Document:

Exhibit 10.4

 

FIRST
AMENDMENT TO REMOTE RESOURCING AGREEMENT

 

This
First Amendment to Remote Resourcing Agreement (this “Amendment”), dated as of
the 3rd day of September 2008, is entered into by and between Healthaxis,
Ltd., a Texas limited partnership (“Healthaxis”), and Healthcare BPO Partners,
L.P., a Texas limited partnership (“TakCo”).

 

Recitals

 

WHEREAS,
Healthaxis and TakCo entered into that certain Remote Resourcing Agreement
dated as of May 13, 2005 (the “Remote Resourcing Agreement”), pursuant to
which TakCo provides remote resources to Healthaxis on the terms provided
therein;

 

WHEREAS,
Healthaxis is a wholly owned subsidiary of HealthAxis Inc., a Pennsylvania
corporation (“HAXS”), and TakCo is an affiliate of Tak Investments, Inc.,
a Delaware corporation (“Tak Investments”), a major shareholder of HAXS;

 

WHEREAS,
HAXS, BPO Management Services, Inc., a Delaware corporation (“BPOMS”), and
Outsourcing Merger Sub, Inc., a Delaware corporation (“Merger Sub”), are
parties to that certain Agreement and Plan of Merger dated of even date
herewith (the “Merger Agreement”), pursuant to which it is expected that BPOMS
and Merger Sub will merge, BPOMS will become a wholly-owned subsidiary of HAXS,
and HAXS will issue shares of its capital stock to the stockholders of BPOMS,
all as more particularly described in the Merger Agreement (the “Merger”);

 

WHEREAS,
it is a condition to BPOMS’ execution of the Merger Agreement that Healthaxis
and TakCo enter into this Amendment; and

 

WHEREAS,
subject to and in the event of the consummation of the Merger, Healthaxis and
TakCo desire to provide for the amendment and extension of the Remote
Resourcing Agreement in consideration of the anticipated benefits to be
received by HAXS and Tak Investments as a result of the consummation of the
Merger.

 

NOW,
THEREFORE, in consideration of the mutual covenants hereinafter set forth and
for other good and valuable consideration, the parties hereto do hereby agree
as follows:

 

1.     Amendments
to Remote Resourcing Agreement. 
Healthaxis and TakCo hereby agree that, effective as of the date of
consummation of the Merger, the Remote Resourcing Agreement shall be
automatically amended without any further action by any party thereto as
follows:

 

(a)           Extension of Term.  The Term (as defined in Section 2.1 of
the Remote Resourcing Agreement) is hereby amended: (i) to cover the
period beginning on the original Effective Date and continuing for a period of
seven (7) years from the effective date of consummation of the Merger; and
(ii) to delete the reference therein to Section 20.5.  The Term may be further extended as provided
in Section 3.2 of the Remote Resourcing Agreement.

 

 

(b)           Volume Guarantees.  In order to terminate the existing
exclusivity provisions and substitute a limited business volume guarantee, Section 4.1(b) of
the Remote Resourcing Agreement is hereby amended to read in its entirety as
follows:

 

“(b)  Volume
Guarantee.  Subject to Section 11.6
and so long as Healthaxis has not partially terminated this Agreement under Section 20.2
hereof regarding the applicable Services, during the Term TakCo shall be
guaranteed the following data capture business volumes:

 

(i) at
least 50% of the health claims data capture volume for each customer where the
work is permitted to be performed in India and service levels can be achieved
by doing so, and

 

(ii) at
least 80% of the invoice indexing and data capture work from the Healthaxis
relationship with NextProcess for those NextProcess customers who permit the
work to performed in India and service levels can be achieved by doing so.

 

Except for the guaranteed volumes as expressly provided in clauses (i) and
(ii) above, this Agreement shall not be construed as a requirements
contract, and this Agreement shall not be interpreted to prevent Healthaxis or
any of its affiliates from obtaining from third parties, or providing for
themselves or to each other, any or all of the other services described in this
Agreement.  Without limiting the
generality of the preceding sentence, it is understood and agreed that all
other services and functions (including any data center resource services as
described in Part II of Schedule B and any technical and professional
resource services as described in Part III of Schedule B) would be
optional, and Healthaxis does not guarantee that such additional functions or
services will be obtained from TakCo.”

 

(c)                                  No Required
Ownership Position in HAXS.  In order to eliminate Healthaxis’ right to
terminate the Remote Resourcing Agreement in the event Tak Investments’
ownership position in HAXS falls below certain thresholds, Section 20.4 of
the Remote Resourcing Agreement is hereby deleted in its entirety.

 

2.     Release
of Claims. For the purposes and consideration set forth herein,
and subject to and effective with the consummation of the Merger, each of TakCo
and Healthaxis hereby releases and discharges the other and its respective
affiliates, shareholders, subsidiaries, owners, directors, officers, agents,
attorneys, employees, trustees, independent contractors, successors 

 

2

 

and
assigns of and from any and all charges, complaints, liabilities, obligations,
restrictions, debts, promises, agreements, controversies, damages, actions,
losses, expenses (including attorneys’ fees and costs), claims, rights,
demands, causes of action or suits in equity, of any and every kind or
character, in contract or tort, whether known or unknown, arising under,
relating to or in connection with the Remote Resourcing Agreement and arising
prior to the date of consummation of the Merger.

 

3.     Amendment
Subject to Consummation of Merger. Notwithstanding anything
contained herein, this Amendment shall terminate and shall be null and void and
of no further legal effect upon the termination of the Merger Agreement in
accordance with its terms.

 

4.     Governing
Law. This Amendment shall be governed, construed and interpreted
in accordance with the internal substantive laws of the State of Texas, without
giving effect to the principles of conflicts of law of such jurisdiction.

 

5.     Binding
Effect. This Amendment shall be binding on and inure to the
benefit of the parties and their respective successors and assigns.

 

6.     Entire
Agreement. This Amendment and the Remote Resourcing Agreement
represent the entire agreement between the parties with respect to the subject
matter thereof and may not be contradicted by evidence of prior,
contemporaneous or subsequent oral agreements of the parties. There are no
unwritten agreements between the parties as to the subject matter hereof.

 

7.     Multiple
Counterparts. This Amendment may be executed in any number of
counterparts, each of which for all purposes is to be deemed an original, but
all of which shall constitute, collectively, one agreement.

 

IN WITNESS WHEREOF, the
undersigned have executed this Amendment as of the date written above.

 

	
  Healthaxis,
  Ltd.

  	
   

  	
  Healthcare BPO Partners, L.P.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  John M. Carradine

  	
   

  	
  By:

  	
         /s/
  Sharad K. Tak

  
	
   

  	
  John
  M. Carradine

  	
   

  	
  Name:

  	
    Sharad
  K. Tak

  
	
   

  	
  President

  	
   

  	
  Title:

  	
      President

  
	
   

  	
  September 3,
  2008

  	
   

  	
  September 3,
  2008

  	
   

  
								

 

3Exhibit 10.5

 

CERTIFICATE
OF DESIGNATION OF THE RELATIVE RIGHTS AND PREFERENCES

OF THE

SERIES B CONVERTIBLE PREFERRED STOCK

OF

HEALTHAXIS INC.

