
    Registrable Securities required to be included on the Initial
    Registration Statement cannot be made pursuant to such
    Registration Statement (including, without limitation, because
    of a failure to keep such Registration Statement effective, to
    disclose such information as is necessary for sales to be made
    pursuant to such Registration Statement or to register
    sufficient shares of Common Stock)(each of the events described
    in clauses (A) and (B) of this
    Section 2(c)(i) is referred to herein as a
    “Registration Delay”), then the Company
    shall pay to each Holder an amount in cash (a
    “Registration Delay Payment”) equal to:
    (a) the aggregate Fair Market Value of the outstanding
    Registrable Securities and Securities that are convertible into
    or exercisable for Registrable Securities (whether or not such
    Securities are then convertible or exercisable) multiplied by
    (b) 0.0125 and (c) the number of months (prorated for
    partial months) that such Registration Delay has occurred and is
    continuing. The Company shall pay any Registration Delay Payment
    in cash to each Holder of Registrable Securities and/or
    Securities that are convertible into or exercisable for
    Registrable Securities (whether or not such Securities are then
    convertible or exercisable) on the last Business Day of each
    month during which a Registration Delay has occurred and is
    continuing. In the event that the Company fails to make a
    Registration Delay Payment within ten (10) Business Days of the
    date such Registration Delay Payment is due, then such
    Registration Delay Payment shall bear interest at the rate of
    2.0% per month (prorated for partial months) until paid in
    full. The parties hereto agree that the foregoing Registration
    Delay Payment is intended as a reasonable estimation of the
    damages that would be incurred by the Holders in the event of
    the occurrence of an event triggering the obligation to pay a
    Registration Delay Payment, and is not
    




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    intended as a penalty. Such payments shall not
    constitute the Holders’ exclusive remedy for Registration
    Delays.
    
	 
	 	     
    (ii) The Registration Delay Payment shall
    not be due and payable by the Company in the event that a
    Registration Delay is both (A) due to circumstances
    reasonably beyond the control of the Company, its subsidiaries
    or any of their respective agents and (B) the Company and
    its subsidiaries and their respective agents have been using
    their reasonable best efforts to resolve such Registration Delay.
    




     
(d) Form S-3 Eligibility. The
Company represents and warrants that, as of the date hereof, it
meets the registrant eligibility and transaction requirements
for the use of Form S-3 (for secondary offerings) for the
registration of the sale of Registrable Securities by the
Holders and the Company shall file all reports required to be
filed by the Company with the Commission in a timely manner so
as to maintain such eligibility for the use of Form S-3.



     
3. Registration Procedures. In
connection with the Company’s registration obligations
hereunder, the Company shall:




		
	 	     
    (a) Preparation of Registration
    Statement. Prepare and file with the Commission on or prior
    to the Filing Date a Registration Statement on Form S-3 or
    its successor form (or if the Company is not then eligible to
    register for resale the Registrable Securities on Form S-3,
    such registration shall be on another appropriate form in
    accordance herewith, which shall include a Plan of Distribution
    substantially in the form of Exhibit A annexed
    hereto, unless in connection with a Piggyback Registration), or
    such other form agreed to by the Company and by the Majority
    Holders, and cause the Registration Statement to become
    effective and remain effective as provided herein; provided,
    however, that not less than five (5) Business Days
    prior to the filing of the Registration Statement or any related
    Prospectus or any amendment or supplement thereto (including any
    document that would be incorporated therein by reference), the
    Company shall, if reasonably practicable: (i) furnish to
    the Holders, their Special Counsel and any managing
    underwriters, copies of all such documents proposed to be filed
    (including documents incorporated by reference), which documents
    will be subject to the review of such Holders, their Special
    Counsel and such managing underwriters 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 such Holders
    and such underwriters, to conduct a reasonable investigation
    within the meaning of the Securities Act. The Company shall not
    file the Registration Statement or any such Prospectus or any
    amendments or supplements thereto to which the Majority Holders,
    their Special Counsel or any managing underwriters shall
    reasonably object, and will not request acceleration of such
    Registration Statement without prior notice to such counsel. The
    sections of such Registration Statement covering information
    with respect to the Holders, the Holder’s beneficial
    ownership of securities of the Company or the Holders intended
    method of disposition of Registrable Securities shall conform to
    the information provided to the Company by each of the Holders.
    
	 
	 	     
    (b) Amendments. (i) Prepare and
    file with the Commission any amendments, including
    post-effective amendments, to the Registration Statement as may
    be necessary to keep the Registration Statement continuously
    effective for the Effectiveness Period and prepare and file with
    the Commission such additional Registration Statements as are
    required to be filed hereunder in order to register all of the
    Registrable Securities for resale under the Securities Act,
    (ii) cause the related Prospectus to be amended or
    supplemented by any required Prospectus supplement, and as so
    amended or supplemented to be filed pursuant to Rule 424
    (or any similar provisions then in force) promulgated under the
    Securities Act, (iii) respond as promptly as possible to
    any comments received from the Commission with respect to the
    Registration Statement or any amendment thereto and as promptly
    as practicable, but in no event later than ten (10) Business
    Days, (iv) provide the Holders true and complete copies of
    all correspondence to and from the Commission relating to the
    Registration Statement and (v) comply in all material
    respects with the provisions of the Securities Act and the
    Exchange Act with respect to the disposition of all of the
    Registrable Securities covered by the Registration Statement
    during the applicable period in accordance with the intended
    methods of disposition by the Holders thereof set forth in the
    Registration Statement as so amended or in such Prospectus as so
    supplemented.
    




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    (c) Notifications. Notify the Holders
    of Registrable Securities to be sold, their Special Counsel and
    any managing underwriters as promptly as possible (and, in the
    case of (i)(A) below, not less than five (5) days prior to
    such filing and, in the case of (i)(C) below, not later than the
    first Business Day after effectiveness) and, if requested by any
    such Person, confirm such notice in writing no later than one
    (1) Business Day following the day: (i) (A) when a
    Prospectus or any Prospectus supplement or post-effective
    amendment to the 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 the Registration
    Statement or any post-effective amendment, when the same has
    become effective, (ii) of any request by the Commission or
    any other Federal or state governmental authority for amendments
    or supplements to the Registration Statement or Prospectus or
    for additional information, (iii) of the Commission’s
    issuance of any stop order suspending the effectiveness of the
    Registration Statement covering any or all of the Registrable
    Securities or the initiation of any Proceeding for that purpose,
    (iv) that any of the representations and warranties of the
    Company contained in this Agreement ceases to be true and
    correct in all material respects, (v) of the Company’s
    receipt 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
    (vi) of the occurrence of any event that makes any
    statement made in the 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 the Registration Statement, Prospectus or other
    documents so that, in the case of the 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 (vii) the
    beginning and end of a black-out period pursuant to
    Section 3(r).
    
