Document:

Exhibit 10.2

 

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-one million one hundred five thousand
(21,105,000) 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-one million one
hundred five thousand (21,105,000) 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 $1.155 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 7,300,000 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,

 

2

 

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 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 7,300,000 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
$1.155 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

 

3

 

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 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

 

4

 

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
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

 

5

 

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

 

6

 

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 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 $2.31 (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

 

7

 

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 $1.155, 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 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

 

8

 

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 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.

 

9

 

(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 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

 

10

 

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

 

11

 

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 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

 

12

 

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:

 

(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

 

13

 

(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
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 7,300,000 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;

 

14

 

(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.

 

(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

 

15

 

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.

 

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:

  	
   

  	
   

  

 

16

 

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:

  	
   

  	
   

  
					

 

17Exhibit 10.1

 

IMD PARENT LLC

 

October 21, 2008

 

Lehman Brothers Holdings Inc.

745 Seventh Avenue

New York, New York 10019

 

Ladies and Gentlemen:

 

Reference is made to that certain Amended and Restated Purchase
Agreement, dated as of October 3, 2008 (the “Purchase Agreement”),
by and between IMD Parent LLC, a Delaware limited liability company, Lehman
Brothers Holdings Inc., a Delaware corporation, and the entities listed on Schedule
I thereto.  Capitalized terms used,
but not otherwise defined herein, shall have the meanings ascribed to such
terms in the Purchase Agreement.

 

In connection with the entry of the Bid Procedures Order by the
Bankruptcy Court on October 21, 2008, the Purchaser and Seller have agreed
to make certain amendments to the Purchase Agreement.  Pursuant to Section 10.3 of the Purchase
Agreement, the Purchase Agreement is hereby amended as follows:

 

1.               Exhibit A
to the Purchase Agreement is hereby amended and restated in its entirety to be
the Bid Procedures Order attached as Exhibit A hereto.

 

2.               The
definition of “Audited Financial Statements” in Section 1.1 of the
Purchase Agreement is hereby amended and restated in its entirety to read as
follows:

 

“Audited Financial Statements” means the final audited statement
of the special purpose combined financial position and statement of operations
of the NB Business as of and for the two fiscal-quarter period ended May 31,
2008, prepared in accordance with GAAP on a full carve out basis with the
exception that such financial statements shall (i) be on a pre-tax income
basis and will not include the current and deferred provision for income taxes
and related tax assets or liabilities or any income tax-related footnote
disclosures, (ii) exclude any additional push-down of fixed asset balances
and depreciation and amortization, asset impairment charges and interest income
(not including the revenue associated with the margin debits) and expense
outside of amounts historically recorded within the NB Business Financial
Information, (iii) exclude any adjustments and disclosure relating to
stock-based compensation under SFAS 123R and (iv) be prepared on a
going-concern basis.

 

3.               The
definition of “Designation Notice” in Section 1.1 of the Purchase
Agreement is hereby amended and restated in its entirety to read as follows:

 

“Designation Notice” means a notice (as it may
be amended, modified or supplemented 

 

1

 

by Purchaser from time to time prior to the Bid
Deadline (as defined in the Bid Procedures Order and as it may be extended from
time to time in accordance with the Bid Procedures Order)) delivered by
Purchaser to Parent designating any Seller or any member of the Company Group
as an entity that will sell, assign, convey and deliver to the Purchaser the
Purchased Assets, free and clear of all Liens and Claims pursuant to sections
363 and 365 of the Bankruptcy Code in a voluntary proceeding under the
Bankruptcy Code in connection with the transactions contemplated hereby, which
notice shall be delivered to Parent no later than the Bid Deadline (as it may
be extended from time to time in accordance with the Bid Procedures Order).”

 

4.               The
definition of “Reimbursement Amount” in Section 1.1 of the Purchase
Agreement is hereby amended and restated in its entirety to read as follows:

 

“Reimbursement Amount” means the reasonable, customary,
documented and actual out-of-pocket fees, costs and expenses of the Purchaser
and its Affiliates (including fees, costs and expenses of counsel and any other
professionals retained by the Purchaser or its Affiliates) in connection with
the transactions contemplated by this Agreement, the negotiation,
investigation, preparation, execution and delivery of this Agreement and any
related agreements, documents and pleadings, or the Bankruptcy Case, or any
other attempted acquisition of all or part of the Business, including any fees,
costs and expenses incurred in connection with litigation, contested matters,
adversary proceedings or negotiations necessitated by any proceedings relating
to the foregoing, which shall be paid as set forth in Section 3.5
hereof.”

 

5.               The
definition of “S&P Percentage” in Section 1.1 of the Purchase
Agreement is hereby amended and restated in its entirety to read as follows:

 

“S&P Percentage” means 100%, minus the higher of (i) 78.69% and (ii) the
average closing price of the S&P 500 Index for the three consecutive full
trading days immediately preceding the Closing Date divided by 1202.77,
expressed as a percentage.”

 

6.               The
definition of “Seller Termination Fee” in Section 1.1 of the Purchase
Agreement is hereby amended and restated in its entirety to read as follows:

 

“Seller Termination Fee” means $52,500,000.”

 

7.               Section 2.5(a) of
the Purchase Agreement is hereby amended and restated in its entirety to read
as follows:

 

“(a)         Concurrent with the
delivery of the Designation Notice (or if no Designation Notice is delivered,
at or prior to the Bid Deadline (as it may be extended from time to time in
accordance with the Bid Procedures Order)), the Purchaser shall have the right
upon notice (which notice may be amended, modified or supplemented by Purchaser
from time to time prior to the Bid Deadline (as it may be extended from time to
time in accordance with the Bid Procedures Order)) to Seller to designate any
Related 

 

2

 

Contract as a Contract to be assumed and/or assigned
(as applicable) pursuant to this Section 2.5 (such Contracts, the “Purchased
Contracts”).  In the event that a
Debtor is a party to a Purchased Contract, Seller shall, or cause its
Subsidiaries to, assume and assign such Purchased Contract to Purchaser (or its
designee) pursuant to Section 365 of the Bankruptcy Code.  In the event that a Debtor is not a party to
a Purchased Contract, such Purchased Contract shall be assigned to the
Purchaser (or its designee); provided, however, that Seller’s
obligation to assign any Transferred Real Property Leases under this sentence
is subject to the Seller obtaining the Landlord Consents).  Purchaser shall use commercially reasonable
efforts to designate Related Contracts as Purchased Contracts before the Sale
Hearing.  Until a date that is five (5) days
before Closing, the Purchaser shall have the right, upon notice to the Seller,
to remove without penalty any Related Contract designated as a Purchased
Contract (other than a Transferred Real Property Lease) from the list of
Purchased Contracts, in which case such Related Contract shall become an
Excluded Contract.”

 

8.               Section 3.3(g) of
the Purchase Agreement is hereby amended and restated in its entirety to read
as follows:

 

“(g)         by Purchaser, upon
notice to Parent, if (i) following the entry of the Bid Procedures Order,
such Bid Procedures Order is stayed, reversed, amended or vacated or modified
without Purchaser’s prior written consent and such Bid Procedures Order ceases
to be reinstated after a period of five (5) Business Days during which
Purchaser will work in good faith with the Debtors in an attempt to have such
Bid Procedures Order entered in a manner reasonably acceptable to Purchaser and
the Debtors, (ii) (A) the Auction is not held on or prior to December 8,
2008 or (B) the Sale Order, in form and substance reasonably satisfactory
to Purchaser, has not been entered in the Bankruptcy Case of Parent and each
entity designated in the Designation Notice prior to December 24, 2008
(or, if later, the second Business Day following the date of the Sale Hearing
if Purchaser elects to seek an adjournment of the Sale Hearing pursuant to Section 7.25(g)(i)),
or if after such entry, such Sale Order is stayed, reversed, amended, vacated
or modified without Purchaser’s prior written consent and such Sale Order
ceases to be reinstated after a period of ten (10) Business Days during
which Purchaser will work in good faith with the Debtors in an attempt to have
such Sale Order reinstated in a manner reasonably acceptable to Purchaser and
the Debtors, (iii) any Bankruptcy Case that relates to any Purchased Asset
is involuntarily converted to a case under Chapter 7 of the Bankruptcy Code, a
trustee or examiner is appointed in any such Bankruptcy Case, any such
Bankruptcy Case is dismissed or (iv) Parent, Seller or any Affiliate of
Parent breaches Section 7.20(a), Section 7.25(f) or
Section 7.25(g);”

 

9.               Section 7.25(f) of
the Purchase Agreement is hereby amended and restated in its entirety to read
as follows:

 

“(f)          If
Purchaser is selected as the Successful Bidder, promptly following such
selection, but in no event later than two (2) Business Days thereafter,
any Seller designated in the Designation Notice shall, or cause the designated
Affiliate to, file a 

 

3

 

voluntary Chapter 11 (or,
if so designated by the Purchaser with respect to an Affiliate that is not
eligible for Chapter 11, a voluntary Chapter 7) petition in the United States
Bankruptcy Court for the Southern District of New York, together with
appropriate supporting declarations, pleadings and notices, each in form and
substance reasonably satisfactory to the Purchaser; provided, however,
that with respect to any Seller that is a Broker-Dealer Subsidiary that is a
member of SIPC, Seller shall not be required to file a voluntary Chapter 11
case until such time as a new broker dealer has been established and the
brokerage accounts from such Broker-Dealer Subsidiary that is a member of SIPC
have been transferred to a new broker dealer; provided  further
that Seller shall use commercially reasonable efforts to promptly establish the
new broker-dealer and transfer such accounts on or prior to the date that is
two (2) Business Days following Purchaser’s selection as the Successful
Bidder.”