 

The
undersigned, the Chief Executive Officer of HealthAxis Inc., a Pennsylvania
corporation (the “Company”), in accordance with the provisions of the
Pennsylvania Business Corporation Law does hereby certify that, pursuant to the
authority conferred upon the Board of Directors by the Amended and Restated
Articles of Incorporation of the Company, the following resolution creating a
series of preferred stock, designated as Series B Convertible Preferred
Stock, was duly adopted on            ,
2008, as follows:

 

RESOLVED,
that pursuant to the authority expressly granted to and vested in the Board of
Directors of the Company by provisions of the Amended and Restated Articles of
Incorporation of the Company (the “Articles of Incorporation”), there hereby is
created out of the shares of the Company’s preferred stock, par value $1.00 per
share, authorized in Article 5 of the Articles of Incorporation (the “Preferred
Stock”), a series of Preferred Stock of the Company, to be named “Series B
Convertible Preferred Stock,” consisting of twenty-nine million twenty-three
thousand eight hundred (29,023,800) shares, which series shall have the
following designations, powers, preferences and relative and other special
rights and the following qualifications, limitations and restrictions:

 

1.                                       Designation and Rank. The designation of such series of the
Preferred Stock shall be the Series B Convertible Preferred Stock, par
value $1.00 per share (the “Series B Preferred Stock”). The maximum number
of shares of Series B Preferred Stock shall be twenty-nine million
twenty-three thousand eight hundred (29,023,800) shares. The Series B
Preferred Stock shall rank senior to the Company’s common stock, par value
$0.10 per share (the “Common Stock”), and to all other currently existing
classes and series of equity securities of the Company (“Junior Stock”).

 

2.                                       Dividends.

 

(a)                                  Payment of Dividends. Commencing on the date of the initial
issuance (the “Issuance Date”) of the Series B Preferred Stock, the
holders of record of shares of Series B Preferred Stock shall be entitled
to receive, out of any assets at the time legally available therefor and as declared
by the Board of Directors, in an amount and as of the same record and payment
dates as any dividends in respect of the Common Stock that have been declared
by the Board of Directors (the “Dividend Payment”), and no more, payable upon
conversion pursuant to Section 5 hereof in cash or, if the Equity
Conditions (as defined below) have been met, at the Company’s option in shares
of Common Stock. Upon the payment of any dividend on the Series B
Preferred Stock in shares of Common Stock, the number of shares of Common Stock
to be issued to the holder shall be an amount equal to the quotient of (i) the
Dividend Payment divided by (ii) ninety percent (90%) of the average of
the VWAP (as defined below) for the twenty (20) trading days immediately
preceding the date the Dividend Payment is due. Dividends on the Series B
Preferred Stock shall not be cumulative. Dividends on the Series B
Preferred Stock are prior and in preference to any declaration or payment of
any distribution on any outstanding shares of Junior Stock, except for the
Common Stock in respect of which dividends on the Series B Preferred Stock
shall be pari passu.

 

(b)                                 For purposes hereof, “Equity Conditions”
means, during the period in question, (i) the Company shall have duly
honored all conversions scheduled to occur or occurring by virtue of one or
more Conversion Notices (as defined in Section 5(b)(i)), if any, (ii) there
is an effective registration statement pursuant to which the holders of Series B
Preferred Stock are permitted to utilize the prospectus thereunder (as the same
may have been amended from time to time) to resell all of the shares of Common
Stock issuable pursuant to such dividend payment in question, and the Company
believes, in good faith, that such effectiveness will continue uninterrupted
for the foreseeable future or such shares are eligible for resale under Rule 144,
(iii) the Common Stock is trading or quoted on the OTC Bulletin Board, any
one of the NASDAQ markets, the American Stock Exchange or the New York Stock
Exchange (each, individually, a “Trading Market” and collectively, the “Trading
Markets”) and all of the shares of Common Stock issuable pursuant to such
dividend payment are listed for trading or quoted on a Trading Market (and this
Company believes, in good faith, that trading of the Common Stock on a Trading
Market will continue uninterrupted for the foreseeable future), (iv) there
is a sufficient number of authorized but unissued and otherwise unreserved
shares of Common Stock for the issuance of the shares of Common Stock issuable 

 

 

pursuant to such dividend payment, (v) the
issuance of the shares in question to the holder of Series B Preferred
Stock would not violate the limitations set forth in Section 7, (vi) for
a period of 20 consecutive days on which the Common Stock is traded or quoted
on a Trading Market (each, a “Trading Day”) immediately prior to the applicable
date in question, the daily average dollar volume for the Common Stock on the
Trading Market exceeds $100,000 per Trading Day with a VWAP (as defined below)
for each such Trading Day equal to or greater than $• per share (subject
to adjustment for forward and reverse stock splits and the like) and (vii) no
public announcement of a pending or proposed change of control or acquisition
transaction has occurred that has not been consummated.  For purposes hereof, “VWAP” means, for
any date, (i) the daily volume weighted average price of the Common Stock
for such date on a Trading Market as reported by Bloomberg Financial L.P.
(based on a trading day from 9:30 a.m. Eastern Time to 4:02 p.m.
Eastern Time); (ii) if the Common Stock is not then quoted on a Trading
Market and if prices for the Common Stock are then reported in the “Pink Sheets”
published by Pink OTC Markets Inc. (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid price per
share of the Common Stock so reported; or (iii) in all other cases, the
fair market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Holder and reasonably acceptable to the
Company.

 

(c)                                  Intentionally omitted.

 

(d)                                 In the event of a dissolution, liquidation or
winding up of the Company pursuant to Section 4 hereof, all declared and
unpaid dividends on the Series B Preferred Stock shall be payable on the
date of payment of the preferential amount to the holders of Series B
Preferred Stock.  In the event of a
redemption pursuant to Section 8 hereof, all declared and unpaid dividends
on the Series B Preferred Stock shall be payable on the date of such
redemption. In the event of a voluntary conversion pursuant to Section 5(a) hereof,
all declared and unpaid dividends on the Series B Preferred Stock being
converted shall be payable on the Voluntary Conversion Date (as defined in Section 5(b)(i) hereof).

 

(e)                                  For purposes hereof, unless the context
otherwise requires, “distribution” shall mean the transfer of cash or property
without consideration, whether by way of dividend or otherwise, payable other
than in shares of Common Stock or other equity securities of the Company, or
the purchase or redemption of shares of the Company (other than repurchases of
Common Stock held by employees or consultants of the Company upon termination
of their employment or services pursuant to agreements providing for such
repurchase or upon the cashless exercise of options held by employees or
consultants) for cash or property.

 

3.                                       Voting Rights.

 

(a)                                  Class Voting Rights. For so long as 10,000,000 shares (as
adjusted for any stock dividends, combinations, or splits with respect to such
shares) of the Series B Preferred Stock remain outstanding, the Series B
Preferred Stock shall have the following class voting rights (in addition to
the voting rights set forth in Section 3(b) hereof). In connection
therewith, the Company shall not, without the affirmative vote or consent of
the holders of at least fifty percent (50%) of the shares of the Series B
Preferred Stock outstanding at the time, given in person or by proxy, either in
writing or at a meeting, in which the holders of the Series B Preferred
Stock vote separately as a class: (i) authorize, create, issue or increase
the authorized or issued amount of any class or series of stock, including but
not limited to the issuance of any more shares of Preferred Stock, ranking pari
passu or senior to the Series B Preferred Stock, with respect to the
distribution of assets on liquidation, dissolution or winding up; (ii) amend,
alter or repeal the provisions of the Series B Preferred Stock, whether by
merger, consolidation or otherwise, so as to adversely affect any right,
preference, privilege or voting power of the Series B Preferred Stock; provided,
however, that any creation and issuance of another series of Junior
Stock shall not be deemed to adversely affect such rights, preferences,
privileges or voting powers; (iii) repurchase, redeem or pay dividends on,
shares of Common Stock or any other shares of the Company’s Junior Stock (other
than de minimis repurchases from employees of the Company in certain
circumstances, and any contractual redemption obligations existing as of the
date hereof as disclosed in the Company’s public filings with the Securities
and Exchange Commission); (iv) amend the Articles of Incorporation or
By-Laws of the Company so as to affect materially and adversely any right,
preference, privilege or voting power of the Series B Preferred Stock; provided,
however, that any creation and issuance of another series of Junior
Stock shall not be deemed to adversely affect such rights, preferences,
privileges or voting powers; (v) effect any distribution with respect to
Junior Stock other than as permitted hereby; (vi) reclassify the Company’s
outstanding securities; (vii) voluntarily file for bankruptcy, liquidate
the Company’s 

 

2

 

assets or make an assignment for the benefit
of the Company’s creditors; (viii) materially change the nature of the
Company’s business; or (ix) authorize, approve or enter into a Major
Transaction (as defined in Section 8 below).