	 
	 	     
    (d) Suspensions. Use its best efforts
    to avoid the issuance of, or, if issued, obtain the withdrawal
    of: (i) any order suspending the effectiveness of the
    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.
    
	 
	 	     
    (e) Supplements and Post-Effective
    Amendments. If requested by any managing underwriter or the
    Holders of a majority in interest of the Registrable Securities
    to be offered under a Registration Statement: (i) promptly
    incorporate in a Prospectus supplement or post-effective
    amendment to the Registration Statement, such information as the
    Company reasonably agrees should be included therein and
    (ii) make all required filings of such Prospectus
    supplement or such post-effective amendment as soon as
    practicable after the Company has received notification of the
    matters to be incorporated in such Prospectus supplement or
    post-effective amendment; provided, however, that the
    Company shall not be required to take any action pursuant to
    this Section 3(e) that would, in the written opinion of
    counsel for the Company (addressed to counsel to the Holders),
    violate applicable law.
    
	 
	 	     
    (f) Copies of Registration Statement.
    Furnish to each Holder, their Special Counsel and any managing
    underwriters, without charge, at least one conformed copy of
    each Registration Statement and each amendment thereto,
    including financial statements and schedules, all documents
    incorporated or deemed to be incorporated therein by reference
    and all exhibits to the extent requested by such Person
    (including those previously furnished or incorporated by
    reference) promptly after the filing of such documents with the
    Commission.
    
	 
	 	     
    (g) Copies of Prospectus. Promptly
    deliver to each Holder, their Special Counsel and any managing
    underwriters, without charge, as many copies of the Prospectus
    or Prospectuses (including each form of prospectus) and each
    amendment or supplement thereto as such Persons may reasonably
    request; and the Company hereby consents to the use of such
    Prospectus and each amendment or supplement thereto by each of
    the selling Holders and any underwriters in connection with the
    offering and sale of the Registrable Securities covered by such
    Prospectus and any amendment or supplement thereto.
    




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(h) Blue Sky. Prior to any public
offering of Registrable Securities, use its best efforts to
register or qualify or cooperate with the selling Holders, any
underwriters and their Special Counsel in connection with the
registration or qualification (or exemption from such
registration or qualification) of such Registrable Securities
for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any Holder or
underwriter requests in writing, to keep each such registration
or qualification (or exemption therefrom) effective during the
Effectiveness Period and to do any and all other acts or things
necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by a
Registration Statement; provided, however, that the
Company shall not be required to qualify generally to do
business in any jurisdiction where it is not then so qualified
or to take any action that would subject it to general service
of process in any such jurisdiction where it is not then so
subject or subject the Company to any material tax in any such
jurisdiction where it is not then so subject.



     
(i) Certificates. Cooperate with the
Holders and any managing underwriters to (A) facilitate the
timely preparation and delivery of certificates representing
Registrable Securities sold pursuant to a Registration
Statement, which certificates shall be delivered within two (2)
Business Days following the Company’s receipt of a written
request to such effect and all necessary documentation, and such
certificates shall be free, to the extent permitted by
applicable law and the Investor Rights Agreement, of all
restrictive legends, and (B) enable such Registrable
Securities to be in such denominations and registered in such
names as any such managing underwriters or Holders may request.



     
(j) Supplements and Amendments. Upon
the occurrence of any event contemplated by
Section 3(c)(vi), as promptly as possible, prepare a
supplement or amendment, including a post-effective amendment,
to the 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 the
Registration Statement nor such Prospectus will contain any
untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading.



     
(k) Listing. Cause all Registrable
Securities relating to such Registration Statement to be listed
on Nasdaq or any other securities exchange, quotation system,
market or over-the-counter bulletin board, if any, on which
similar securities issued by the Company are then listed as and
when required pursuant to the Preferred Stock Agreement.



     
(l) Underwriting Agreement and Related
Documents. Enter into such agreements (including an
underwriting agreement in form, scope and substance as is
customary) and take all such other actions in connection
therewith (including those reasonably requested by any managing
underwriters and the Holders of a majority of the Registrable
Securities being sold) in order to expedite or facilitate the
disposition of such Registrable Securities, and whether or not
an underwriting agreement is entered into: (i) make such
representations and warranties to such Holders and such
underwriters as are customarily made by issuers to underwriters
in underwritten public offerings, and confirm the same if and
when requested, (ii) in the case of an underwritten
offering obtain and deliver copies thereof to the managing
underwriters, if any, or in the case of non-underwritten
offerings, if reasonably requested by the selling Holders,
obtain and deliver copies thereof to such selling Holders, of
opinions of counsel to the Company and updates thereof addressed
to each such underwriter, in form, scope and substance
reasonably satisfactory to any such managing underwriters and
Special Counsel to the selling Holders covering the matters
customarily covered in opinions requested in underwritten
offerings and such other matters as may be reasonably requested
by such Special Counsel and underwriters, (iii) immediately
prior to the effectiveness of a Registration Statement, and, in
the case of an underwritten offering, at the time of delivery of
any Registrable Securities sold pursuant thereto, and, in the
case of non-underwritten offerings, at such time as the selling
Holders may reasonably request (and at the expense of the
selling Holders), obtain and deliver copies to the Holders and
the managing underwriters, if any, of “cold comfort”
letters and updates thereof from the Company’s independent
certified public accountants (and, if required, any other
independent certified public accountants of any subsidiary of
the Company or of any business acquired by the Company for which
financial statements and financial data is, or is required to
be, included in the Registration Statement), addressed to each
of the underwriters, if any, in form and substance as are
customary in connection with underwritten offerings,
(iv) if an underwriting



7








 




agreement is entered into, the same shall contain
indemnification provisions and procedures no less favorable to
the selling Holders and the underwriters, if any, than those set
forth in Section 5 hereof (or such other provisions and
procedures acceptable to the managing underwriters, if any, and
the Holders of a majority of Registrable Securities
participating in such offering) and (v) deliver such
documents and certificates as may be reasonably requested by the
Holders of a majority of the Registrable Securities being sold,
their Special Counsel and any managing underwriters to evidence
the continued validity of the representations and warranties
made pursuant to clause (i) above and to evidence
compliance with any customary conditions contained in the
underwriting agreement or any other agreement entered into by
the Company.