 

10.         Section 7.25(g) of
the Purchase Agreement is hereby amended and restated in its entirety to read
as follows:

 

“(g)         In the event that any
Seller or any member of the Company Group becomes subject to a proceeding under
the Bankruptcy Code (a “New Debtor”), such Seller and the Parent shall
file a joinder to the Sale Motion, seeking approval of the Sale Order with
respect to such Seller and the assumption of this Agreement by such Seller and
the scheduling of a hearing to consider approval of such motion on the same
date of the Sale Hearing; provided, however, if Purchaser is
selected as the Successful Bidder, upon the request of the Purchaser, the
Parent shall (i) seek an adjournment of the Sale Hearing to a date not
later than fifteen (15) days after commencement of the New Debtor’s proceeding
and (ii) provide notice, to the extent not already provided, to all known
persons who may have Claims against the New Debtor or its property of the Sale
Hearing.  Any such motion shall be filed
in the Bankruptcy Case of any entity designated in the Designation Notice no
later than the commencement date of any such proceeding and in the Bankruptcy
Case of any other Seller or member of the Company Group no later than one (1) Business
Day after the commencement of such proceeding.”

 

11.         Section 8.1(h) of
the Purchase Agreement is hereby amended to replace the reference therein to “1202.79”
with a reference to “1202.77.”

 

Except as amended hereby, all of the terms of the Purchase Agreement
shall remain in full force and effect and are hereby ratified in all
respects.  On and after the date of this
letter agreement, each reference in the Purchase Agreement to “this Agreement”,
“hereunder”, “hereof”, “herein” or words of like import, and each reference to
the Purchase Agreement in any other agreements, documents or instruments
executed and delivered pursuant to, in connection with or in relation to the
Purchase Agreement, shall mean and be a reference to the Purchase Agreement, as
amended by this letter agreement.

 

Purchaser and Seller each hereby represents and warrants to each other
that:  (a) such party has all
requisite power and authority to execute and deliver this letter agreement; (b) the
execution and delivery of this letter agreement by such party have been duly
authorized by 

 

4

 

all requisite action on the part of such party; and (c) this letter
agreement has been duly and validly executed and delivered by such party
hereto.

 

THIS LETTER AGREEMENT, AND ALL CLAIMS OR CAUSES OF ACTION (WHETHER IN
CONTRACT OR TORT) THAT MAY BE BASED UPON, ARISE OUT OF OR RELATE TO THIS
LETTER AGREEMENT (INCLUDING ANY AMENDMENT, SUPPLEMENT OR WAIVER OF THIS LETTER
AGREEMENT), OR THE NEGOTIATION, EXECUTION OR PERFORMANCE OF THIS LETTER
AGREEMENT (INCLUDING ANY AMENDMENT, SUPPLEMENT OR WAIVER OF THIS LETTER
AGREEMENT) AND THE TRANSACTIONS CONTEMPLATED HEREBY, SHALL BE GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF NEW YORK.

 

This letter agreement may be executed in multiple counterparts, each of
which will be deemed to be an original copy of this letter agreement and all of
which, when taken together, will be deemed to constitute one and the same
agreement.

 

[Remainder of page intentionally left blank.  Signature page follows.]

 

5

 

If the foregoing is consistent with your understanding, please so
indicate by signing below and returning a copy of this letter to us.

 

	
   

  	
  Very
  truly yours,

  
	
   

  	
   

  
	
   

  	
  IMD
  PARENT LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
        /s/
  Allen Thorpe

  
	
   

  	
   

  	
  Name:

  	
  Allen
  Thorpe

  
	
   

  	
   

  	
  Title:

  	
  Co-President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
        /s/
  Phil Loughlin

  
	
   

  	
  Name:

  	
  Phil
  Loughlin

  
	
   

  	
  Title:

  	
  Vice
  President

  

 

[Signature page to
Purchase Agreement Amendment]

 

 

ACCEPTED
AND AGREED TO AS OF

THE DATE FIRST WRITTEN ABOVE:

 

LEHMAN
BROTHERS HOLDINGS INC.

 

 

	
  By:

  	
   

  	
  /s/ D. J. Coles

  	
   

  
	
  Name:

  	
  D. J. Coles

  
	
  Title:

  	
  Chief Financial Officer

  

 

[Signature page to
Purchase Agreement Amendment]

 

 

ACCEPTED
AND AGREED TO AS OF

THE DATE FIRST WRITTEN ABOVE:

 

LB I
GROUP INC.

 

 

	
  By:

  	
   

  	
  /s/ James P. Fogarty

  	
   

  
	
  Name:

  	
  James P. Fogarty

  
	
  Title:

  	
  Authorized Signatory

  

 

[Signature page to
Purchase Agreement Amendment]

 

 

ACCEPTED
AND AGREED TO AS OF

THE DATE FIRST WRITTEN ABOVE:

 

LEHMAN
ALI INC.

 

 

	
  By:

  	
   

  	
  /s/ D. J. Coles

  	
   

  
	
  Name:

  	
  D. J. Coles

  
	
  Title:

  	
  Chief Financial Officer

  

 

[Signature page to
Purchase Agreement Amendment]

 

 

ACCEPTED
AND AGREED TO AS OF

THE DATE FIRST WRITTEN ABOVE:

 

LEHMAN
BROTHERS ASSET MANAGEMENT LLC

 

 

	
  By:

  	
   

  	
  /s/ Joseph Amato

  	
   

  
	
  Name:

  	
  Joseph Amato

  
	
  Title:

  	
  Managing Director

  

 

[Signature page to
Purchase Agreement Amendment]

 

 

ACCEPTED
AND AGREED TO AS OF

THE DATE FIRST WRITTEN ABOVE:

 

LEHMAN
BROTHERS ASSET MANAGEMENT INC.

 

 

	
  By:

  	
   

  	
  /s/ D. J. Coles

  	
   

  
	
  Name:

  	
  D. J. Coles

  
	
  Title:

  	
  Chief Financial Officer

  

 

[Signature page to
Purchase Agreement Amendment]

 

 

ACCEPTED
AND AGREED TO AS OF

THE DATE FIRST WRITTEN ABOVE:

 

LEHMAN
BROTHERS AIM HOLDINGS LLC

 

 

	
  By:

  	
   

  	
  /s/ D. J. Coles

  	
   

  
	
  Name:

  	
  D. J. Coles

  
	
  Title:

  	
  Chief Financial Officer

  

 

[Signature page to
Purchase Agreement Amendment]

 

 

ACCEPTED
AND AGREED TO AS OF

THE DATE FIRST WRITTEN ABOVE:

 

LEHMAN
BROTHERS AIM HOLDINGS II LLC

 

 

	
  By:

  	
   

  	
  /s/ D. J. Coles

  	
   

  
	
  Name:

  	
  D. J. Coles

  
	
  Title:

  	
  Chief Financial Officer

  

 

[Signature page to
Purchase Agreement Amendment]

 

 

ACCEPTED
AND AGREED TO AS OF

THE DATE FIRST WRITTEN ABOVE:

 

LEHMAN
BROTHERS AIM HOLDINGS III LLC

 

 

	
  By:

  	
   

  	
  /s/ D. J. Coles

  	
   

  
	
  Name:

  	
  D. J. Coles

  
	
  Title:

  	
  Chief Financial Officer

  

 

[Signature page to
Purchase Agreement Amendment]

 

 

ACCEPTED
AND AGREED TO AS OF

THE DATE FIRST WRITTEN ABOVE:

 

NEUBERGER
BERMAN HOLDINGS LLC

 

 

	
  By:

  	
   

  	
  /s/ Joseph Amato

  	
   

  
	
  Name:

  	
  Joseph Amato

  
	
  Title:

  	
  Managing Director

  

 

[Signature page to
Purchase Agreement Amendment]

 

 

ACCEPTED
AND AGREED TO AS OF

THE DATE FIRST WRITTEN ABOVE:

 

NEUBERGER
BERMAN ASSET MANAGEMENT, LLC

 

 

	
  By:

  	
   

  	
  /s/ Joseph Amato

  	
   

  
	
  Name:

  	
  Joseph Amato

  
	
  Title:

  	
  Managing Director

  

 

[Signature page to
Purchase Agreement Amendment]

 

 

ACCEPTED
AND AGREED TO AS OF

THE DATE FIRST WRITTEN ABOVE:

 

NEUBERGER
BERMAN MANAGEMENT LLC

 

 

	
  By:

  	
   

  	
  /s/ Joseph Amato

  	
   

  
	
  Name:

  	
  Joseph Amato

  
	
  Title:

  	
  Managing Director

  

 

[Signature page to
Purchase Agreement Amendment]

 

 

ACCEPTED
AND AGREED TO AS OF

THE DATE FIRST WRITTEN ABOVE:

 

NEUBERGER
BERMAN, LLC

 

 

	
  By:

  	
   

  	
  /s/ Joseph Amato

  	
   

  
	
  Name:

  	
  Joseph Amato

  
	
  Title:

  	
  Managing Director

  

 

[Signature page to
Purchase Agreement Amendment]

 

 

ACCEPTED AND AGREED TO AS OF

THE DATE FIRST WRITTEN ABOVE:

 

LEHMAN BROTHERS CAYMAN GP LTD.