 

(b)                                 General Voting Rights. Except with respect to transactions upon
which the Series B Preferred Stock shall be entitled to vote separately as
a class pursuant to Section 3(a) and 3(c) herein and except as
otherwise required by Pennsylvania law, the Series B Preferred Stock shall
have no voting rights. The Common Stock into which the Series B Preferred
Stock is convertible shall, upon issuance, have all of the same voting rights
as other issued and outstanding Common Stock of the Company, and none of the
rights of the Preferred Stock.

 

(c)                                  Preferred Stock Director. For so long as 10,000,000 shares (as
adjusted for any stock dividends, combinations, or splits with respect to such
shares) of Series B Preferred Stock remain outstanding, the holders of the
Series B Preferred Stock, voting together as a single class, shall be
entitled to nominate and elect one (1) member of the Board of Directors of
this Company at each meeting or pursuant to their written consent. Any director
who shall have been elected by the holders of the Series B Preferred Stock
may be removed during the aforesaid’s term of office, whether with or without
cause, only by the affirmative vote of the holders of majority of the Series B
Preferred Stock, voting together as a single class. In the event that said
director is removed then the holders of the Series B Preferred Stock shall
be entitled to name a replacement director.

 

4.                                       Liquidation Preference.

 

(a)                                  In the event of the liquidation, dissolution
or winding up of the affairs of the Company, whether voluntary or involuntary,
the holders of shares of Series B Preferred Stock then outstanding shall
be entitled to receive, out of the assets of the Company available for
distribution to its stockholders, an amount equal to $0.84 per share (the “Liquidation
Preference Amount”) of the Series B Preferred Stock plus any declared and
unpaid dividends before any payment shall be made or any assets distributed to
the holders of the Common Stock or any other Junior Stock. If the assets of the
Company are not sufficient to pay in full the Liquidation Preference Amount
plus any declared and unpaid dividends payable to the holders of outstanding
shares of the Series B Preferred Stock and any series of Preferred Stock
or any other class of stock ranking pari passu, as to rights on liquidation,
dissolution or winding up, with the Series B Preferred Stock, then all of
said assets will be distributed among the holders of the Series B
Preferred Stock and the other classes of stock ranking pari passu with the Series B
Preferred Stock, if any, ratably in accordance with the respective amounts that
would be payable on such shares if all amounts payable thereon were paid in
full. All payments for which this Section 4(a) provides shall be in
cash, property (valued at its fair market value as determined by an independent
appraiser reasonably acceptable to the holders of a majority of the Series B
Preferred Stock) or a combination thereof; provided, however,
that no cash shall be paid to holders of Junior Stock unless each holder of the
outstanding shares of Series B Preferred Stock has been paid in cash the
full Liquidation Preference Amount plus any declared and unpaid dividends to
which such holder is entitled as provided herein. After payment of the full
Liquidation Preference Amount plus any declared and unpaid dividends to which
each holder is entitled, such holders of shares of Series B Preferred
Stock will not be entitled to any further participation as such in any
distribution of the assets of the Company.

 

(b)                                 Written notice of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Company, stating a payment date and the place where the distributable amounts
shall be payable, shall be given by mail, postage prepaid, no less than thirty
(30) days prior to the payment date stated therein, to the holders of record of
the Series B Preferred Stock at their respective addresses as the same
shall appear on the books of the Company.

 

5.                                       Conversion. The holder of Series B Preferred Stock shall have the following
conversion rights (the “Conversion Rights”):

 

(a)                                  Right to Convert. At any time on or after the Issuance Date,
the holder of any such shares of Series B Preferred Stock may, at such
holder’s option, subject to the limitations set forth in Section 7 herein,
elect to convert (a “Voluntary Conversion”) all or any portion of the shares of
Series B Preferred Stock held by such person into a number of fully paid
and nonassessable shares of Common Stock equal to the quotient of (i) the
Liquidation Preference Amount of the shares of Series B Preferred Stock
being converted divided by (ii) the Conversion Price (as defined in Section 5(d) below)
then in effect as of the date of the delivery by such holder of its notice of
election to convert. In the event of a notice of redemption of any shares of Series B
Preferred Stock 

 

3

 

pursuant to Section 8 hereof, the
Conversion Rights of the shares designated for redemption shall terminate at
the close of business on the last full day preceding the date fixed for
redemption, unless the redemption price is not paid on such redemption date, in
which case the Conversion Rights for such shares shall continue until such
price is paid in full. In the event of a liquidation, dissolution or winding
up, the Company shall provide to each holder of shares of Series B
Preferred Stock notice of such liquidation, dissolution or winding up, which
notice shall (i) be sent at least fifteen (15) days prior to the
termination of the Conversion Rights (or, if the Company obtains lesser notice
thereof, then as promptly as possible after the date that it has obtained
notice thereof) and (ii) state the amount per share of Series B
Preferred Stock that will be paid or distributed on such liquidation,
dissolution or winding up, as the case may be.

 

(b)                                 Mechanics of Voluntary Conversion. The Voluntary Conversion of Series B
Preferred Stock shall be conducted in the following manner:

 

(i)                                     Holder’s Delivery Requirements. To convert Series B Preferred Stock
into full shares of Common Stock on any date (the “ Voluntary Conversion Date”),
the holder thereof shall (A) transmit by facsimile (or otherwise deliver),
for receipt on or prior to 5:00 p.m., New York time on such date, a copy
of a fully executed notice of conversion in the form attached hereto as Exhibit I
(the “Conversion Notice”), to the Company at (714) 970-1342, Attention: Chief
Financial Officer, and (B) surrender to a common carrier for delivery to
the Company as soon as practicable following such Voluntary Conversion Date the
original certificates representing the shares of Series B Preferred Stock
being converted (or an indemnification undertaking with respect to such shares
in the case of their loss, theft or destruction) (the “Preferred Stock
Certificates”) and the originally executed Conversion Notice.

 

(ii)                                  Company’s Response. Upon receipt by the Company of a facsimile
copy of a Conversion Notice, the Company shall immediately send, via facsimile,
a confirmation of receipt of such Conversion Notice to such holder. Upon receipt
by the Company of a copy of the fully executed Conversion Notice, the Company
or its designated transfer agent (the “Transfer Agent”), as applicable, shall,
within three (3) business days following the date of receipt by the
Company of the fully executed Conversion Notice, use its commercially
reasonable best efforts to issue and deliver to the Depository Trust Company (“DTC”)
account on the Holder’s behalf via the Deposit Withdrawal Agent Commission
System (“DWAC”) as specified in the Conversion Notice, registered in the name
of the holder or its designee, the number of shares of Common Stock to which
the holder shall be entitled. Notwithstanding the foregoing to the contrary,
the Company or its Transfer Agent shall only be obligated to issue and deliver
the shares to the DTC on a holder’s behalf via DWAC if such conversion is in
connection with a sale and the Company and the Transfer Agent are participating
in DTC through the DWAC system. If the number of shares of Preferred Stock
represented by the Preferred Stock Certificate(s) submitted for conversion
is greater than the number of shares of Series B Preferred Stock being
converted, then the Company shall, as soon as practicable and in no event later
than five (5) business days after receipt of the Preferred Stock
Certificate(s) and at the Company’s expense, issue and deliver to the
holder a new Preferred Stock Certificate representing the number of shares of Series B
Preferred Stock not converted.