     
(m) Due Diligence. Make available for
inspection by the selling Holders, any representative of such
Holders, any underwriter participating in any disposition of
Registrable Securities and any attorney or accountant retained
by such selling Holders or underwriters, at the offices where
normally kept and during reasonable business hours, all
financial and other records, pertinent corporate documents and
properties of the Company and its subsidiaries, and cause the
officers, directors, agents and employees of the Company and its
subsidiaries to supply all information in each case reasonably
requested by any such Holder, representative, underwriter,
attorney or accountant in connection with the Registration
Statement; provided, however, that if any information is
determined in good faith by the Company (in writing) to be of a
confidential nature at the time of delivery of such information,
then prior to delivery of such information, the Company and the
Holders shall enter into a confidentiality agreement reasonably
acceptable to the Company and the Holders providing that such
information shall be kept confidential, unless:
(i) disclosure of such information is required by a court
or administrative order or is necessary to respond to inquiries
of regulatory authorities (provided, however, that the
Company shall be given notice of any such pending disclosure so
that the Company may seek a protective order),
(ii) disclosure of such information, in the opinion of
counsel to such Person, is required by law, (iii) such
information becomes generally available to the public other than
as a result of a disclosure or failure to safeguard by such
Person or (iv) such information becomes available to such
Person from a source other than the Company and such source is
not known by such Person to be bound by a confidentiality
agreement with the Company.



     
(n) Earnings Statement. Comply in all
material respects with all applicable rules and regulations of
the Commission and make generally available to its security
holders earning statements satisfying the provisions of
Section 11(a) of the Securities Act and Rule 158 not
later than 45 days after the end of any 3-month period (or
90 days after the end of any 12-month period if such period
is a fiscal year): (i) commencing at the end of any fiscal
quarter in which Registrable Securities are sold to underwriters
in a firm commitment or best efforts underwritten offering and
(ii) if not sold to underwriters in such an offering,
commencing on the first day of the first fiscal quarter of the
Company after the effective date of the Registration Statement,
which statements shall conform to the requirements of
Rule 158.



     
(o) Information. The Company may
require each selling Holder to furnish to the Company
information regarding such Holder and the distribution of such
Registrable Securities as is required by law to be disclosed in
the Registration Statement and the Company may exclude from such
registration the Registrable Securities of any such Holder who
unreasonably fails to furnish such information within a
reasonable time after receiving such request.



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



8








 




		
	 	     
    If the Registration Statement refers to any
    Holder by name or otherwise as the holder of any securities of
    the Company, then such Holder shall have the right to require
    (if such reference to such Holder by name or otherwise is not
    required by the Securities Act or any similar Federal statute
    then in force) the deletion of the reference to such Holder in
    any amendment or supplement to the Registration Statement filed
    or prepared subsequent to the time that such reference ceases to
    be required.
    
	 
	 	     
    Each Holder covenants and agrees that:
    (i) it will not sell any Registrable Securities under the
    Registration Statement until it has received copies of the
    Prospectus as then amended or supplemented as contemplated in
    Section 3(g) and notice from the Company or otherwise that
    such Registration Statement and any post-effective amendments
    thereto have become effective as contemplated by
    Section 3(c) and (ii) it and its officers, directors
    or Affiliates, if any, will comply with the prospectus delivery
    requirements of the Securities Act as applicable to them in
    connection with sales of Registrable Securities pursuant to the
    Registration Statement.
    
	 
	 	     
    Each Holder agrees by its acquisition of such
    Registrable Securities that, upon receipt of a notice from the
    Company of the occurrence of any event of the kind described in
    Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or 3(c)(vi)
    such Holder will forthwith discontinue disposition of such
    Registrable Securities under the Registration Statement until
    such Holder’s receipt of the copies of the supplemented
    Prospectus and/or amended Registration Statement contemplated by
    Section 3(j), or until it is advised in writing by the
    Company that the use of the applicable Prospectus may be
    resumed, and, in either case, has received copies of any
    additional or supplemental filings that are incorporated or
    deemed to be incorporated by reference in such Prospectus or
    Registration Statement.
    
	 
	 	     
    (p) Responses to the Commission. The
    Company agrees to respond fully and completely to any and all
    comments on a Registration Statement received from the
    Commission staff as promptly as possible but, for
    non-underwritten offerings, in no event later than ten
    (10) Business Days of the receipt of such comments,
    regardless of whether such comments are in oral or written form.
    
	 
	 	     
    (q) Confirmation of Effectiveness.
    Within two (2) Business Days after a Registration Statement
    which covers applicable Registrable Securities is ordered
    effective by the Commission, the Company shall deliver, and
    shall cause legal counsel for the Company to deliver, to the
    transfer agent for such Registrable Securities (with copies to
    the Holders whose Registrable Securities are included in such
    Registration Statement) confirmation that such Registration
    Statement has been declared effective by the Commission in the
    form attached hereto as Exhibit B.
    
	 
	 	     
    (r) Black-out Periods. (i) For
    not more than thirty (30) consecutive days and for a total
    of not more than sixty (60) days in any twenty-four (24)
    calendar month period (an “Allowed Delay
    Period”), the Company may by written notice require
    that the Holders immediately cease sales of Registrable
    Securities pursuant to a Registration Statement at any time
    that: (A) the Company becomes engaged in a business
    activity or negotiation which is not disclosed in a Registration
    Statement (or the prospectus included therein) which the Company
    reasonably believes must be disclosed therein under applicable
    law and which the Company desires to keep confidential for
    business purposes, (B) the Company determines that a
    particular disclosure so determined to be required to be
    disclosed therein would be premature or would materially
    adversely affect the Company or its business or prospects or
    (C) the Registration Statement or related Prospectus can no
    longer be used under the existing rules and regulations
    promulgated under the Securities Act (each of (A), (B) or
    (C), a “Material Condition”); provided
    that a period of at least ninety (90) calendar days shall
    elapse from the end of any Allowed Delay Period until the
    beginning of the subsequent Allowed Delay Period. The Company
    shall not be required to disclose to the Holders which of the
    reasons specified in (A), (B) or (C) above is the
    basis for requiring a suspension of sales due to the occurrence
    of a Material Condition. The Company shall use its commercially
    reasonable best efforts to ensure that the use of the
    Registration Statement (and the prospectus included therein) may
    be resumed as soon as it is practicable.
    