 

 

	
  By:

  	
   

  	
  /s/ D. J. Coles

  	
   

  
	
  Name:

  	
  D. J. Coles

  
	
  Title:

  	
  Chief Financial Officer

  

 

 

	
  By:

  	
   

  	
  /s/ James P. Fogarty

  	
   

  
	
  Name:

  	
  James P. Fogarty

  
	
  Title:

  	
  Authorized Signatory

  

 

[Signature page to
Purchase Agreement Amendment]

 

 

ACCEPTED AND AGREED TO AS OF

THE DATE FIRST WRITTEN ABOVE:

 

LEHMAN BROTHERS OFFSHORE PARTNERS LTD.

 

 

	
  By:

  	
   

  	
  /s/ D. J. Coles

  	
   

  
	
  Name:

  	
  D. J. Coles

  
	
  Title:

  	
  Chief Financial Officer

  

 

 

	
  By:

  	
   

  	
  /s/ James P. Fogarty

  	
   

  
	
  Name:

  	
  James P. Fogarty

  
	
  Title:

  	
  Authorized Signatory

  

 

[Signature page to
Purchase Agreement Amendment]

 

 

ACCEPTED AND AGREED TO AS OF

THE DATE FIRST WRITTEN ABOVE:

 

LEHMAN BROTHERS PRIVATE EQUITY ADVISERS LLC

 

 

	
  By:

  	
   

  	
  /s/ D. J. Coles

  	
   

  
	
  Name:

  	
  D. J. Coles

  
	
  Title:

  	
  Chief Financial Officer

  

 

[Signature page to
Purchase Agreement Amendment]

 

 

ACCEPTED AND AGREED TO AS OF

THE DATE FIRST WRITTEN ABOVE:

 

LEHMAN BROTHERS PRIVATE FUND MANAGEMENT, LP

 

 

	
  By:

  	
   

  	
  /s/ Anthony D. Tutrone

  	
   

  
	
  Name:

  	
  Anthony D. Tutrone

  
	
  Title:

  	
  Managing Director

  

 

[Signature page to
Purchase Agreement Amendment]

 

 

ACCEPTED AND AGREED TO AS OF

THE DATE FIRST WRITTEN ABOVE:

 

LEHMAN BROTHERS PRIVATE FUNDS INVESTMENT COMPANY GP,
LLC

 

 

	
  By:

  	
   

  	
  /s/ Anthony D. Tutrone

  	
   

  
	
  Name:

  	
  Anthony D. Tutrone

  
	
  Title:

  	
  Managing Director

  

 

[Signature page to
Purchase Agreement Amendment]

 

 

ACCEPTED AND AGREED TO AS OF

THE DATE FIRST WRITTEN ABOVE:

 

LEHMAN BROTHERS PRIVATE FUNDS INVESTMENT COMPANY LP,
LLC

 

 

	
  By:

  	
   

  	
  /s/ Anthony D. Tutrone

  	
   

  
	
  Name:

  	
  Anthony D. Tutrone

  
	
  Title:

  	
  Managing Director

  

 

[Signature page to
Purchase Agreement Amendment]

 

 

ACCEPTED AND AGREED TO AS OF

THE DATE FIRST WRITTEN ABOVE:

 

THE MAIN OFFICE MANAGEMENT COMPANY II, LP

 

 

	
  By:

  	
   

  	
  /s/ Anthony D. Tutrone

  	
   

  
	
  Name:

  	
  Anthony D. Tutrone

  
	
  Title:

  	
  Managing Director

  

 

[Signature page to
Purchase Agreement Amendment]

 

 

ACCEPTED AND AGREED TO AS OF

THE DATE FIRST WRITTEN ABOVE:

 

LEHMAN BROTHERS UK HOLDINGS (DELAWARE) INC.

 

 

	
  By:

  	
   

  	
  /s/ D. J. Coles

  	
   

  
	
  Name:

  	
  D. J. Coles

  
	
  Title:

  	
  Chief Financial Officer

  

 

[Signature page to
Purchase Agreement Amendment]

 

 

ACCEPTED AND AGREED TO AS OF

THE DATE FIRST WRITTEN ABOVE:

 

LEHMAN BROTHERS ASSET MANAGEMENT (IRELAND) LTD.

 

 

	
  By:

  	
   

  	
  /s/ D. J. Coles

  	
   

  
	
  Name:

  	
  D. J. Coles

  
	
  Title:

  	
  Chief Financial Officer

  

 

 

	
  By:

  	
   

  	
  /s/ James P. Fogarty

  	
   

  
	
  Name:

  	
  James P. Fogarty

  
	
  Title:

  	
  Authorized Signatory

  

 

[Signature page to
Purchase Agreement Amendment]

 

 

EXHIBIT A

 

Bid Procedures Order

 

 

UNITED
STATES BANKRUPTCY COURT

SOUTHERN
DISTRICT OF NEW YORK

 

	
   

  	
  x

  	
   

  
	
  In re:

  	
  :

  	
  Chapter 11

  
	
   

  	
  :

  	
   

  
	
  LEHMAN BROTHERS
  HOLDINGS INC., et al.

  	
  :

  	
  Case
  No. 08-13555 (JMP)

  
	
   

  	
  :

  	
   

  
	
  Debtors.

  	
  :

  	
  (Jointly
  Administered)

  
	
   

  	
  x

  	
   

  

 

ORDER (I) APPROVING THE BIDDING PROCEDURES,

(II) APPROVING THE SELLER TERMINATION FEE AND THE

REIMBURSEMENT AMOUNT, (III) APPROVING THE FORM AND
MANNER

OF SALE NOTICES AND (IV) SETTING THE AUCTION AND
SALE HEARING

DATE IN CONNECTION WITH THE SALE OF CERTAIN DEBTOR
ASSETS

 

(The
“Bid Procedures Order”)

 

Upon the motion, dated October 6,
2008 (the “Motion”),(1) of Lehman Brothers Holdings Inc. (the “Debtor”
and collectively with its affiliated debtors in the above-referenced chapter 11
cases, the “Debtors”), for orders pursuant to 11 U.S.C. §§ 105,
363, 364, 365 and 503 and Fed. R. Bankr. P. 2002, 6004, 6006 and 9014 (I) authorizing
and approving, among other things, (A) the bidding procedures set forth
herein and attached hereto as Exhibit A (the “Bidding Procedures”),
(B) the Seller Termination Fee and the Reimbursement Amount as set forth
in the Amended and Restated Purchase Agreement by and between IMD Parent LLC,
the Debtor and certain of its subsidiaries, dated as of October 3, 2008
(as it may be amended, the “Purchase Agreement”), (C) the form and
manner of sale notices in connection with the Auction and Sale Hearing (each as
defined below) and (D) a date for the Auction and Sale Hearing, and (II) (A) authorizing
and approving the sale and related transactions contemplated by the Purchase
Agreement (the “Transaction”) of the Debtors’ assets free and clear of
all liens, claims and 

 

(1) Capitalized terms used herein but not defined herein shall
have the meaning ascribed to such terms in the Motion or the Purchase
Agreement, as applicable.

 

 

encumbrances, (B) authorizing and approving the assumption and
assignment of certain Purchased Contacts and Transferred Real Property Leases
(each as defined in the Purchase Agreement) to IMD Parent LLC (together with
any of its designees, the “Purchaser”) or the Successful Bidder(s) and
(C) granting related relief; and upon the Court’s consideration of the
Motion, the record of the hearing held on October 16, 2008 with respect to
the Motion (the “Hearing”), including the testimony and evidence
admitted at the Hearing and the objections filed and raised at the Hearing; and
upon all of the proceedings had before the Court; and after due deliberation
thereon, and sufficient cause appearing therefor,

 

IT IS HEREBY FOUND AND DETERMINED THAT:(2)

 

A.            The
Court has jurisdiction over this matter and over the property of the Debtors
and their respective bankruptcy estates pursuant to 28 U.S.C. §§ 157(a) and
1334.  This matter is a core proceeding
pursuant to 28 U.S.C. § 157(b)(2)(A), (N), and (O).  The statutory predicates for the relief
sought herein are 11 U.S.C. §§ 105, 363, 364, 365 and 503 and Fed. R. Bankr. P.
2002, 6004, 6006 and 9014.  Venue of this
case and the Motion is proper pursuant to 28 U.S.C. §§ 1408 and 1409.