 

(iii)                               Dispute Resolution. In the case of a dispute as to the
arithmetic calculation of the number of shares of Common Stock to be issued
upon conversion, the Company shall cause its Transfer Agent to promptly issue
to the holder the number of shares of Common Stock that is not disputed and
shall submit the arithmetic calculations to the holder via facsimile as soon as
possible, but in no event later than three (3) business days after receipt
of such holder’s Conversion Notice. If such holder and the Company are unable
to agree upon the arithmetic calculation of the number of shares of Common
Stock to be issued upon such conversion within five (5) business days of
such disputed arithmetic calculation being submitted to the holder, then the
Company shall within three (3) business days submit via facsimile the disputed
arithmetic calculation of the number of shares of Common Stock to be issued
upon such conversion to the Company’s independent registered public accounting
firm. The Company shall cause the accountant to perform the calculations and
notify the Company and the holder of the results no later than ten (10) business
days from the time it receives the disputed calculations. Such accountant’s
calculation shall be binding upon all parties absent manifest error. The
reasonable expenses of such accountant in making such determination shall be
paid by the Company, in the event the holder’s calculation was correct, or by
the holder, in the event the Company’s calculation was correct, or equally by
the Company and the holder in the event that neither the Company’s or the
holder’s calculation was correct. The period of time in which the Company is
required to effect conversions under this Certificate of Designation shall be
tolled with respect to the subject 

 

4

 

conversion pending resolution of any dispute
by the Company made in good faith and in accordance with this Section 5(b)(iii).  In the case of a dispute as to the holder’s
right to have all or a portion of its Preferred Stock redeemed or the price of
such redemption, or a dispute as to the occurrence of a subsequent issuance or
other event which would trigger a reset of the Conversion Price pursuant to Section 5(e) below
or the adjusted value of the Conversion Price, the Company shall submit the
disputed determinations via facsimile within three (3) business days of
receipt, or deemed receipt, of the Conversion Notice or a notice of redemption
pursuant to Section 8 hereof or other event giving rise to such dispute,
as the case may be, to the holder. If the holder and the Company are unable to
agree upon such determination or calculation within five (5) business days
of such disputed determination or arithmetic calculation being submitted to the
holder, then the Company shall, within three (3) business days submit via
facsimile a copy of (a) the disputed agreement or other documentation of
an event or occurrence which the holder believes may trigger a reset of the
Conversion Price, to an independent law firm selected by the Company and
approved by holder or (b) the disputed arithmetic calculation of the
Conversion Price or any redemption price to the Company’s independent
registered public accounting firm. The Company, at the Company’s expense, shall
cause the law firm or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Holder of the
results no later than ten (10) business days from the time it receives the
disputed determinations or calculations. 
Such law firm’s or accountant’s determination or calculation, as the
case may be, shall be binding upon all parties absent demonstrable error. The
procedures required by this Section 5(b)(iii) are collectively
referred to herein as the “Dispute Resolution Procedures.”

 

(iv)                              Record Holder. The person or persons entitled to receive
the shares of Common Stock issuable upon a conversion of the Series B
Preferred Stock shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on the Conversion Date.

 

(v)                                 Company’s Failure to Timely Convert. If within three (3) business days of
the Company’s receipt of an executed copy of the Conversion Notice (so long as
the applicable Preferred Stock Certificates and original Conversion Notice are
received by the Company on or before such third business day) (the “Delivery
Date”) and if the Company and the holder are not engaged in the dispute
resolution process described in Section 5(b)(iii), if the Transfer Agent
shall fail to issue and deliver to a holder the number of shares of Common
Stock to which such holder is entitled upon such holder’s conversion of the Series B
Preferred Stock or to issue a new Preferred Stock Certificate representing the
number of shares of Series B Preferred Stock to which such holder is
entitled pursuant to Section 5(b)(ii) (a “Conversion Failure”), in
addition to all other available remedies which such holder may pursue other
than upon the exercise of holder’s Buy-In rights as provided in Section 5(b)(iv),
the Company shall pay additional damages to such holder on each business day
after such third (3rd) business day that such conversion is not
timely effected in an amount equal 0.5% of the product of (A) the sum of
the number of shares of Common Stock not issued to the holder on a timely basis
pursuant to Section 5(b)(ii) and to which such holder is entitled
and, in the event the Company has failed to deliver a Preferred Stock
Certificate to the holder on a timely basis pursuant to Section 5(b)(ii),
the number of shares of Common Stock issuable upon conversion of the shares of Series B
Preferred Stock represented by such Preferred Stock Certificate, as of the last
possible date which the Company could have issued such Preferred Stock
Certificate to such holder without violating Section 5(b)(ii) and (B) the
Closing Bid Price (as defined below) of the Common Stock on the last possible
date which the Company could have issued such Common Stock and such Preferred
Stock Certificate, as the case may be, to such holder without violating Section 5(b)(ii).
If the Company fails to pay the additional damages set forth in this Section 5(b)(v) within
five (5) business days of the date incurred, then such payment shall bear
interest at the rate of 2.0% per month (pro rated for partial months) until
such payments are made. The term “Closing Bid Price” shall mean, for any
security as of any date, the last closing bid price of such security on the
Trading Market on which such security is traded as reported by Bloomberg, or,
if no last closing trade price is reported for such security by Bloomberg, the
average of the bid prices of any market makers for such security as reported in
the “pink sheets” by Pink OTC Markets Inc. If the Closing Bid Price cannot be
calculated for such security on such date on any of the foregoing bases, the
Closing Bid Price of such security on such date shall be the fair market value
as mutually determined by the Company and the holders of a majority of the
outstanding shares of Series B Preferred Stock.  Notwithstanding the foregoing, no additional
damages shall be paid to any holder exercising his Buy-In rights pursuant to Section 5(b)(iv).

 

(vi)                              Buy-In Rights. In addition to any other rights available
to the holders of Series B Preferred Stock, if the Company fails to cause
its Transfer Agent to transmit to the holder a certificate or certificates
representing the shares of Common Stock issuable upon conversion of the Series B
Preferred Stock on or before the 

 

5

 

Delivery Date, and if the Company and the
holder are not engaged in the dispute resolution process described in Section 5(b)(iii),
and if after such date the holder is required by its broker to purchase (in an
open market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the holder of the shares of Common Stock issuable
upon conversion of Series B Preferred Stock which the holder anticipated
receiving upon such conversion (a “Buy-In”), then the Company shall (1) pay
in cash to the holder the amount by which (x) the holder’s total purchase
price (including brokerage commissions, if any) for the shares of Common Stock
so purchased exceeds (y) the amount obtained by multiplying (A) the
number of shares of Common Stock issuable upon conversion of Series B
Preferred Stock that the Company was required to deliver to the holder in
connection with the conversion at issue times (B) the price at which the
sell order giving rise to such purchase obligation was executed, and (2) at
the option of the holder, either reinstate the shares of Series B
Preferred Stock and equivalent number of shares of Common Stock for which such
conversion was not honored or deliver to the holder the number of shares of
Common Stock that would have been issued had the Company timely complied with
its conversion and delivery obligations hereunder. For example, if the holder
purchases Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of shares of Common Stock with
an aggregate sale price giving rise to such purchase obligation of $10,000,
under clause (1) of the immediately preceding sentence the Company shall
be required to pay to the holder $1,000. The holder shall provide the Company
written notice indicating the amounts payable to the holder in respect of the
Buy-In, together with applicable confirmations and other evidence reasonably
requested by the Company. Nothing herein shall limit a holder’s right to pursue
any other remedies available to it hereunder, at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief
with respect to the Company’s failure to timely deliver certificates
representing shares of Common Stock upon conversion of the Series B
Preferred Stock as required pursuant to the terms hereof.