	 
	 	     
    (ii) If the Company notifies the Holders
    that no sales of Registrable Securities may be made for any
    period of time in excess of an Allowed Delay Period, then,
    subject to the conditions set forth in Section 2(c)(ii)
    hereof, the Company shall pay to each Holder an amount in cash
    (an “Additional
    




9








 


		
	 	
    Blackout
    Payment”), which payment
    shall be in lieu of the Registration Delay Payment which would
    otherwise be applicable, equal to: (A) the weighted average
    (based on daily trading volume) of the mid-point between the
    daily high and low trading prices reported on the national
    exchange or quotation system on which the Common Stock is then
    listed or quoted on each of the Trading Days in excess of the
    Allowed Delay Period (the “Excess Days”)
    (or if the relevant price or quotation did not exist on any of
    such days, the relevant price or quotation on the next preceding
    Business Day on which there was such a price or quotation for a
    total number of Trading Days equal to the number of Excess
    Days), minus (B) the Per Share Market Value on the first
    day of the Excess Days period, multiplied by (C) the lesser
    of (x) the Deemed Volume or (y) the number of
    Registrable Securities (provided that, the Registrable
    Securities relating to the Warrants shall only be included in
    such number of Registrable Securities if the weighted average
    trading price referenced in subclause (A) above is in
    excess of $5.50). The Company shall pay any Additional Blackout
    Payment in cash to each Holder of Registrable Securities and/or
    Securities that are convertible into or exercisable for
    Registrable Securities (whether or not such Securities are then
    convertible or exercisable) on the last Business Day of each
    month during which any Excess Days have occurred. In the event
    that the Company fails to make an Additional Blackout Payment
    within ten (10) Business Days of the date such Additional
    Blackout Payment is due, then such Additional Blackout Payment
    shall bear interest at the rate of 2.0% per month (prorated
    for partial months) until paid in full. The parties hereto agree
    that the foregoing Additional Blackout Payment is intended as a
    reasonable estimation of the damages that would be incurred by
    the Holders in the event of the occurrence of an event
    triggering the obligation to pay an Additional Blackout Payment,
    and is not intended as a penalty. Such payments shall not
    constitute the Holders’ exclusive remedy for the occurrence
    of Excess Days.
    
	 
	 	     
    (iii) For purposes of this Section 3(r):
    





		
	 	     
    “Per Share Market
    Value” means on any particular
    date: (a) the closing bid price per share of the Common
    Stock on such date on: (i) the national exchange or
    quotation system on which the Common Stock is then listed or
    quoted, or, if there is no such price on such date, then the
    closing bid price on such exchange or quotation system on the
    date nearest preceding such date or (ii) the OTCBB, as
    reported by the National Quotation Bureau Incorporated (or
    similar organization or agency succeeding to its function of
    reporting prices) or (b) if the Common Stock is not then
    listed or quoted on any national exchange or quotation system or
    the OTCBB, the fair market value of a share of Common Stock as
    determined by an Appraiser selected in good faith by the Holders
    of a majority in interest of the outstanding Registrable
    Securities and the shares of Preferred Stock that are
    convertible into Registrable Securities (whether or not such
    Securities are then convertible); provided, however, that the
    Company, after receipt of the determination by such Appraiser,
    shall have the right to select, in good faith, an additional
    Appraiser, in which case the fair market value shall be equal to
    the average of the determinations by each such Appraiser; and
    provided, further that all determinations of the Per Share
    Market Value shall be appropriately adjusted for any stock
    dividends, stock splits or other similar transactions during
    such period of calculation.
    
	 
	 	     
    “Deemed Volume”
    means (a) .25, multiplied by
    (b) the average daily trading volume of the Common Stock
    during the Excess Days period.
    




     
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 pursuant to a Registration
Statement and whether or not any Registration Statement is filed
or becomes effective and whether or not any Registrable
Securities are sold pursuant to such Registration Statement. The
fees and expenses referred to in the foregoing sentence shall
include, without limitation (a) all registration and filing
fees (including, without limitation, reasonable fees and
expenses (i) incurred with respect to filings required to
be made with Nasdaq and each other securities exchange or market
on which Registrable Securities are required hereunder to be
listed and (ii) incurred in connection with compliance with
state securities or Blue Sky laws (including, without
limitation, reasonable fees and disbursements of counsel for the
Holders in connection with Blue Sky qualifications of the



10








 




Registrable Securities and determination of the
eligibility of the Registrable Securities for investment under
the laws of such jurisdictions as the managing underwriters, if
any, or the Holders of a majority of Registrable Securities may
designate)), (b) printing expenses (including, without
limitation, expenses of printing certificates for Registrable
Securities and of printing prospectuses if the printing of
prospectuses is requested by the managing underwriters, if any,
or by the Holders of a majority of the Registrable Securities
included in the Registration Statement), (c) messenger,
telephone and delivery expenses, (d) fees and disbursements
of counsel for the Company, (e) Securities Act liability
insurance, if the Company so desires such insurance,
(f) fees and expenses of all other Persons retained by the
Company in connection with the consummation of the transactions
contemplated by this Agreement (other than underwriting fees,
discounts or commissions applicable to the sale of Registrable
Securities) and (g) the fees and expenses of Special
Counsel to the Holders (provided, that the Company’s
obligations with respect to such Special Counsel’s fees and
expenses shall not exceed $5,000 hereunder). 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.