 

B.            The
relief requested in the Motion is in the best interests of the Debtors, their
estates, their stakeholders, and other parties-in-interest.

 

C.            The
notice of the Motion and the Hearing given by the Sellers constitutes due and
sufficient notice thereof.

 

D.            The
Debtors have articulated good and sufficient reasons for the Court to (i) approve
the Bidding Procedures, (ii) approve the Seller Termination Fee and the
Reimbursement Amount, (iii) approve certain matters relating to competing
bids, (iv) approve

 

(2) Findings of fact shall be construed as conclusions of law and
conclusions of law shall be construed as findings of fact to the fullest extent
of the law.  See Fed. R. Bankr. P.
7052.

 

2

 

the form and manner of notice of the Motion, the Sale Hearing, and the
assumption and/or assignment of the Purchased Contracts and Transferred Real
Property Leases and (v) set the date of the Auction and the Sale Hearing,
all as provided in the Motion or the Purchase Agreement and as modified by this
Order.

 

E.             The
Seller Termination Fee and the Reimbursement Amount shall be payable in
accordance with the terms, conditions, and limitations of the Purchase
Agreement or this Order.  The Seller
Termination Fee and the Reimbursement Amount (i) if triggered, shall be
deemed actual and necessary costs and expenses of preserving the Debtors’
estates, (ii) are of substantial benefit to the Sellers and the Debtors’
estates, (iii) are reasonable and appropriate, including in light of the
size and nature of the Transaction, the necessity to announce a sale
transaction for IMD, and the efforts that have been and will be expended by the
Purchaser, (iv) have been negotiated by the parties and their respective
advisors at arms’ length and in good faith and (v) are necessary to ensure
that the Purchaser will continue to pursue the Transaction.  Each of the Seller Termination Fee and the
Reimbursement Amount, individually and collectively, is a material inducement
for, and condition of, the Purchaser’s entry into the Purchase Agreement.  The Purchaser is unwilling to commit to
purchase the Purchased Assets under the terms of the Purchase Agreement unless
the Purchaser is assured of payment of the Seller Termination Fee and the
Reimbursement Amount.  Assurance to the
Purchaser of payment of the Seller Termination Fee and the Reimbursement Amount
promotes more competitive bidding. 
Further, because the Seller Termination Fee and the Reimbursement Amount
induced the Purchaser to submit a bid that will serve as a minimum or floor bid
for other bidders, the Purchaser has provided a benefit to the Debtors’ estates
by increasing the likelihood that the price at which the Purchased Assets are
sold will reflect their true worth. 
Finally, absent authorization of the Seller 

 

3

 

Termination Fee and the Reimbursement Amount, the
Debtors may lose the opportunity to obtain the highest or otherwise best
available offer for the Purchased Assets.

 

F.             The
Bidding Procedures are reasonable and appropriate and represent the best method
for maximizing the realizable value of the Purchased Assets.

 

G.            The
Purchaser consents to the form and timing of the entry of this Order and shall
be estopped from terminating the Purchase Agreement pursuant to Section 3.3(g)(i) of
the Purchase Agreement on account of the form or timing of the entry of this
Order.

 

THEREFORE,
IT IS ORDERED, ADJUDGED, AND DECREED THAT:

 

1.             The
Motion is granted, as provided herein.

 

2.             All
objections filed in response to the Motion, to the extent not resolved as set
forth herein, are hereby overruled.

 

The Stalking Horse Bid

 

3.             The
Transaction contemplated by the Purchase Agreement is designated as the “Stalking
Horse Bid.”

 

Bidding Procedures

 

4.             The
bidding procedures, as set forth on Exhibit A attached hereto and
incorporated herein by reference (the “Bidding Procedures”), are hereby
approved and shall govern all proceedings relating to the Transaction.

 

5.             The
Sellers, after consultation with the Creditors’ Committee, (a) may
determine which Qualified Bid (as defined in the Bidding Procedures), if any,
is the highest or otherwise best offer and (b) may reject, at any time, any
bid (other than the Stalking Horse Bid, which is found and determined to be a
Qualified Bid) that is (i) inadequate and insufficient, (ii) not in
conformity with the requirements of the Bankruptcy Code, the Bidding Procedures
or the terms 

 

4

 

and conditions of the Transaction or (iii) contrary to the best
interests of the Debtors, their estates and their constituencies, as determined
by the Debtors in their sole discretion.

 

6.             The
failure specifically to include or reference a particular provision of the
Bidding Procedures in this Order shall not diminish or impair the effectiveness
of such provision.  The Bidding
Procedures are hereby authorized and approved in their entirety as modified by
this Order.

 

Auction and Sale Hearing

 

7.             The
Auction shall be held on December 3,
2008  at the offices of Weil, Gotshal &
Manges LLP, 767 Fifth Avenue, New York, New York 10153 at 10:00 a.m.
(New York time).  The Court
shall hold a hearing on December 22,
2008 at  10:00 a.m.
(New York time) (the “Sale Hearing”)
in the United States Bankruptcy Court for the Southern District of New York,
One Bowling Green, New York, New York 10004, at which time the Court shall
consider the approval of the sale as set forth in the Motion, approve the
Successful Bidder(s), and confirm the results of the Auction, if any.  Objections to the Motion, if any, shall be
filed and served on each of the Notice Parties (defined below) no later than 4:00 p.m. (New York time) on December 17, 2008 (the
“Sale Objection Deadline”).

 

8.             The
failure of any person or entity to file and serve an objection to the Motion by
the Sale Objection Deadline shall be a bar to the assertion by such creditor,
contract counterparty or other party in interest in these chapter 11 cases, at
the Sale Hearing or thereafter, of any objection to the Motion, the Sale Order,
the Transaction, or the Debtors’ consummation and performance of the Purchase
Agreement and Ancillary Agreements (as defined in the Purchase Agreement)
(including, without limitation, the Debtors’ transfer of the  Purchased Assets, the Purchased Contracts and
the Transferred Real Property Leases, and assumption and sublease of the
Subleased Real Property Leases free and clear of liens, claims, and
encumbrances).

 

5

 

9.             The Sale Hearing
may be adjourned by the Debtors from time to time without further notice to
creditors or parties-in-interest other than by announcement of the adjournment
in open court or an entry of a notice on the Court’s docket; provided, however,
that any such adjournment shall be without prejudice to Purchaser’s rights
under Section 3.3 of the Purchase Agreement.

 

Seller Termination Fee and Reimbursement Amount

 

10.           The Debtors are
authorized and directed to pay the Seller Termination Fee and the Reimbursement
Amount as provided under the Purchase Agreement without further order of the
Court.  Notwithstanding anything in the
Purchase Agreement to the contrary, the Seller Termination Fee shall be equal
to $52,500,000, and shall be paid in the manner provided in the Purchase
Agreement upon the occurrence of any of the conditions set forth in Sections
3.3 and 3.5 of the Purchase Agreement. 
In addition, the Debtors are authorized and directed to pay the
Reimbursement Amount after the occurrence of the conditions set forth in
Sections 3.3 and 3.5 of the Purchase Agreement, and no later than two (2) business
days after delivery to the Debtors of an invoice documenting such reasonable
and customary out-of-pocket expenses.

 

11.           The Debtors’
obligation to pay the Seller Termination Fee upon the occurrence of the
conditions set forth in Sections 3.3 and 3.5 of the Purchase Agreement and to
pay the Reimbursement Amount, as provided by the Purchase Agreement, shall be
joint and several with the other Sellers, shall survive termination of the
Purchase Agreement, shall constitute a superpriority administrative claim
against the Debtors pursuant to sections 105(a), 503( b) and 364(c)(1) of the Bankruptcy Code and shall be
senior to, and have priority over, all other claims against the Debtors; provided,
however, that the Debtors and the Sellers shall allocate (without
affecting the joint and several obligations of the Debtors and the Sellers to
the Purchaser of the Seller Termination Fee and the Reimbursement Amount) the
liability for any such amounts paid 

 

6

 

in accordance with
the allocation of the Purchase Price.  Without limiting the foregoing,
in the event that the Seller Termination Fee or the Reimbursement Amount
is payable pursuant to Sections 3.3 and 3.5 of the Purchase Agreement and a
Competing Transaction is consummated prior to the payment of the Seller
Termination Fee or the Reimbursement Amount, the proceeds in an amount equal to
the unpaid portion of the Seller Termination Fee or the Reimbursement Amount
shall be remitted directly to the benefit of the Purchaser or held in trust for
the Purchaser and shall not become property of such Debtors’ estates until all
obligations under the Purchase Agreement are paid in full pursuant to this
Order and the Purchase Agreement.