 

(c)                                  Automatic Conversion. 
Subject to the terms of this Section 5 and Section 7, all
outstanding shares of Series B Preferred Stock for which Conversion
Notices have not previously been received shall be automatically converted into
that number of shares of Common Stock equal to the quotient of the Liquidation
Preference Amount of the shares of Series B Preferred Stock being
converted divided by the Conversion Price then in effect as of the date on
which the conditions for automatic conversion have been met, upon the earlier
of (i) eighteen (18) months following the Issuance Date or (ii) the
thirtieth (30) consecutive trading day that the Closing Bid Price for the
shares Common Stock equals or exceeds $1.68 (as adjusted for any stock
dividends, combinations or splits with respect to the Common Stock).  The conversion contemplated by this paragraph
shall occur automatically without the consent of the holder of such shares of Series B
Preferred Stock, so long as (a) there are sufficient shares of Common
Stock authorized and reserved for issuance upon such conversion; and (b) the
Company shall not be in default in any material respect on its covenants and
obligations hereunder.  The Company shall
provide the holders of Series B Preferred Stock with twenty (20) days
prior notice of the automatic conversion and request that the holders surrender
their Series B Preferred Stock Certificates in return for certificates for
the number of shares of Common Stock into which such Series B Preferred
Stock has been converted.  If so required
by the Company, certificates surrendered for conversion shall be endorsed or
accompanied by written instruments of transfer, in form satisfactory to the
Company, duly executed by the holder.

 

(d)                                 Conversion Price.  The
term “Conversion Price” shall mean the price per share of the Common Stock
issuable upon conversion of the Series B Preferred Stock, which price
shall be $0.84, subject to adjustment under Section 5(e) hereof.

 

(e)                                  Adjustments of Conversion Price.

 

(i)                                     Adjustments for Stock Splits and Combinations. If the Company shall at any time or from
time to time after the Issuance Date, effect a stock split of the outstanding
Common Stock, the Conversion Price shall be proportionately decreased. If the
Company shall at any time or from time to time after the Issuance Date, combine
the outstanding shares of Common Stock, the Conversion Price shall be
proportionately increased. Any adjustments under this Section 5(e)(i) shall
be effective at the close of business on the date the stock split or
combination becomes effective.

 

(ii)                                  Adjustments for Certain Dividends and
Distributions. If the
Company shall at any time or from time to time after the Issuance Date, make or
issue or set a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in shares of
Common Stock, then, and in each event, the Conversion Price shall be decreased
as of the time of such issuance or, in the event such 

 

6

 

record date shall have been fixed, as of the
close of business on such record date, by multiplying the Conversion Price then
in effect by a fraction:

 

(1)                                  the numerator of which shall be the total
number of shares of Common Stock issued and outstanding immediately prior to
the time of such issuance or the close of business on such record date; and

 

(2)                                  the denominator of which shall be the total
number of shares of Common Stock issued and outstanding immediately prior to
the time of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution.

 

Notwithstanding
the foregoing, an adjustment shall not be made if the holders of Series B
Preferred Stock receive (i) a dividend or other distribution of shares of
Common Stock in a number equal to the number of shares of Common Stock as they
would have received if all outstanding shares of Series B Preferred Stock
had been converted into Common Stock on the date of such event or (ii) a
dividend or other distribution of shares of Series B Preferred Stock which
are convertible, as of the date of such event, into such number of shares of
Common Stock as is equal to the number of additional shares of Common Stock
being issued with respect to each share of Common Stock in such dividend or
distribution.

 

(iii)                               Adjustment for Other Dividends and
Distributions. If the
Company shall at any time or from time to time after the Issuance Date, make or
issue or set a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in securities of
the Company other than shares of Common Stock, then, and in each event, an
appropriate revision to the applicable Conversion Price shall be made and
provision shall be made (by adjustments of the Conversion Price or otherwise)
so that the holders of Series B Preferred Stock shall receive upon
conversion thereof, in addition to the number of shares of Common Stock
receivable thereon, the number of securities of the Company which they would
have received had their Series B Preferred Stock been converted into
Common Stock on the date of such event and had thereafter, during the period
from the date of such event to and including the Conversion Date, retained such
securities (together with any distributions payable thereon during such
period), giving application to all adjustments called for during such period
under this Section 5(e)(iii) with respect to the rights of the
holders of the Series B Preferred Stock; provided, however,
that if such record date shall have been fixed and such dividend is not fully
paid or if such distribution is not fully made on the date fixed therefor, the
Conversion Price shall be adjusted pursuant to this paragraph as of the time of
actual payment of such dividends or distributions; and provided further,
however, that no such adjustment shall be made if the holders of Series B
Preferred Stock receive (i) a dividend or other distribution of shares of
Common Stock in a number equal to the number of shares of Common Stock as they
would have received if all outstanding shares of Series B Preferred Stock
had been converted into Common Stock on the date of such event or (ii) a
dividend or other distribution of shares of Series B Preferred Stock which
are convertible, as of the date of such event, into such number of shares of
Common Stock as is equal to the number of additional shares of Common Stock
being issued with respect to each share of Common Stock in such dividend or
distribution.

 

(iv)                              Adjustments for Reclassification, Exchange or
Substitution. If the Common
Stock issuable upon conversion of the Series B Preferred Stock at any time
or from time to time after the Issuance Date shall be changed to the same or different
number of shares of any class or classes of stock, whether by reclassification,
exchange, substitution or otherwise (other than by way of a stock split or
combination of shares or stock dividends provided for in Sections 5(e)(i), (ii) and
(iii), or a reorganization, merger, consolidation, or sale of assets provided
for in Section 5(e)(v)), then, and in each event, an appropriate revision
to the Conversion Price shall be made and provisions shall be made (by
adjustments of the Conversion Price or otherwise) so that the holder of each
share of Series B Preferred Stock shall have the right thereafter to
convert such share of Series B Preferred Stock into the kind and amount of
shares of stock and other securities receivable upon reclassification, exchange,
substitution or other change, by holders of the number of shares of Common
Stock into which such share of Series B Preferred Stock might have been
converted immediately prior to such reclassification, exchange, substitution or
other change, all subject to further adjustment as provided herein.

 

(v)                                 Adjustments for Reorganization, Merger,
Consolidation or Sales of Assets.
If at any time or from time to time after the Issuance Date there shall be a
capital reorganization of the Company (other than by way of a stock split or
combination of shares or stock dividends or distributions provided for in Section 

 

7

 

5(e)(i), (ii) and (iii), or a
reclassification, exchange or substitution of shares provided for in Section 5(e)(iv)),
or a merger or consolidation of the Company with or into another corporation
where the holders of outstanding voting securities prior to such merger or
consolidation do not own over 50% of the outstanding voting securities of the
merged or consolidated entity, immediately after such merger or consolidation,
or the sale of all or substantially all of the Company’s properties or assets
to any other person (an “Organic Change”), then as a part of such Organic
Change an appropriate revision to the Conversion Price shall be made if
necessary and provision shall be made if necessary (by adjustments of the
Conversion Price or otherwise) so that the holder of each share of Series B
Preferred Stock shall have the right thereafter to convert such share of Series B
Preferred Stock into the kind and amount of shares of stock and other
securities or property of the Company or any successor corporation resulting
from Organic Change. In any such case, appropriate adjustment shall be made in
the application of the provisions of this Section 5(e)(v) with
respect to the rights of the holders of the Series B Preferred Stock after
the Organic Change to the end that the provisions of this Section 5(e)(v) (including
any adjustment in the Conversion Price then in effect and the number of shares
of stock or other securities deliverable upon conversion of the Series B
Preferred Stock) shall be applied after that event in as nearly an equivalent
manner as may be practicable.