     
5. Indemnification



     
(a) Indemnification by the Company.
The Company shall, notwithstanding any termination of this
Agreement, indemnify and hold harmless each Holder and their
respective Affiliates, and the officers, directors, agents
(including any underwriters retained by such Holder in
connection with the offer and sale of Registrable Securities),
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, employees, successors and assigns of each of them, to
the fullest extent permitted by applicable law, from and against
any and all joint or several losses, claims, damages,
liabilities, costs (including, without limitation, costs of
preparation and attorneys’ fees) and expenses
(collectively, together with actions, proceedings or inquiries
by any regulatory or self-regulatory organization, whether
commenced or threatened, “Losses”), as
incurred, arising out of or relating to: (i) any untrue or
allegedly untrue statement of a material fact contained in the
Registration Statement, any Prospectus, any form of prospectus
or in any amendment or supplement thereto or in any preliminary
Prospectus, or arising out of or relating to any omission or
alleged omission of a material fact required to be stated
therein or necessary to make the statements therein (in the case
of any Prospectus or form of prospectus or supplement thereto,
in light of the circumstances under which they were made) not
misleading, except to the extent that any untrue statements or
omissions are based solely upon and in conformity with
information regarding such Holder furnished in writing to the
Company by such Holder expressly for use therein, which
information was reasonably relied upon by the Company 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 the Registration
Statement, such Prospectus or such form of prospectus or in any
amendment or supplement thereto (provided that the Company
amended any disclosure with respect to the method of
distribution upon written notice from the Holders that such
section of the Prospectus should be revised in any way),
(ii) any violation or alleged violation by the Company or
any of its Affiliates or agents of the Securities Act, the
Exchange Act, any other law, including, without limitation, any
state securities law or any rule or regulation thereunder
relating to the offer or sale of Registrable Securities and
(iii) any costs of enforcing the Company’s
indemnification obligations under this Section 5(a). The
Company shall not, however, be liable for any Losses to any
Holder (a) with respect to any untrue or allegedly untrue
statement of material fact or omission or alleged omission of
material fact if such statement or omission was made in a
preliminary Prospectus and such Holder did not provide the final
Prospectus (or any amendment or supplement thereto) to the
purchaser of the relevant securities at or prior to the
confirmation of the sale of the Registrable Securities in any
case where such delivery is required by the Securities Act, and
the untrue or allegedly untrue statement of material fact or
omission or alleged omission of material fact contained in such
preliminary Prospectus was corrected in such final Prospectus
(or any amendment or supplement thereto), unless the failure to
deliver such final Prospectus (as amended or supplemented) was a
result of noncompliance by the Company with Section 3(g) of
this Agreement, or (b) in the event that notwithstanding
the fact that the Company advised the Holder in writing



11








 




pursuant to Section 3(r) hereof that sales
of Registrable Securities cannot be made under a Registration
Statement because of non-public Company developments that the
Company reasonably believes must be disclosed in the
Registration Statement under applicable law and which disclosure
was not made (a “Non-Public Development”), the
Holder nonetheless sells Registrable Securities and a judgment
is entered by a court or administrative tribunal of competent
jurisdiction against the Holder on the basis that the
Registration Statement or Prospectus did not contain disclosure
of the Non-Public Development or that the Holder sold such
Registrable Securities while in the possession of the Non-Public
Development, unless the Company has advised such Holder of or
has provided information to such Holder regarding such
Non-Public Development in violation of Section 3.3(b) of
the Preferred Stock Agreement, but only to the extent of such
judgment.




     
The Company shall promptly notify the Holders of
the institution, threat or assertion of any Proceeding of which
the Company is aware in connection with the transactions
contemplated by this Agreement or the other Transaction
Documents.



     
(b) Indemnification by Holders. Each
Holder shall, severally and not jointly, indemnify and hold
harmless the Company, and the directors, officers, agents and
employees of the Company, to the fullest extent permitted by
applicable law, from and against all Losses, as incurred,
arising solely out of or based solely upon any untrue statement
of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus or arising solely out of
or based solely upon any omission of a material fact required to
be stated therein or necessary to make the statements therein
not misleading 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 the Registration Statement, any Prospectus or
any form of prospectus and that such information was reasonably
relied upon by the Company for use in the Registration
Statement, such Prospectus or such form of prospectus 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 the Registration Statement,
such Prospectus or such form of prospectus; provided,
however, that the indemnity agreement contained in this
Section 5(b) shall not apply to amounts paid in settlement
of any Losses if such settlement is effected without the prior
written consent of such Holder, which consent shall not be
unreasonably withheld; provided, further, that such
Holder agrees its consent to any such settlement will not be
unreasonably withheld if such Holder will not be liable for any
payments or incur any out-of-pocket expenses with respect to
such settlement. 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 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, however, that the failure of any Indemnified
Party to give such notice shall not relieve the Indemnifying
Party of its obligations or liabilities pursuant to this
Agreement, except (and only) to the extent that it shall be
finally determined by a court of competent jurisdiction (which
determination is not subject to appeal or further review) that
such failure shall have proximately and materially adversely
prejudiced the Indemnifying Party.



     
An Indemnified Party shall have the right to
employ separate counsel in any such Proceeding and to
participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of such Indemnified Party
or Parties unless: (i) the Indemnifying Party has agreed in
writing to pay such fees and expenses, (ii) 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,
(iii) the named parties to any such Proceeding (including
any impleaded parties) include both such Indemnified Party and
the Indemnifying Party, and the Indemnified Party shall have
reasonably concluded on the advice of counsel that there are
legal defenses available to it that are different from or
additional to those available to the Indemnifying Party or
(iv) the named parties to any such Proceeding (including
any impleaded parties)



12








 




include both such Indemnified Party and the
Indemnifying Party, and such Indemnified Party shall have been
advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified
Party and the Indemnifying Party (in which case, if such
Indemnified Party notifies the Indemnifying Party in writing
that it elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at
the reasonable 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. 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.




     
All fees and expenses of the Indemnified Party
(including, but not limited to, 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 5(c)) shall be paid to the Indemnified
Party, as incurred, within ten (10) Business Days of
written notice thereof to the Indemnifying Party, which notice
shall be delivered no more frequently than on a monthly basis,
regardless of whether it is ultimately determined that an
Indemnified Party is not entitled to indemnification hereunder;
provided, however, that the Indemnifying Party may
require such Indemnified Party to undertake to reimburse all
such fees and expenses to the extent that there is a final
judicial determination that such Indemnified Party is not
entitled to indemnification hereunder.