 

Authorization

 

12.           The Debtors, after
consultation with the Creditors’ Committee, are authorized to take such actions
as contemplated by the Purchase Agreement prior to the Auction and the Sale
Hearing, including, without limitation, actions to notify creditors, customers,
regulators or other interested parties regarding the Transaction and to obtain
any necessary consents or approvals regarding the Transaction.  In addition, the Debtors are authorized to
amend the Purchase Agreement to conform to this Order and the agreements stated
on the record at the Hearing. 
Notwithstanding anything in the Purchase Agreement to the contrary, the
Debtors and the Sellers shall not be required to take any actions in response
to a Designation Notice prior to the completion of the Auction.

 

13.           Until the completion
of the Auction, the Sellers shall be authorized to (i) afford (or cause to
be afforded) to the Purchaser and any bidder that executes a Bidder Confidentiality
Agreement (as defined in the Bid Procedures) (a “Bidder”) and requests
such access, reasonable access to the books, records, financial records,
contracts, leases, other information or data, properties, leased properties and
personnel of each of the Sellers related to the Business (as defined in the
Purchase Agreement), including the Purchased Assets, and information related to

 

7

 

each of the
foregoing, including, without limitation, information concerning accounts
receivable, operations, production, financial performance and capacity on a per
business basis; (ii) furnish (or cause to be furnished) to the Purchaser
and any Bidder that request such documents copies of all such books, records,
employment and human resource files, financial and accounting records,
contracts and leases and other existing documents, data and information as the
Purchaser and such Bidder may reasonably request; (ii) furnish (or cause
to be furnished) to the Purchaser or any Bidder reasonable access to personnel,
including management and portfolio managers, during normal business hours and
with advanced notice as may be reasonably requested by the Purchaser or Bidder;
and (iv) furnish (or cause to be furnished) reasonable access to any and
all executed (or otherwise finalized) agreements or term sheets or similar
executed or otherwise finalized documents between the Purchaser or any Bidder
and personnel, including management and portfolio managers; provided, however,
that in no event shall the Sellers be required to provide to any Bidder any
information or documents that are subject to attorney-client, work product or
similar privileges or protections; provided further, however,
that if the Debtors refuse to provide or furnish information or access to a
Bidder or refuse to enter into a Bidder Confidentiality Agreement with a party,
and the Creditors’ Committee requests that such information or access be
provided or a Bidder Confidentiality Agreement be entered into, then (i) the
Debtors may provide such information and access as the Creditors’ Committee
requests or (ii) the Debtors and the Creditors’ Committee shall promptly
seek a determination of the Court to resolve any outstanding conflicts.

 

Notice

 

14.           Notwithstanding anything
in the Purchase Agreement to the contrary, notice of (a) the Motion, (b) the
Auction, (c) Sale Hearing and (d) the proposed assumption and/or
assignment of the Purchased Contracts, Transferred Real Property Leases and
Subleased Real Property 

 

8

 

Leases to the
Purchaser pursuant to the Purchase Agreement or to a Successful Bidder shall be
good and sufficient, and no other or further notice shall be required, if given
as follows:

 

(a)           Notice
of Sale Hearing:  Within five (5) days
after entry of the Bid Procedures Order, the Sellers (or their agents) shall:

 

1.                                       provide
notice, in substantially the form attached to this Order (the “Sale Notice”),
of the Transaction, this Order, the Motion, the Purchase Agreement and the
proposed Sale Order by email, mail, facsimile or overnight delivery service,
upon (i) the U.S. Trustee, (ii) counsel for the Purchaser, (iii) counsel for the Creditors’
Committee, (iv) to the extent possible, all entities known to have
asserted any lien, claim, interest or encumbrance in or upon LBHI, (v) the Office of the United States Attorney for the Southern District
of New York, (vi) the United States Department of Justice, (vii) the
Securities and Exchange Commission, (viii) the
Federal Reserve Bank of New York, (ix) the Securities Investor Protection
Corporation, (x) the Internal Revenue Service and applicable federal and state taxing authorities, (xi) the U.S.
Commodities Futures Trading Commission, (xii) the Pension Benefit Guaranty Corporation
and all regulatory authorities of the Debtors’ foreign pension plans, including
the U.K. Pension Regulator, (xiii) all persons, if any, who have filed
objections to the Motion, (xiv) all persons who have filed a notice of
appearance in the Debtors’ bankruptcy cases,
and (xv) all persons who Purchaser may reasonably request; provided, however,
that, in the event that any Seller or any member of the Company Group becomes
subject to a Bankruptcy Case prior to the Sale Hearing, such entity shall
provide a Sale Notice, to the extent not already provided and to the extent
possible, to all entities known to have asserted any lien, claim, interest or
encumbrance against the new debtor or its property; and

 

2.                                       cause
the Sale Notice to be published on http://chapter11.epiqsystems.com/lehman (the
“Website”).

 

(b)           Assumption,
Assignment and Cure Notice.  If the
Purchaser is selected as the Successful Bidder, within two (2) Business
Days after the conclusion of the Auction, the Debtors shall file with this
Court and serve on each counterparty to a Purchased Contract, Transferred Real
Property Lease or Subleased Real Property Lease by email, mail, facsimile or overnight delivery
service, a notice of assumption, assignment and cure substantially in
the form attached hereto as Exhibit C (the “Assumption,
Assignment and Cure Notice”) for any Purchased Contract, Transferred Real
Property Lease or Subleased Real Property Lease that has been designated, as of
the date of such notice, as a Purchased Contract, Transferred Real Property
Lease or Subleased Real Property Lease to be assumed and subleased or assumed
and assigned to the Purchaser at Closing (collectively, the “Designated
Contracts”).  The Assumption,
Assignment and Cure Notice shall inform parties of the Debtors’ calculation of
the cure amount (the “Cure Amount”) for each such Designated
Contract.  A list of the Designated
Contracts, including Cure Amounts with respect thereto, will be posted on the
Website and updated as modified.

 

9

 

(c)           Any
counterparty to a Designated Contract shall file and serve on the Notice
Parties any objections to (i) the proposed assumption and sublease or
assumption and assignment to the Purchaser (and must state in its objection,
with specificity, the legal and factual basis of its objection) and (ii) if
applicable, the proposed Cure Amount (and must state in its objection, with
specificity, what Cure Amount is required with appropriate documentation in
support thereof), no later than 4:00 p.m. (New York
time) on December 17, 2008
(the “Contract Objection Deadline”).  If no objection is timely received, (x) the
counterparty to a Designated Contract shall be deemed to have consented to the
assumption and sublease or assumption and assignment of the Designated Contract
to the Purchaser and shall be forever barred from asserting any objection with
regard to such assumption or assignment, and (y) the Cure Amount set forth
in the Assumption, Assignment and Cure Notice shall be controlling, notwithstanding
anything to the contrary in any Designated Contract, or any other document, and
the counterparty to a Designated Contract shall be deemed to have consented to
the Cure Amount and shall be forever barred from asserting any other claims
related to such Designated Contract against the Debtors or the Purchaser, or
the property of any of them. 
Notwithstanding anything in this paragraph, this Order does not affect
the right of any counterparty that is a governmental entity to object to the
assignment of a Designated Contract on the basis that any necessary
governmental approvals have not been obtained or that any necessary
governmental procedures have not been followed.

 

(d)           Successful Bidder Other Than Purchaser.  If the Purchaser is not the Successful Bidder
at the Auction, the Debtors shall send an Assumption, Assignment and Cure
Notice to each non-Debtor party to a Purchased Contract  as soon as practical after the Auction.  In such a case, the Contract Objection
Deadline would be no earlier than ten days after the Assumption, Assignment and
Cure Notice is provided.

 

(e)           Notice
of Objections.  All objections shall
be filed with the Court and  be served so
as to be received by the following persons no later than the Sale Objection
Deadline or the Contract Objection Deadline, as applicable:  (i) the chambers of the Honorable James M. Peck, One Bowling
Green, New York, New York 10004, Courtroom 601; (ii) Weil Gotshal &
Manges, LLP, 767 Fifth Avenue, New York, New York 10153, (Attn: Lori R. Fife, Esq.,
and Garrett A. Fail, Esq.), attorneys for the Debtors; (iii) the
Office of the United States Trustee for the Southern District of New York, 33
Whitehall Street, 21st Floor, New York, New York 10004 (Attn: Andy
Velez-Rivera, Paul Schwartzberg, Brian Masumoto, Linda Riffkin, and Tracy Hope
Davis); (iv) Milbank, Tweed, Hadley & McCloy LLP, 1 Chase
Manhattan Plaza, New York, New York 10005, (Attn: Abhilash M. Raval, Esq.,
and Evan Fleck, Esq.), attorneys for the official committee of unsecured
creditors appointed in these cases; (v) the attorneys for any other
official committee(s) appointed in these chapter cases; (vi) Hughes
Hubbard & Reed LLP, One Battery Park Plaza, New York, NY 10004 (Attn:
James B. Kobak, David Wiltenburg, and Jeff Margolin), attorneys for James
Giddens as SIPA Trustee for Lehman Brothers Inc.; and (vii) Ropes &
Gray, LLP, 1211 Avenue of the Americas, New York, NY 10036 (Attn: Mark I. Bane, Esq.
and Steven T. Hoort, Esq.) and Cleary Gottlieb Steen & Hamilton
LLP, One Liberty Plaza, New York, NY 10006 (Attn: James L. Bromley, Esq.
and Sean A. O’Neal, Esq.), attorneys for the Purchaser (collectively, the “Notice
Parties”).