 

(vi)                              Adjustments for Issuance of Additional Shares
of Common Stock. If at any
time or from time to time after the Issuance Date, in the event the Company
shall issue or sell any additional shares of Common Stock (otherwise than as
provided in the foregoing subsections (i) through (v) of this Section 5(e) or
pursuant to (a) any securities convertible into or exchangeable for,
directly or indirectly, Common Stock (“Convertible Securities”), other than the
Series B Preferred Stock, or (b) any rights or warrants or options to
purchase any such Common Stock or Convertible Securities (collectively, the “Common
Stock Equivalents”) (hereafter defined) granted or issued on or prior to the
Issuance Date, so long as the conversion or exercise price in such securities
is not amended to lower such price and/or such securities are not amended in a
manner that would adversely affect the holders) (the “Additional Shares of
Common Stock”), at a price per share less than the Conversion Price, or without
consideration, the Conversion Price then in effect upon each such issuance
shall be adjusted to that price (rounded to the nearest cent) determined by
multiplying the Conversion Price by a fraction:

 

(1)                                  the numerator of which shall be equal to the
sum of (A) the number of shares of Common Stock outstanding immediately prior
to the issuance of such Additional Shares of Common Stock plus (B) the
number of shares of Common Stock (rounded to the nearest whole share) which the
aggregate consideration for the total number of such Additional Shares of
Common Stock so issued would purchase at a price per share equal to the then
Conversion Price, and

 

(2)                                  the denominator of which shall be equal to
the number of shares of Common Stock outstanding immediately after the issuance
of such Additional Shares of Common Stock;

 

No
adjustment of the number of shares of Common Stock shall be made under Section 5(e)(vi) upon
the issuance of any Additional Shares of Common Stock which are issued pursuant
to the exercise of any warrants or other subscription or purchase rights or
pursuant to the exercise of any conversion or exchange rights in any Common
Stock Equivalents (as defined below), if any such adjustment shall previously
have been made upon the issuance of such warrants or other rights or upon the
issuance of such Common Stock Equivalents (or upon the issuance of any warrant
or other rights therefor) pursuant to Section 5(e).

 

(vii)                           Record Date. In case the Company shall take record of the holders of its Common
Stock or any other Preferred Stock for the purpose of entitling them to subscribe
for or purchase Common Stock or Convertible Securities, then the date of the
issue or sale of the shares of Common Stock shall be deemed to be such record
date.

 

(viii)                        Certain Issues Excepted. Anything herein to the contrary
notwithstanding, the Company shall not be required to make any adjustment to
the Conversion Price upon (i) securities issued (other than for cash) in
connection with a merger, acquisition, or consolidation, (ii) securities
issued pursuant to the conversion or exercise of convertible or exercisable
securities issued or outstanding on or prior to the date hereof (so long as the
conversion or exercise price in such securities are not amended to lower such
price and/or adversely affect the holders), (iii) securities issued in
connection with bona fide strategic license agreements, other partnering
arrangements or investor relations so long as such issuances are not for the
purpose of raising capital, (iv) Common Stock issued or the issuance or
grants of options to purchase Common Stock pursuant to the Issuer’s stock
option 

 

8

 

plans and employee stock purchase plans that
are duly approved by the Company’s Board of Directors (or a committee thereof),
(v) Common Stock issued as payment of dividends that may be declared on
the Series B Preferred Stock or any series of Preferred Stock that ranks pari passu with the Series B Preferred Stock and (vi) any warrants
issued to the placement agent (or underwriter) and its designees for
transactions approved by the Company’s Board of Directors.

 

(f)                                    No Impairment. The Company shall not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed hereunder by the Company, but will at
all times in good faith assist in the carrying out of all the provisions of
this Section 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the Series B
Preferred Stock against impairment. In the event a holder shall elect to
convert any shares of Series B Preferred Stock as provided herein, the
Company cannot refuse conversion based on any claim that such holder or any one
associated or affiliated with such holder has been engaged in any violation of
law, unless (i) an order from the Securities and Exchange Commission
prohibiting such conversion or (ii) an injunction from a court, on notice,
restraining and/or enjoining conversion of all or of said shares of Series B
Preferred Stock shall have been issued and the Company posts a surety bond for
the benefit of such holder in an amount equal to 120% of the Liquidation
Preference Amount of the Series B Preferred Stock such holder has elected
to convert, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be
payable to such holder in the event it obtains judgment.

 

(g)                                 Certificates as to Adjustments. Upon occurrence of each adjustment or
readjustment of the Conversion Price or number of shares of Common Stock
issuable upon conversion of the Series B Preferred Stock pursuant to this Section 5,
the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
such Series B Preferred Stock a certificate setting forth such adjustment
and readjustment, showing in detail the facts upon which such adjustment or
readjustment is based. The Company shall, upon written request of the holder of
such affected Series B Preferred Stock, at any time, furnish or cause to
be furnished to such holder a like certificate setting forth such adjustments
and readjustments, the Conversion Price in effect at the time, and the number
of shares of Common Stock and the amount, if any, of other securities or
property which at the time would be received upon the conversion of a share of
such Series B Preferred Stock. Notwithstanding the foregoing, the Company
shall not be obligated to deliver a certificate unless such certificate would
reflect an increase or decrease of at least one percent of such adjusted
amount.

 

(h)                                 Issue Taxes. The Company shall pay any and all issue and other taxes, excluding
federal, state or local income taxes, that may be payable in respect of any
issue or delivery of shares of Common Stock on conversion of shares of Series B
Preferred Stock pursuant hereto; provided, however, that the
Company shall not be obligated to pay any transfer taxes resulting from any
transfer requested by any holder in connection with any such conversion.

 

(i)                                     Notices. All notices and other communications hereunder shall be in writing
and shall be deemed given if delivered personally or by facsimile or e-mail or
three (3) business days following being mailed by certified or registered
mail, postage prepaid, return-receipt requested, addressed to the holder of
record at its address appearing on the books of the Company. The Company will
give written notice to each holder of Series B Preferred Stock at least
twenty (20) days prior to the date on which the Company closes its books or
takes a record (I) with respect to any dividend or distribution upon the
Common Stock, (II) with respect to any pro rata subscription offer to
holders of Common Stock or (III) for determining rights to vote with
respect to any Organic Change, dissolution, liquidation or winding-up and in no
event shall such notice be provided to such holder prior to such information
being made known to the public. The Company will also give written notice to
each holder of Series B Preferred Stock at least twenty (20) days prior to
the date on which any Organic Change, dissolution, liquidation or winding-up
will take place and in no event shall such notice be provided to such holder
prior to such information being made known to the public.

 

(j)                                     Fractional Shares. No fractional shares of Common Stock shall
be issued upon conversion of the Series B Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be 

 

9

 

entitled, the Company shall round the number
of shares to be issued upon conversion up to the nearest whole number of
shares.

 

(k)                                  Reservation of Common Stock. The Company shall, so long as any shares of
Series B Preferred Stock are outstanding, reserve and keep available out
of its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Series B Preferred Stock, such number of
shares of Common Stock equal to at least one hundred percent (100%) of the
aggregate number of shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all of the Series B Preferred Stock
then outstanding. The initial number of shares of Common Stock reserved for
conversions of the Series B Preferred Stock and any increase in the number
of shares so reserved shall be allocated pro rata among the holders of the Series B
Preferred Stock based on the number of shares of Series B Preferred Stock
held by each holder of record at the time of issuance of the Series B
Preferred Stock or increase in the number of reserved shares, as the case may
be. In the event a holder shall sell or otherwise transfer any of such holder’s
shares of Series B Preferred Stock, each transferee shall be allocated a
pro rata portion of the number of reserved shares of Common Stock reserved for
such transferor. Any shares of Common Stock reserved and which remain allocated
to any person or entity which does not hold any shares of Series B
Preferred Stock shall be allocated to the remaining holders of Series B
Preferred Stock, pro rata based on the number of shares of Series B
Preferred Stock then held by such holder.

 

(l)                                     Retirement of Series B Preferred Stock. Conversion of Series B Preferred Stock
shall be deemed to have been effected on the Conversion Date. Upon conversion
of only a portion of the number of shares of Series B Preferred Stock
represented by a certificate surrendered for conversion, the Company shall
issue and deliver to such holder at the expense of the Company, a new
certificate covering the number of shares of Series B Preferred Stock representing
the unconverted portion of the certificate so surrendered as required by Section 5(b)(ii).