     
(d) Contribution. If a claim for
indemnification under Section 5(a) or 5(b) hereof is
unavailable to an Indemnified Party because of the failure or
refusal of a court of competent jurisdiction to enforce such
indemnification in accordance with its terms (by reason of
public policy), then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of
any Losses in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and such 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 allegedly untrue statement of
a material fact or omission or alleged omission of a material
fact, has been taken or made by, or relates to information
supplied by, such Indemnifying Party or Indemnified Party, and
the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such action,
statement or omission. The amount paid or payable by a party as
a result of any Losses shall be deemed to include, subject to
the limitations set forth in Section 5(c) hereof, any
reasonable attorneys’ or other reasonable fees or expenses
incurred by such party in connection with (i) any
Proceeding to the extent that such party would have been
indemnified for such fees or expenses if the indemnification
provided for in this Section 5 was available to such party
in accordance with its terms and (ii) enforcing any rights
under this Section 5. In no event shall any selling Holder
be required to contribute an amount under this Section 5(d)
in excess of the net proceeds received by such Holder upon sale
of such Holder’s Registrable Securities pursuant to the
Registration Statement giving rise to such contribution
obligation.



     
The parties hereto agree that it would not be
just and equitable if contribution pursuant to this
Section 5(d) were determined by pro rata allocation or by
any other method of allocation that does not take into account
the equitable considerations referred to in the immediately
preceding paragraph. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any
Person who was not guilty of such fraudulent misrepresentation.



     
The indemnity and contribution agreements
contained in this Section 5 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 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



13








 




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 agree that, in the event of
any action for specific performance in respect of such breach it
shall waive the defense that a remedy at law would be adequate.




     
(b) No Inconsistent Agreements.
Neither the Company nor any of its subsidiaries has, 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 is inconsistent with the
rights granted to the Holders in this Agreement or otherwise
conflicts with the provisions hereof. This Agreement contains
the entire understanding of the parties with respect to the
subject matter hereof and supersedes all prior agreements and
understandings, oral or written, with respect to such matters,
including without limitation those certain letters of intent
dated April 8, 2004 (and related term sheets) between the
Company and each of Brown Simpson Partners I , Ltd. and LB I
Group Inc.



     
(c) Amendments and Waivers. The
provisions of this Agreement, including the provisions of this
sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may
not be given, unless the same shall be in writing and signed by
the Company and the Majority Holders; provided, however,
that for the purposes of this sentence, Registrable Securities
that are owned, directly or indirectly, by the Company or an
Affiliate of the Company are not deemed outstanding.
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
the Majority Holders 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. Any amendment or waiver effected in accordance with
this Section shall be binding upon each Holder, each future
Holder and the Company. Upon effectiveness of each such
amendment or waiver, the Company shall promptly give written
notice thereof to the Holders who have not previously consented
thereto in writing.



     
(d) Notices. Any notices, consents,
waivers or other communications required or permitted to be
given hereunder shall be in writing and shall be deemed to have
been received: (a) upon hand delivery (receipt
acknowledged) or delivery by telecopy or facsimile (with
transmission confirmation report) at the address or number
designated below (if received by 5:00 p.m. eastern time
where such notice is to be received) or the first Business Day
following such delivery (if received after 5:00 p.m.
eastern time where such notice is to be received) or (b) on
the second Business Day following the date of mailing by express
courier service, fully prepaid, addressed to such address or
upon actual receipt of such mailing, whichever shall first
occur. The addresses for such communications are:



     
If to the Company:




		
	 	
    Healthaxis, Inc.
    
	 	
    The Towers at Williams Square
    
	 	
    5215 N. O’Connor Blvd.,
    Suite 800
    
	 	
    Irving, Texas 75039
    
	 	
    Telephone: 972-443-5000
    
	 	
    Facsimile: 972-556-0572
    
	 	
    Attention: Chief Financial Officer
    




     
With a copy to (which copy shall not constitute
notice):




		
	 	
    Locke Liddell & Sapp LLP
    
	 	
    2200 Ross Avenue, Suite 2200
    
	 	
    Dallas, Texas 75201
    
	 	
    Telephone: 214-740-8000
    
	 	
    Facsimile: 214-740-8800
    
	 	
    Attention: John B. McKnight
    




14








 



     
If to the Transfer Agent:




		
	 	
    Mellon Investor Services LLC
    
	 	
    44 Wall Street, 6th Floor
    
	 	
    New York, New York 10005
    
	 	
    Telephone: (917) 320-6254
    
	 	
    Facsimile: (917) 320-6318
    
	 	
    Attention: Client Service Manager
    




     
If to Brown Simpson Partners I, Ltd. to:




		
	 	
    152 West 57th Street, 21st Floor
    
	 	
    New York, New York 10019
    
	 	
    Telephone: (212) 247-8200
    
	 	
    Facsimile: (212) 247-1329
    
	 	
    Attention: Mitchell D. Kaye
    





		
	 	
    With a copy, in the case of notice to Brown
    Simpson Partners I, Ltd. 

     (which copy shall not constitute notice), to:
    





		
	 	
    Lowenstein Sandler PC
    
	 	
    65 Livingston Avenue
    
	 	
    Roseland, New Jersey 07068
    
	 	
    Telephone: (973) 597-2500
    
	 	
    Facsimile: (973-597-2400
    
	 	
    Attention: Steven E. Siesser
    




     
If to OTAPE LLC:




		
	 	
    c/o OTA Limited Partnership
    
	 	
    1 Manhattanville Road
    
	 	
    Purchase, NY 10577
    
	 	
    Telephone: (914) 460-4013
    
	 	
    Facsimile: (914) 694-5831
    
	 	
    Attention: Vinny Digeso
    




     
If to LB I Group Inc. to:




		
	 	
    c/o Lehman Brothers, Inc.
    
	 	
    745 Seventh Avenue, 2nd Floor
    
	 	
    New York, New York 10019
    
	 	
    Telephone: (212) 526-2614
    
	 	
    Facsimile: (212) 526-2198
    
	 	
    Attention: Michael Blaustein
    




     
If to The Pennsylvania State University to:




		
	 	
    The Pennsylvania State University
    
	 	
    103 Innovation Boulevard, Suite 212
    
	 	
    University Park, PA 16802
    
	 	
    Telephone: (814) 863-9150
    
	 	
    Facsimile: (814) 863-9160
    
	 	
    Attention: David E. Branigan
    




     
Each party shall provide written notice to the
other party of any change in address or facsimile number in
accordance with the provisions hereof.