 

10

 

15.           This Order shall be binding on each Debtor and
its successors, including, without limitation, any Seller that becomes subject
to a bankruptcy or insolvency proceeding following entry of this Order.  In the event that any Seller becomes subject
to any proceeding under the Bankruptcy Code or the Securities Investor
Protection Act following entry of this Order, such debtor or any successor
shall be authorized and directed to comply with the Bidding Procedures as set
forth herein to the maximum extent permitted by law.

 

16.           Subject
to certain restrictions and the provisions in the Bidder Confidentiality
Agreement, joint bids shall be allowed. 
Nothing herein shall prohibit any bids by management or employees of the
Debtors or Sellers; provided, however, that such bids comply with
the Bidding Procedures.  If the Creditors’
Committee requests that the Sellers waive or modify restrictions or provisions
in any Bidder Confidentiality Agreement with respect to joint bids and/or
information sharing between one or more bidders then (i) the Sellers may
agree to such waivers or modifications or (ii) the Sellers and the
Creditors’ Committee shall promptly seek a determination of the Court to
resolve any outstanding conflicts.

 

17.           This
Court shall retain jurisdiction to hear and determine all matters arising from
the implementation of this Order.

 

 

	
  Dated: New York,
  New York 

  	
   

  
	
                                       ,
  2008

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  THE HONORABLE JAMES M.
  PECK
  UNITED STATES BANKRUPTCY JUDGE

  

 

11

 

Exhibit A

 

 

BIDDING
PROCEDURES FOR THE SALE

OF

LEHMAN
BROTHERS HOLDINGS INC.

INVESTMENT
MANAGEMENT DIVISION

 

The Bidding Procedures
set forth herein govern the proposed sale by Lehman Brothers Holdings Inc. (the
“Debtor,” together with certain of its debtor affiliates, the “Debtors,”
and together with its selling affiliates, the “Sellers”) of the assets
owned, held, or used primarily in connection with the Sellers’ investment
management business,  including certain partnerships, limited liability
companies, and investment vehicles to which a Seller or its affiliate provides
investment advisory services or serves as the general partner, managing member,
or any similar capacity.

 

A more complete listing
of the assets available for sale is included in that certain Amended and
Restated Purchase Agreement, dated October 3, 2008 (as it may be amended,
the “Purchase Agreement” or the “Stalking Horse Bid”), among IMD
Parent LLC (the “Purchaser”) and the Sellers, a copy of which is
available on the internet at http://chapter11.epiqsystems.com/lehman or by
request to the Debtor’s noticing agent at 1-866-841-7868.

 

Any interested bidder should
contact Barry W. Ridings, Vice Chairman of US Investment Banking, Lazard Freres &
Co. LLC, 30 Rockefeller Plaza, New York, New York 10020, t: 212-632-6896, f:
212-332-1757).

 

The
Bidding Procedures set forth herein describe, among other things, the manner in
which bidders and bids become Qualified Bidders and Qualified Bids (each as
defined below), the receipt and negotiation of bids received, the conduct of
any subsequent Auction (as defined below), the ultimate selection of the
Successful Bidder(s) (as defined below), and Court approval thereof
(collectively, the “Bidding Process”).

 

Participation Requirements

 

Any
party who wishes to participate in the Bidding Process must submit a bid that
satisfies each of the requirements set forth herein.

 

Any party who wishes to conduct diligence in connection with the
Bidding Process must enter into a
confidentiality agreement (a “Bidder Confidentiality Agreement”), which
shall inure to the benefit of any purchaser of the Purchased Assets, and shall
be on terms that are not less favorable to the Sellers or more favorable to
such potential bidder than the terms of the Confidentiality Agreement (as
defined in the Purchase Agreement).

 

Bid Deadline

 

A party who desires to
make a bid must deliver the Required Bid Documents (as defined below) so as to
be received not later than 12 noon (New York time) on
December 1, 2008
(the “Bid Deadline”) to  Lazard
Freres & Co. LLC, 30 Rockefeller Plaza, New York, New York 10020,
Attention:  Barry W. Ridings, with copies
to (a) Sellers’ counsel: Weil, Gotshal & 

 

 

Manges LLP, 767 Fifth Avenue, New York, New York
10153, Attention:  Lori R. Fife, Esq.
and Michael E. Lubowitz, Esq., and (b) counsel to the Creditors’
Committee: Milbank, Tweed, Hadley & McCloy LLP, 1 Chase Manhattan
Plaza, New York, New York 10005, Attention: 
Abhilash M. Raval, Esq., and Evan Fleck, Esq.  The Sellers may extend the Bid Deadline.  If the Sellers extend the Bid Deadline, the
Sellers will promptly notify all Qualified Bidders of such extension.

 

The Sellers will promptly
provide written notice to the Purchaser of any bids in addition to the Stalking
Horse Bid and shall provide copies of each such bid to the Purchaser.

Bid Requirements

 

All bids must include the
following (the “Required Bid Documents”):

 

(a)                                 a
letter stating that the bidder’s offer is irrevocable until the conclusion of
the Sale Hearing;

(b)                                a
duly authorized and executed purchase agreement, including the purchase price
for the Purchased Assets, together with all exhibits and schedules marked to
show those amendments and modifications to the Purchase Agreement (a “Marked
Agreement”) and the proposed Sale Order;

(c)                                 written
evidence of a firm commitment for financing, or other evidence of ability to
consummate the proposed transaction without financing, that is satisfactory to
the Sellers after consultation with the Creditors’ Committee; and

(d)                              a
list of any entities that would be required to commence bankruptcy cases to
accomplish the sale.

 

A bid will be considered
only if the bid:

 

(a)                                 identifies
the assets to be purchased and the contracts and leases to be assumed;

(b)                                is
not conditioned on obtaining financing or on the outcome of unperformed due
diligence or corporate, stockholder or internal approval;

(c)                                 provides
evidence, satisfactory to the Sellers, in their reasonable discretion (after
consultation with the Creditors’ Committee) of the bidder’s financial wherewithal
and operational ability to consummate the transaction; and

(d)                                is
received on or before the Bid Deadline.

 

A party who submits a bid
that includes all of the Required Bid Documents and that satisfies each of the
requirements set forth herein shall be a “Qualified Bidder” and such bid
will constitute a “Qualified Bid.” 
Notwithstanding the foregoing, the Purchaser shall be deemed a Qualified
Bidder and the Purchase Agreement shall be deemed a Qualified Bid for all
purposes in connection with the Bidding Process.

 

A Qualified Bid will be
valued based upon several factors including, without limitation, items such as
the net value and recovery to constituents provided by such bid after pre- and
post-closing adjustments, the amount and availability of distributions to
stakeholders, consideration for any Seller Termination Fee and the
Reimbursement Amount payable to the Purchaser under the Purchase Agreement, the
number of transactions that would be required to consummate the 

 

A-2

 

bid, the number of counterparties to such
transactions, the amount of assets included or excluded from the bid, and the
likelihood and timing of consummating such transactions, each as determined by
the Sellers with the assistance of their financial and legal advisors.

 

Debtors will promptly
advise Purchaser orally and in writing of (a) any offer or proposal for a
Competing Transaction (as defined in the Stalking Horse Bid), (b) any
request for nonpublic information relating to the Purchased Assets or access to
the properties, books or records with respect to the Purchased Assets, other
than requests in the ordinary course of business and unrelated to an offer or
proposal relating to a Competing Transaction, or (c) any inquiry or request
for discussions or negotiations regarding an offer or proposal relating to a
Competing Transaction.

 

Auction

 

Sellers will conduct an
auction in accordance with these Bidding Procedures (the “Auction”) of
the Purchased Assets upon notice to all Qualified Bidders who have submitted
Qualified Bids at 10:00, a.m. (New York
time) on December 3, 2008, at the offices of Weil, Gotshal &
Manges LLP, 767 Fifth Avenue, New York, New York 10153.

 

(a)                                 Only
the Sellers, the Purchaser, any representative of the Creditors’ Committee, and
any Qualified Bidder which has submitted a Qualified Bid (and the legal and
financial advisers to each of the foregoing), will be entitled to attend the
Auction, and only the Purchaser and Qualified Bidders who have submitted a
Qualified Bid will be entitled to make any subsequent bids at the Auction.