 

(m)                               Regulatory Compliance. If any shares of Common Stock to be
reserved for the purpose of conversion of Series B Preferred Stock require
registration or listing with or approval of any governmental authority, stock
exchange or other regulatory body under any federal or state law or regulation
or otherwise before such shares may be validly issued or delivered upon
conversion, the Company shall, at its sole cost and expense, in good faith and
as expeditiously as possible, endeavor to secure such registration, listing or
approval, as the case may be.

 

6.                                       No Preemptive Rights. No holder of the Series B Preferred
Stock shall be entitled to rights to subscribe for, purchase or receive any
part of any new or additional shares of any class, whether now or hereinafter
authorized, or of bonds or debentures, or other evidences of indebtedness
convertible into or exchangeable for shares of any class, but all such new or additional
shares of any class, or any bond, debentures or other evidences of indebtedness
convertible into or exchangeable for shares, may be issued and disposed of by
the Board of Directors on such terms and for such consideration (to the extent
permitted by law), and to such person or persons as the Board of Directors in
their absolute discretion may deem advisable.

 

7.                                       Conversion Restriction. Notwithstanding anything to the contrary
set forth in Section 5 of this Certificate of Designation, at no time may
a holder of shares of Series B Preferred Stock convert shares of the Series B
Preferred Stock if the number of shares of Common Stock to be issued pursuant
to such conversion would cause the number of shares of Common Stock owned by
such holder and its affiliates at such time to exceed, when aggregated with all
other shares of Common Stock owned by such holder and its affiliates at such
time, the number of shares of Common Stock which would result in such holder
and its affiliates beneficially owning (as determined in accordance with Section 13(d) of
the Securities Exchange Act of 1934, as amended, and the rules thereunder)
in excess of 9.99% of the then issued and outstanding shares of Common Stock
outstanding at such time; provided, however, that upon a holder
of Series B Preferred Stock providing the Company with sixty-one (61) days
notice (pursuant to Section 5(i) hereof) (the “Waiver Notice”) that
such holder would like to waive Section 7 of this Certificate of
Designation with regard to any or all shares of Common Stock issuable upon
conversion of Series B Preferred Stock, this Section 7 shall be of no
force or effect with regard to those shares of Series B Preferred Stock
referenced in the Waiver Notice.  Each
holder of shares of Series B Preferred Stock agrees to provide the Company
with a certificate of beneficial ownership within five (5) days of the
request thereof.

 

8.                                       Redemption.  The Series B Preferred
Stock shall be redeemed by the Company as provided below, at the option of the
holder, upon the occurrence of a Major Transaction or a Triggering Event, as
follows:

 

10

 

(a)                                  Redemption Option Upon Major Transaction or
Triggering Event. In
addition to all other rights of the holders of Series B Preferred Stock
contained herein, simultaneous with the occurrence of a Major Transaction (as
defined below) or a Triggering Event (as defined below), each holder of Series B
Preferred Stock shall have the right, at such holder’s option, to require the
Company to redeem all or a portion of such holder’s shares of Series B
Preferred Stock at a price per share of Series B Preferred Stock equal to
one hundred percent (100%) of the Liquidation Preference Amount, plus any
accrued but unpaid dividends (the “Redemption Price”).

 

(b)                                 “Major Transaction”. A “Major
Transaction” shall be deemed to have occurred at such time as any of the
following events:

 

(i)                                     the consolidation, merger or other business
combination of the Company with or into another Person (other than (A) pursuant
to a migratory merger effected solely for the purpose of changing the
jurisdiction of incorporation of the Company or (B) a consolidation,
merger or other business combination in which holders of the Company’s voting
power immediately prior to the transaction continue after the transaction to
hold, directly or indirectly, the voting power of the surviving entity or
entities necessary to elect a majority of the members of the board of directors
(or their equivalent if other than a corporation) of such entity or entities).

 

(ii)                                  the sale or transfer of more than 50% of the
Company’s assets other than inventory in the ordinary course of business in one
or a related series of transactions; or

 

(iii)                               closing of a purchase, tender or exchange
offer made to the holders of more than fifty percent (50%) of the outstanding
shares of Common Stock in which more than fifty percent (50%) of the
outstanding shares of Common Stock were tendered and accepted.

 

(c)                                  “Triggering Event”. A “Triggering
Event” shall be deemed to have occurred at such time as any of the following
events:

 

(i)                                     following the Issuance Date, the Company
fails to utilize its best efforts to maintain a listing on at least one of, the
OTC Bulletin Board, the OTCQX, the Nasdaq Global Select Market, Nasdaq Global
Market, the Nasdaq Capital Market, the New York Stock Exchange, Inc., the
American Stock Exchange, Inc. or any successor to any of the foregoing
trading markets or exchanges.

 

(ii)                                  the Company’s failure to comply with a
Conversion Notice tendered in accordance with the provisions of this
Certificate of Designation within ten (10) business days after the receipt
by the Company of the Conversion Notice and the Preferred Stock Certificates;
or

 

(iii)                               following the Issuance Date, the Company
files a Form 15 with the Securities and Exchange Commission with respect
to or otherwise deregisters its shares of Common Stock and as a result such
shares of Common Stock are no longer publicly tradeable or quotable; or

 

(iv)                              following the Issuance Date, the Company
consummates a “going private” transaction and as a result the Common Stock is
no longer registered under Sections 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended; or

 

(v)                                 the Company redeems any Junior Stock other
than the Series A Preferred Stock and/or any stock repurchased (on a
set-off basis without any cash outlay by the Company other than to the Internal
Revenue Service) in connection with the payment of withholding taxes associated
with equity compensation incentives or any other de minimus
redemptions;

 

(vi)                              the occurrence of a Bankruptcy Event (“Bankruptcy
Event” means (A) the Company or any of its “significant subsidiaries” (as
that term is defined in Rule 1-02 of Regulation S-X) pursuant to or under
or within the meaning of any bankruptcy code: (i) commences a voluntary
case or proceeding; (ii) consents to the entry of an order for relief
against it in an involuntary case or proceeding; (iii) consents to the
appointment of a Custodian of it or for all or substantially all of its
property; or (iv) makes a general assignment for the benefit of its
creditors; or (B) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Code that: (i) is 

 

11

 

for relief against the Company or any of its
subsidiaries in an involuntary case or proceeding; (ii) appoints a
Custodian of the Company or any of its subsidiaries for all or substantially
all of their properties taken as a whole; or (iii) orders the liquidation
of the Company or any of its subsidiaries; and in each case the order or decree
remains unstayed and in effect for 60 days.); or

 

(vii)                           the Company breaches in any material respect
any covenant in this Certificate of Designation; provided, however, that
in the case of a breach of a negative covenant as specified in Section 9
below which is curable, such breach shall not be deemed a Triggering Event for
purposes hereof if the Company (x) cures the breach within a period of ten
(10) business days or (y) if such curable breach is not curable
within such 10-day period, commences a cure within such 10-day period and
thereafter diligently and in good faith continues to effectuate such cure and
such cure is fully effectuated within thirty (30) calendar days of such breach.