     
(e) 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 hereto
and shall inure to the benefit of each Holder. The Company may
not assign its rights or obligations hereunder without the prior
written consent of the Majority Holders. The rights of each
Holder hereunder, including the right to have the Company
register



15








 




Registrable Securities for resale in accordance
with the terms of this Agreement, shall be assignable by each
Holder if (i) the Holder agrees in writing with the
transferee or assignee to assign such rights, and a copy of such
agreement is furnished to the Company within a reasonable time
after such assignment, (ii) the Company is, within a
reasonable time after such transfer or assignment, furnished
with written notice of (A) the name and address of such
transferee or assignee and (B) the securities with respect
to which such registration rights are being transferred or
assigned, (iii) following such transfer or assignment, to
the extent appropriate, the further disposition of such
securities by the transferee or assignee is restricted under the
Securities Act and applicable state securities laws and
(iv) at or before the time the Company receives the written
notice contemplated by clause (ii) of this Section, the
transferee or assignee agrees in writing with the Company to be
bound by all of the provisions of this Agreement. The rights to
assignment shall apply to the Holders’ (and to subsequent)
successors and assigns.




     
(f) Counterparts. This Agreement may
be executed in any number of counterparts, each of which when so
executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement. In
the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such
signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.



     
(g) Governing Law. All questions
concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by and
construed in accordance with the laws of the State of New York,
without regard to principles of conflicts of law. Each party
hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in the City of New York,
Borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the
jurisdiction of any such court or that such suit, action or
proceeding is improper. Each party hereby irrevocably waives
personal service of process and consent to process being served
in any such suit, action or proceeding by mailing a copy thereof
to such party at the address for such notices to it under this
Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY
HEREBY IRREVOCABLY WAIVES ANY RIGHT THAT IT MAY HAVE TO, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY
DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.



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



     
(i) 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, then 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 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 terms,
provisions, covenants and restrictions that may be hereafter
declared invalid, illegal, void or unenforceable.



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



     
(k) Shares Held by The Company and its
Affiliates. Whenever the consent or approval of Holders of a
specified percentage of Registrable Securities is required
hereunder, Registrable Securities held by the Company or its
Affiliates (other than any Holder or transferees or successors
or assigns thereof if such Holder is deemed to be an Affiliate
of the Company solely by reason of its holdings of such
Registrable Securities)



16








 




shall not be counted in determining whether such
consent or approval was given by the Holders of such required
percentage.




     
(l) Construction. In the event of any
inconsistency or ambiguity between the terms of this Agreement
and the terms of the Certificate of Designation, the terms of
the Certificate of Designation shall control and govern any
construction hereof or thereof.



17








 



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




		
	 	
    HEALTHAXIS INC.
    






			
	 	By: 	
    /s/ JAMES W. MCLANE
    




		
	 	
    

	 	
    Name: James W. McLane
    



			
	 	Title:	
    Chief Executive Officer
    





HOLDERS:

		
	 	
    BROWN SIMPSON PARTNERS I, LTD.






			
	 	By: 	
    /s/ MITCHELL D. KAYE
    




		
	 	
    

	 	
    Name: Mitchell D. Kaye
    




			
	 	Title:	
    Chief Investment Officer
    






		
	 	
    OTAPE LLC
    






			
	 	By: 	
    /s/ RICHARD M. COYNE
    




		
	 	
    

	 	
    Name: Richard M. Coyne
    




			
	 	Title:	
    General Counsel
    






		
	 	
    LB I GROUP INC.
    






			
	 	By: 	
    /s/ MARLISA VINCIGUERRA
    




		
	 	
    

	 	
    Name: Marlisa Vinciguerra
    




			
	 	Title:	
    Attorney-in-fact
    






		
	 	
    THE PENNSYLVANIA STATE UNIVERSITY
    






			
	 	By: 	
    /s/ DAVID E. BRANIGAN
    




		
	 	
    

	 	
    Name: David E. Branigan
    



			
	 	Title:	
    Executive Director
    




18








 




SCHEDULE I



Brown Simpson Partners I, Ltd.:





152 West 57th Street, 21st Floor





New York, New York 10019





Attn: Mitchell D. Kaye





Fax: (212) 247-1329





Residence: Grand Cayman, Cayman Islands





OTAPE LLC




c/o OTA Limited Partnership





1 Manhattanville Road





Purchase, NY 10577





Attention: Vinny Digeso





Facsimile: (914) 694-5831





Residence: Purchase, NY





LB I Group Inc.




c/o Lehman Brothers, Inc.





745 Seventh Avenue, 2nd Floor





New York, New York 10019





Attention: Michael Blaustein





Facsimile: (212) 526-2198





Residence: New York, NY





The Pennsylvania State University




103 Innovation Boulevard, Suite 212





University Park, PA 16802





Attention: David E. Branigan





Facsimile: (814) 863-9160





Residence: University Park, PA




19








 




EXHIBIT A




PLAN OF DISTRIBUTION


     
We are registering the shares of common stock on
behalf of the selling stockholders. All costs, expenses and fees
in connection with the registration of the shares offered by
this prospectus will be borne by our company, other than
brokerage commissions and similar selling expenses, if any,
attributable to the sale of shares of common stock, which will
be borne by the selling stockholders. We have also agreed to
indemnify the selling stockholders against certain losses,
claims, damages and liabilities, including liabilities under the
Securities Act. Sales of shares of common stock may be effected
by selling stockholders from time to time in one or more types
of transactions (which may include block transactions) on
Nasdaq, in the over-the-counter market, in privately negotiated
transactions, through put or call options transactions relating
to the shares of common stock, through short sales of shares of
common stock, or a combination of such methods of sale, at
market prices prevailing at the time of sale, or at negotiated
prices, and by using any other method permitted pursuant to
applicable law. Such transactions may or may not involve brokers
or dealers. The selling stockholders have advised us that they
have not entered into any agreements, understandings or
arrangements with any underwriters or broker-dealers regarding
the sale of their securities, nor is there an underwriter or
coordinated broker acting in connection with the proposed sale
of shares of common stock by the selling stockholders.