(b)                                Prior
to the Auction, the Sellers will provide copies of the Qualified Bid or
combination of Qualified Bids which the Sellers believe is the highest or
otherwise best offer (the “Starting Bid”) to all Qualified Bidders which
have informed the Sellers of their intent to participate in the Auction.  In order for a Qualified Bid (other than the
Stalking Horse Bid) to be the Starting Bid, such Qualified Bid shall have a
value to the Sellers, either individually or, in conjunction with any other
Qualified Bid, greater than or equal to
net amount the Sellers would receive under the Purchase Agreement, plus
the amount of the Seller Termination Fee (as defined in the Purchase
Agreement), plus the amount of the Reimbursement Amount (as defined in
the Purchase Agreement and, for purposes of this provision, limited to the
reasonable and customary out-of-pocket fees and expenses as documented by
Purchaser and reasonably estimated by the Purchaser through the date of the
Auction), plus $25 million, as determined by the Sellers in their sole
discretion, after consultation with the Creditors’ Committee.

(c)                                 Purchaser
and other Qualified Bidders shall have the opportunity to modify the terms of
their offers prior to the beginning of the Auction.

(d)                                The
Sellers, after consultation with the Creditors Committee, may employ and
announce at the Auction additional procedural rules that are reasonable
under the circumstances (e.g., the amount of time allotted to make Subsequent
Bids) for conducting the Auction, provided that such rules are (i) not
inconsistent with the Bid Procedures Order, the Bankruptcy Code, or any order
of the Bankruptcy Court entered in connection herewith, and (ii) disclosed
to each Qualified Bidder.

 

A-3

 

(e)                                 Bidding
at the Auction will begin with the Starting Bid and continue, in one or more
rounds of bidding, so long as during each round at least one subsequent bid is
submitted by a Qualified Bidder that (i) improves upon such Qualified
Bidder’s immediately prior Qualified Bid (a “Subsequent Bid”) and (ii) the
Sellers determine, after consultation with the Creditors Committee, that such
Subsequent Bid is (a) for the first round, a higher or otherwise better
offer than the Starting Bid, and (b) for subsequent rounds, a higher or
otherwise better offer than the Leading Bid (defined below).  The first minimum incremental bid at the
Auction shall have a purchase price of at least $5 million over the Starting
Bid, with any subsequent bid increases of bids to be made in minimum increments
of at least $5 million.  After the first
round of bidding and between each subsequent round of bidding, the Sellers
shall announce the bid (and the value of such bid) that it believes to be the
highest or otherwise better offer (the “Leading Bid”).  A round of bidding will conclude after each
participating Qualified Bidder has had the opportunity to submit a Subsequent
Bid with full knowledge and written confirmation of the Leading Bid.  For the purpose of evaluating the value of
the consideration provided by Subsequent Bids (including any Subsequent Bid by
the Purchaser), the Sellers will give effect to the Seller Termination Fee and
the Reimbursement Amount (for purposes of this provision, limited to the
reasonable and customary out-of-pocket fees and expenses as documented by
Purchaser and reasonably estimated by the Purchaser through the date of the
Auction) that may be payable to the Purchaser under the Purchase Agreement.  Any Subsequent Bid submitted by the Purchaser
shall be credited in full with the amount of the Seller Termination Fee and
such Reimbursement Amount.

(f)                                   If
Sellers do not receive any Qualified Bid other than the Purchaser’s Qualified
Bid at the conclusion of the Auction, Sellers shall seek approval of the
Purchase Agreement at the Sale Hearing.

 

Selection Of
Successful Bid

 

The Sellers reserve the
right, after consultation with the Creditors Committee, to (i) determine
in their reasonable discretion which bid is the highest or best (the “Successful
Bid(s)” and the bidder(s) making such bid(s), the “Successful
Bidder(s)”) and (ii) reject at any time prior to entry of a Court
order approving an offer, without liability, any offer, other than the Stalking
Horse Bid, that the Sellers in their reasonable discretion (after consultation
with the Creditors’ Committee) deem to be (x) inadequate or insufficient, (y) not
in conformity with the requirements of the Bankruptcy Code, the Bankruptcy
Rules, the Local Rules, the Bid Procedures Order, or procedures set forth
therein or herein, or (z) contrary to the best interests of the Sellers,
the Debtors, and their estates.

 

The Sellers will sell the
Purchased Assets for the highest or otherwise best Qualified Bid to the
Successful Bidder(s) upon the approval of such Qualified Bid by the Court
after the Sale Hearing.  The Sellers’
presentation of a particular Qualified Bid to the Court for approval does not
constitute the Sellers’ acceptance of the bid. 
The Sellers will be deemed to have accepted a bid only when the bid has
been approved by the Bankruptcy Court at the Sale Hearing.

 

A-4

 

The Sale Hearing

 

The Sale Hearing will be
held before the Honorable Judge James M. Peck on  December 22, 2008 at 10:00 a.m. (New
York time) in the United States Bankruptcy Court for the Southern
District of New York, One Bowling Green, New York, New York 10004.  The Sale Hearing may be adjourned without
further notice by an announcement of the adjourned date at the Sale
Hearing.  If the Sellers do not receive
any Qualified Bids (other than the Qualified Bid of the Purchaser), the Sellers
will report the same to the Bankruptcy Court at the Sale Hearing and will
proceed with a sale of the Purchased Assets to the Purchaser following entry of
the Sale Order in accordance with the terms of the Purchase Agreement.  If the Sellers do receive additional
Qualified Bids, then, at the Sale Hearing, the Sellers will seek approval of
the Successful Bid(s), and, at the Sellers’ election, one or more next highest
or best Qualified Bid(s) (the “Alternate Bid(s),” and such
bidder(s), the “Alternate Bidder(s)”); provided, however, the Sellers
may only designate the Stalking Horse Bid as an Alternative Bid with the
express written consent of the Purchaser.

 

Following approval of the
Sale to the Successful Bidder(s), if the Successful Bidder(s) fail(s) to
consummate the sale because of (a) failure of a condition precedent beyond
the control of either the Sellers or the Successful Bidder(s) upon which
occurrence the Sellers have filed a notice with the Bankruptcy Court advising
of such failure or (b) a breach or failure to perform on the part of such
Successful Bidder(s) upon which occurrence the Sellers have filed a notice
with the Bankruptcy Court advising of such breach or failure to perform, then
the Alternate Bid(s) will be deemed to be the Successful Bid(s) and
the Sellers will be authorized, but not directed, to effectuate a sale to the
Alternate Bidder(s) subject to the terms of the Alternate Bid(s) of
such Alternate Bidder(s) without further order of the Bankruptcy Court.

 

A-5

 

EXHIBIT B

 

 

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK

 

	
   

  	
  x

  	
   

  
	
  In re:

  	
  :

  	
  Chapter 11

  
	
   

  	
  :

  	
   

  
	
  LEHMAN BROTHERS
  HOLDINGS INC., et al.

  	
  :

  	
  Case
  No. 08-13555 (JMP)

  
	
   

  	
  :

  	
   

  
	
  Debtors.

  	
  :

  	
  (Jointly
  Administered)

  
	
   

  	
  x

  	
   

  

 

NOTICE OF SALE OF CERTAIN EQUITY INTERESTS AND ASSETS

RELATED TO LEHMAN BROTHERS’ INVESTMENT MANAGEMENT DIVISION

 

On September 29,
2008, Lehman Brothers Holdings Inc. (“LBHI”) and its affiliates listed
on Schedule I to the Agreement (as defined below) (collectively with LBHI, “Lehman”)
entered into a Purchase Agreement, (as amended, the “Agreement”) with
IMD Parent LLC (the “Purchaser”), under which Lehman has agreed to sell
to Purchaser (or subsidiaries of the Purchaser) certain assets, and Purchaser
has agreed to assume (or cause certain of its subsidiaries to assume) certain
liabilities, related to Lehman’s investment management business (the “Business”).  The Purchaser is jointly controlled by
private investment funds sponsored by Bain Capital Partners, LLC and Hellman &
Friedman, which have agreed to provide all of the funding required to close the
transaction.

 

A more complete listing of the assets available
for sale is included in the Agreement.

 

Because
LBHI, as a debtor-in-possession under chapter 11 of the Bankruptcy Code, is a
party to the Agreement, the Agreement must be approved by the United States
Bankruptcy Court for the Southern District of New York (the “Bankruptcy
Court”) in which LBHI’s above-captioned chapter 11 case is pending.  The sale is subject to higher or better
offers.  By order, dated October [     ],
2008 (the “Bid Procedures Order”), the Bankruptcy Court approved certain
“Bidding Procedures” that govern the sale of the Purchased Assets.

 

LBHI
has requested the Bankruptcy Court enter a “Sale Order,” which provides,
among other things, for the sale of assets free and clear of liens, claims,
encumbrances and other interests, to the extent permissible by law, and the
assumption by Purchaser of certain assumed liabilities of the Sellers.  A separate notice will be provided to
counterparties to executory contracts and unexpired leases with the Sellers.