 

9.                                       Negative Covenants. For so long as 10,000,000 shares (as
adjusted for any stock dividends, combinations, or splits with respect to such
shares) of the Series B Preferred Stock remain outstanding, without the
consent of the holders owning of record a not less than 50% of the shares of Series B
Preferred Stock then outstanding, this Company will not and will not permit any
of its Subsidiaries to directly or indirectly:

 

(a)                                  amend its Articles of Incorporation, bylaws
or other charter documents so as to materially and adversely affect any rights
of any Holder; provided, however, that any creation and issuance
of another series of Junior Stock shall not be deemed to adversely affect such
rights, preferences, privileges or voting powers;

 

(b)                                 designate any class or series of capital
stock having any rights or preferences senior to the rights and preferences of
the Series B Preferred Stock;

 

(c)                                  repay, repurchase or offer to repay,
repurchase or otherwise acquire more than a de minimis number of shares of its
Common Stock or Common Stock equivalents or any other Junior Stock other than
to the extent permitted or required hereunder and other than any stock
repurchased (on a set-off basis without any cash outlay by the Company other
than to the Internal Revenue Service) in connection with the payment of
withholding taxes associated with equity compensation incentives;

 

(d)                                 enter into any agreement with respect to any
of the foregoing; or

 

(e)                                  issue any variable priced equity securities
or any variable priced equity linked securities.

 

10.                                 Inability to Fully Convert.

 

(a)                                  Holder’s Option if Company Cannot Fully
Convert. If a holder is then
entitled under the terms of this Certificate of Designation to convert shares
of its Series B Preferred Stock, upon the Company’s receipt of a
Conversion Notice, the Company cannot issue shares of Common Stock for any
reason, including, without limitation, because the Company (y) does not
have a sufficient number of shares of Common Stock authorized and available, (Z) is
otherwise prohibited by applicable law or by the rules or regulations of
any stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Company or its securities from issuing
all of the Common Stock which is to be issued to a holder of Series B
Preferred Stock pursuant to a Conversion Notice, then the Company shall issue
as many shares of Common Stock as it is able to issue in accordance with such
holder’s Conversion Notice and pursuant to Section 5(b)(ii) above and,
with respect to the unconverted Series B Preferred Stock, the holder,
solely at such holder’s option, can elect, within five (5) business days
after receipt of notice from the Company thereof to:

 

(i)                                     require the Company to issue restricted
shares of Common Stock in accordance with such holder’s Conversion Notice and
pursuant to Section 5(b)(ii) above; or

 

(ii)                                  exercise its Buy-In rights pursuant to and in
accordance with the terms and provisions of Section 5(b)(vi) hereof.

 

12

 

(b)                                 Mechanics of Fulfilling Holder’s Election. The Company shall immediately send via
facsimile to a holder of Series B Preferred Stock, upon receipt of a
facsimile copy of a Conversion Notice from such holder which cannot be fully satisfied
as described in Section 10(a) above, a notice of the Company’s
inability to fully satisfy such holder’s Conversion Notice (the “Inability to
Fully Convert Notice”). Such Inability to Fully Convert Notice shall indicate (i) the
reason why the Company is unable to fully satisfy such holder’s Conversion
Notice and (ii) the number of Series B Preferred Stock which cannot
be converted. Such holder shall notify the Company of its election pursuant to Section 10(a) above
by delivering written notice via facsimile to the Company (“Notice in Response
to Inability to Convert”).

 

(c)                                  Pro-rata Conversion. In the event the Company receives a
Conversion Notice from more than one holder of Series B Preferred Stock on
the same day and the Company can convert some, but not all, of the Series B
Preferred Stock pursuant to this Section 10, the Company shall convert
from each holder of Series B Preferred Stock electing to have Series B
Preferred Stock converted at such time an amount equal to such holder’s
pro-rata amount, based on the number shares of Series B Preferred Stock
held by such holder relative to the number of shares of Series B Preferred
Stock held by all holders submitting shares for conversion.

 

11.                                 Vote to Change the Terms of or Issue
Preferred Stock. The
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting, of the holders of not less than fifty percent (50%)
of the then outstanding shares of Series B Preferred Stock (in addition to
any other corporate approvals then required to effect such action), shall be
required (a) for any change to this Certificate of Designation or the
Company’s Articles of Incorporation which would amend, alter, change or repeal
any of the powers, designations, preferences and rights of the Series B
Preferred Stock or (b) for the issuance of shares of Series B
Preferred Stock after the Issuance Date.

 

12.                                 Lost or Stolen Certificates. Upon receipt by the Company of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
any Preferred Stock Certificates representing the shares of Series B
Preferred Stock, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the holder to the Company and, in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new preferred stock
certificate(s) of like tenor and date; provided, however,
the Company shall not be obligated to re-issue Preferred Stock Certificates if
the holder contemporaneously requests the Company to convert such shares of Series B
Preferred Stock into Common Stock.

 

13.                                 Remedies, Characterizations, Other
Obligations, Breaches and Injunctive Relief. The remedies provided in this Certificate of
Designation shall be cumulative and in addition to all other remedies available
under this Certificate of Designation, at law or in equity (including a decree
of specific performance and/or other injunctive relief), no remedy contained
herein shall be deemed a waiver of compliance with the provisions giving rise
to such remedy and nothing herein shall limit a holder’s right to pursue actual
damages for any failure by the Company to comply with the terms of this
Certificate of Designation. Amounts set forth or provided for herein with
respect to payments, conversion and the like (and the computation thereof)
shall be the amounts to be received by the holder thereof and shall not, except
as expressly provided herein, be subject to any other obligation of the Company
(or the performance thereof). The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the holders of the Series B
Preferred Stock and that the remedy at law for any such breach may be
inadequate. The Company therefore agrees that, in the event of any such breach
or threatened breach, the holders of the Series B Preferred Stock shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.

 

14.                                 Specific Shall Not Limit General;
Construction. No specific
provision contained in this Certificate of Designation shall limit or modify
any more general provision contained herein. This Certificate of Designation
shall be deemed to be jointly drafted by the Company and all initial purchasers
of the Series B Preferred Stock and shall not be construed against any
person as the drafter hereof.

 

15.                                 Failure or Indulgence Not Waiver. No failure or delay on the part of a holder
of Series B Preferred Stock in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or privilege preclude other or
further exercise thereof or of any other right, power or privilege.

 

13

 

IN
WITNESS WHEREOF, the undersigned has executed and subscribed this Certificate
and does affirm the foregoing as true this •th day of                     ,
2008.

 

HEALTHAXIS INC.

 

 

	
  By:

  	
  /s/

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
					

 

14

 

EXHIBIT I

 

HEALTHAXIS
INC.

CONVERSION NOTICE

 

Reference
is made to the Certificate of Designation of the Relative Rights and
Preferences of the Series B Preferred Stock of HealthAxis Inc. (the “Certificate
of Designation”). In accordance with and pursuant to the Certificate of
Designation, the undersigned hereby elects to convert the number of shares of Series B
Preferred Stock, par value $1.00 per share (the “Preferred Shares”), of
HealthAxis Inc., a Pennsylvania corporation (the “Company”), indicated below
into shares of Common Stock, par value $0.10 per share (the “Common Stock”), of
the Company, by tendering the stock certificate(s) representing the share(s) of
Preferred Shares specified below as of the date specified below.

 

	
  Date of Conversion:

  	
   

  	
   

  

 

	
  Number
  of Preferred Shares to be converted:

  	
   

  	
   

  

 

	
  Stock certificate no(s). of Preferred Shares to be converted:

  	
   

  	
   

  

 

Please
confirm the following information:

 

	
  Conversion Price:

  	
   

  	
   

  

 

	
  Number of shares of Common Stock to be issued:

  	
   

  	
   

  

 

	
  Number
  of shares of Common Stock beneficially owned or deemed beneficially owned by
  the Holder on the Date of Conversion:

  	
   

  

 

Please
issue the Common Stock into which the Preferred Shares are being converted and,
if applicable, any check drawn on an account of the Company in the following
name and to the following address:

 

	
  Issue to:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

	
  Facsimile Number:

  	
   

  	
   

  

 

	
  Authorization:

  	
   

  	
   

  

 

	
  By:

  	
   

  	
   

  

 

	
  Title:

  	
   

  	
   

  

 

	
  Dated:

  

 

15

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00147-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00147-of-00352.parquet"}]]