     
The selling stockholders may enter into hedging
transactions with broker-dealers or other financial
institutions. In connection with such transactions,
broker-dealers or other financial institutions may engage in
short sales of the shares of common stock or of securities
convertible into or exchangeable for the shares of common stock
in the course of hedging positions they assume with the selling
stockholders. The selling stockholders may also enter into
options or other transactions with broker-dealers or other
financial institutions which require the delivery to such
broker-dealers or other financial institutions of the shares of
common stock offered by this prospectus, which the broker-dealer
or other financial institution may resell pursuant to this
prospectus (as amended or supplemented to reflect such
transaction).



     
The selling stockholders may make these
transactions by selling shares of common stock directly to
purchasers or to or through broker-dealers, which may act as
agents or principals. These broker-dealers may receive
compensation in the form of discounts, concessions or
commissions from selling stockholders and/or the purchasers of
shares of common stock for whom these broker-dealers may act as
agents or to whom they sell as principal, or both (which
compensation as to a particular broker-dealer might be in excess
of customary commissions).



     
The selling stockholders may from time to time
pledge or grant a security interest in some or all of the
securities owned by them and, if they default in the performance
of their secured obligations, the pledgees or secured parties
may offer and sell shares of common stock from time to time
under this prospectus, or under an amendment or supplement to
this prospectus under Rule 424(b)(3) or other applicable
provision of the Securities Act of 1933 modifying the list of
selling stockholders to include the pledgee, transferee or other
successors in interest as selling stockholders under this
prospectus.



     
The selling stockholders and any broker-dealers
that act in connection with the sale of shares of common stock
may be “underwriters” within the meaning of
Section 2(11) of the Securities Act, and any commissions
received by these broker-dealers or any profit on the resale of
the shares of common stock sold by them while acting as
principals might be deemed to be underwriting discounts or
commissions under the Securities Act. The selling stockholders
may agree to indemnify any agent, dealer or broker-dealer that
participates in transactions involving sales of the shares of
common stock against certain liabilities, including liabilities
arising under the Securities Act.



     
The selling stockholders also may transfer the
shares of common stock in other circumstances, in which case the
transferees, pledgees or other successors in interest will be
the selling beneficial owners for purposes of this prospectus.



     
Because the selling stockholders may be
“underwriters” within the meaning of
Section 2(11) of the Securities Act, the selling
stockholders may be subject to the prospectus delivery
requirements of the



20








 




Securities Act. Our company has informed the
selling stockholders that the anti-manipulative provisions of
Regulation M promulgated under the Exchange Act may apply
to their sales in the market. In addition, our company has made
copies of this prospectus available to the selling stockholders
and has informed them of the need for delivery of copies of this
prospectus to purchasers at or prior to the time of any sale of
the shares offered hereby.




     
The selling stockholders also may resell all or a
portion of the shares of common stock in open market
transactions in reliance upon Rule 144 under the Securities
Act, provided that they meet the criteria and conform to the
requirements of Rule 144.



     
Upon our company being notified by a selling
stockholder that a material arrangement has been entered into
with a broker-dealer for the sale of shares of common stock
through a block trade, special offering, exchange distribution
or secondary distribution or a purchase by a broker or dealer, a
supplement to this prospectus will be filed, if required,
pursuant to Rule 424(b) under the Securities Act,
disclosing:




			
	 	• 	
    the name of each selling stockholder and of the
    participating broker-dealer(s);
    
	 
	 	• 	
    the number of shares of common stock involved;
    
	 
	 	• 	
    the initial price at which shares of common stock
    were sold;
    
	 
	 	• 	
    the commissions paid or discounts or concessions
    allowed to the broker-dealer(s), where applicable;
    
	 
	 	• 	
    that the broker-dealer(s) did not conduct any
    investigation to verify the information set out or incorporated
    by reference in this prospectus; and
    
	 
	 	• 	
    other facts material to the transactions.
    




     
In addition, upon our company being notified by a
selling stockholder that a donee or pledgee intends to sell more
than 500 shares of common stock, a supplement to this
prospectus will be filed.



21








 




EXHIBIT B




FORM OF NOTICE OF EFFECTIVENESS




OF REGISTRATION STATEMENT




Mellon Investor Services LLC




Overpeck Centre





85 Challenger Road





Ridgefield Park, New Jersey 07660





Attn.:





Re:     Healthaxis Inc.




Ladies and Gentlemen:



     
We are counsel to Healthaxis Inc., a Pennsylvania
corporation (the “Company”), and have
represented the Company in connection with the Preferred Stock
Agreement entered into by and among the Company and the buyers
named therein (collectively, the
“Holders”) pursuant to which the terms
of the Company’s Series A Convertible Preferred Stock
were amended and restated (as so amended and restated, the
“Series A Preferred Stock”) and the
Company granted to the Holders of the Series A Preferred
Stock certain warrants (“Warrants”) to
purchase shares of the Company’s common stock, par value
$.10 per share (the “Common
Stock”). Pursuant to the Preferred Stock Agreement,
the Company also has entered into an Investor Rights Agreement
with the Holders (the “Investor Rights
Agreement”) pursuant to which the Holders agreed to
certain restrictions on their resale of the Preferred Stock,
Warrants and related shares of Common Stock, and a Registration
Rights Agreement with the Holders (the “Registration
Rights Agreement”) pursuant to which the Company
agreed, among other things, to register the Registrable
Securities (as defined in the Registration Rights Agreement),
including the shares of Common Stock issuable upon conversion of
the Series A Preferred Stock or upon exercise of the
Warrants, under the Securities Act of 1933, as amended (the
“Securities Act”). In connection with
the Company’s obligations under the Registration Rights
Agreement,
on                     ,
2004, the Company filed a Registration Statement on
Form S-3 (File
No. 333-                    )
(the “Registration Statement”) with the
Securities and Exchange Commission (the
“SEC”) relating to the Registrable
Securities, which names each of the Holders as a selling
stockholder thereunder.



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



     
Please be advised that upon presentment to you of
a stock certificate(s) representing shares of Series A
Preferred Stock or shares of Common Stock for transfer to a
third party, together with your receipt of written confirmation
from the Company that such transfer is in compliance with the
terms of the Investor Rights Agreement, you will be authorized
to issue stock certificate(s) representing shares of Common
Stock in the name of the indicated transferee(s), which
certificates will be free of any restrictive legends.




		
	 	
    Very truly yours,
    
	 	
    LOCKE LIDDELL & SAPP LLP
    





			
	 	By: 	




		
	 	
    











cc: [LIST NAMES OF HOLDERS]




22