 

Copies of the Agreement, the Bid Procedures Order,
the Bidding Procedures, and the proposed Sale Order are available upon request
to LBHI’s noticing agent at 1-866-841-7867 on the internet at
http://chapter11.epiqsystems.com/lehman (the “Website”).

 

ANY INTERESTED BIDDER SHOULD
CONTACT Barry W. Ridings, Vice Chairman of US Investment Banking, Lazard
Freres & Co. LLC, 30 Rockefeller Plaza, New York, New York 10020, t:
212-632-6896, f: 212-332-1757).

 

 

PLEASE TAKE NOTE OF THE FOLLOWING IMPORTANT DEADLINES:

 

·                                         The deadline to submit a Qualified Bid (as defined in the Bidding
Procedures) is December 1, 2008 at 12:00 noon.  The failure to abide by the procedures and
deadlines set forth in the Bid Procedures Order and the Bidding Procedures may
result in the failure of the Bankruptcy Court to consider a competing bid.

 

·                                         An auction for the assets of the Purchased Assets has been scheduled
for December 3, 2008 at 10:00 a.m. (New York time).

 

·                                         The deadline to lodge an objection with the Bankruptcy Court to the
proposed sale is December 17, 2008] at 4:00 p.m. (New York time) (the
“Sale Objection Deadline”). 
Objections must be filed and served in accordance with the Bid
Procedures Order.

 

·                                         The Bankruptcy Court will conduct a hearing to consider the proposed
sale on December 22, 2008 at 10:00 a.m. (the “Sale Hearing”).

 

THE FAILURE OF ANY PERSON
OR ENTITY TO FILE AND SERVE AN OBJECTION BY THE SALE OBJECTION DEADLINE SHALL
BE A BAR TO THE ASSERTION BY SUCH PERSON OR ENTITY, AT THE SALE HEARING OR
THEREAFTER, OF ANY OBJECTION TO THE SALE MOTION, SALE ORDER, THE PROPOSED
TRANSACTION, OR THE DEBTORS’ CONSUMMATION AND PERFORMANCE OF THE PURCHASE
AGREEMENT AND ANCILLARY AGREEMENTS (INCLUDING, WITHOUT LIMITATION, THE DEBTORS’
TRANSFER OF THE  PURCHASED ASSETS, THE
PURCHASED CONTRACTS AND THE TRANSFERRED REAL PROPERTY LEASES, AND ASSUMPTION
AND SUBLEASE OF THE SUBLEASED REAL PROPERTY LEASES FREE AND CLEAR OF LIENS,
CLAIMS, ENCUMBRANCES AND OTHER INTERESTS) (ALL AS DEFINED IN THE PURCHASE
AGREEMENT).

 

	
  Dated:

  	
  October    ,
  2008

  
	
   

  	
  New York, New
  York

  

 

	
   

  	
   

  
	
   

  	
  Harvey R. Miller

  
	
   

  	
  Richard P. Krasnow

  
	
   

  	
  Lori R. Fife

  
	
   

  	
  Shai Y. Waisman

  
	
   

  	
  Jacqueline
  Marcus

  
	
   

  	
  WEIL,
  GOTSHAL & MANGES LLP

  
	
   

  	
  767 Fifth Avenue

  
	
   

  	
  New York, New
  York 10153

  
	
   

  	
  Telephone: (212)
  310-8000

  
	
   

  	
  Facsimile: (212)
  310-8007

  
	
   

  	
   

  
	
   

  	
  Attorneys
  for the Sellers

  

 

 

Exhibit C

 

 

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK

 

	
   

  	
  x

  	
   

  
	
  In re:

  	
  :

  	
  Chapter
  11

  
	
   

  	
  :

  	
   

  
	
  LEHMAN
  BROTHERS HOLDINGS INC., et al.

  	
  :

  	
  Case No. 08-13555
  (JMP)

  
	
   

  	
  :

  	
   

  
	
  Debtors.

  	
  :

  	
  (Jointly
  Administered)

  
	
   

  	
  x

  	
   

  

 

NOTICE OF ASSUMPTION, ASSIGNMENT AND CURE AMOUNT

WITH RESPECT TO EXECUTORY CONTRACTS AND UNEXPIRED LEASES 

RELATED TO LEHMAN BROTHERS’ INVESTMENT MANAGEMENT DIVISION

 

On September 29,
2008, Lehman Brothers Holdings Inc. (“LBHI”) and its affiliates listed
on Schedule I to the Purchase Agreement (as defined below) (collectively with
LBHI, “Lehman”) entered into a Purchase Agreement (as amended, the “Agreement”)
with IMD Parent LLC (together with any of its designees, the “Purchaser”),
under which Lehman has agreed to sell to Purchaser (or subsidiaries of the
Purchaser) certain assets (as defined in the Agreement, the “Purchased
Assets”), and Purchaser has agreed to assume (or cause certain of its
subsidiaries to assume) certain liabilities, related to Lehman’s investment
management business.  IMD Parent LLC is
jointly controlled by private investment funds sponsored by Bain Capital
Partners, LLC and Hellman & Friedman, which have agreed to provide all
of the funding required to close the transaction.

 

On October 6, 2008, LBHI and its affiliated debtors in the
above-referenced chapter 11 cases (collectively, the “Debtors”) filed a
motion (the “Motion”) to (a) establish sales procedures, (b) approve
certain stalking horse bidder protections, and (c) approve the sale of the
Purchased Assets and the assumption and sublease or assumption and assignment
of certain contracts and leases relating thereto free and clear of all liens,
claims, encumbrances and other interests.

 

Pursuant to the Motion, the Debtors sought authorization to assume and
sublease or assume and assign certain executory contacts and unexpired leases
relating to the Purchased Assets upon consummation of the transaction
contemplated in the Agreement.  A list of the Purchased Contracts, Transferred Real Property Leases and
Subleased Real Property Leases (each as defined in the Agreement and
collectively, the “Designated Contracts”) is available on the internet
at http://chapter11.epiqsystems.com/lehman (the “Website”), or upon
request to LBHI’s noticing agent at 1-866-841-7868.  The Debtors and the Purchaser
reserve the right to remove any Designated Contracts prior to consummation of
the transaction contemplated in the Agreement.

 

You are receiving this Notice because you may be a party to a
Designated Contract (or represent a party to a Designated Contract).

 

The Debtors have determined the appropriate cure amount (the “Cure
Amount”) for each Designated Contract and have listed such Cure Amounts on
the Website.

 

 

To the extent that a non-Debtor counterparty
objects to (i) the assumption and sublease or assumption and assignment to
the Purchaser of such party’s respective Designated Contract or (ii) the
Cure Amount, the non-Debtor counterparty must file and serve an objection in
accordance with the Bid Procedures Order, so as to be received by the parties
specified therein no later than December 17,
2008, 2008, at 4:00 p.m. (New York Time).

 

If an objection challenges a Cure Amount, the Debtors have requested
that they nonetheless be authorized to move forward to assume, assume and
sublease, or assume and assign the contract or lease that is the subject of a
Cure Amount objection, provided that the Cure Amount asserted by the objector
is held in reserve.  If the Debtors
receive an objection to a Cure Amount, the Debtors reserve the right to decide
to reject the contract or lease at issue if the Cure Amount is ultimately
determined by order of the Court to be higher than the Cure Amount set forth in
this Notice.

 

If no objection is timely received, (i) the
counterparty to a Designated Contract shall be deemed to have consented to the
assumption and sublease or assumption and assignment of the Designated Contract
to the Purchaser and shall be forever barred from asserting any objection with
regard to such assumption or assignment, and (ii) the Cure Amount set
forth on [Exhibit A / the
Website] shall be controlling, notwithstanding anything to the contrary
in any Designated Contract, or any other document, and the counterparty to a
Designated Contract shall be deemed to have consented to the Cure Amount and
shall be forever barred from asserting any other claims related to such
Designated Contract against the Debtors or the Purchaser, or the property of
any of them.

 

	
  Dated:  New York, New York

  	
   

  	
   

  
	
                                     ,
  2008

  	
   

  	
   

  

 

	
   

  	
   

  
	
   

  	
  Harvey R. Miller

  
	
   

  	
  Richard P. Krasnow

  
	
   

  	
  Lori R. Fife

  
	
   

  	
  Shai Y. Waisman

  
	
   

  	
  Jacqueline
  Marcus

  
	
   

  	
  WEIL,
  GOTSHAL & MANGES LLP

  
	
   

  	
  767 Fifth Avenue

  
	
   

  	
  New York, New
  York 10153

  
	
   

  	
  Telephone: (212)
  310-8000

  
	
   

  	
  Facsimile: (212)
  310-8007

  
	
   

  	
   

  
	
   

  	
  Attorneys for Debtors and 

  Debtors In Possession

  

 

3

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