<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For The Quarterly Period Ended March 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________ to ____________
Commission File Number: 0-25530
LIFERATE SYSTEMS, INC.
(Exact name of small business issuer as specified in its charter)
MINNESOTA 41-1682994
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification No.)
7210 METRO BOULEVARD
EDINA, MINNESOTA 55439
(Address of principal executive offices)
(612) 844-0599
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period as the issuer was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
As of May 10, 1996, the issuer had 3,811,639 shares of Common Stock outstanding.
Transitional Small Business Disclosure Format (check one): Yes _____ No __X__
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LIFERATE SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS PAGE
Condensed Balance Sheets -
March 31, 1996 and December 31, 1995 2
Condensed Statements of Operations -
Three Months Ended March 31, 1996 and 1995
and Date of Inception to March 31, 1996 3
Statements of Cash Flows -
Three Months Ended March 31, 1996 and 1995
and Date of Inception to March 31, 1996 4
Notes to Financial Statements 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 6
1
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LIFERATE SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED
BALANCE SHEETS
DECEMBER 31 MARCH 31
1995 1996
----------- -----------
ASSETS (NOTE) (UNAUDITED)
Current assets:
Cash and cash equivalents $ 7,750,500 $7,237,800
Accounts receivable, less allowance
of $7,500 104,400 362,000
Prepaid expenses and other current assets 61,000 69,700
----------- -----------
Total current assets 7,915,900 7,669,500
Furniture and fixtures 56,200 61,800
Computer equipment 355,800 675,000
Telephone equipment -- 48,500
----------- -----------
412,000 785,300
Less accumulated depreciation 87,300 103,200
----------- -----------
324,700 682,100
Software development costs, net of
amortization of $25,200 151,300 126,100
Other assets 11,800 170,000
-- --
----------- -----------
Total Assets $ 8,403,700 $ 8,647,700
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 1,128,300 $ 743,300
Current portion of notes payable-related
parties 6,500 --
Current portion of notes payable 9,900 20,100
Current portion of capitalized lease
obligations 11,500 10,700
----------- -----------
Total current liabilities 1,156,200 774,100
Notes payable 12,600 --
Capitalized lease obligation 1,000 --
Deferred rent 28,700 25,700
Deferred revenue 60,900 459,400
Shareholders' equity:
Preferred stock, no par value:
Authorized shares -- 1,000,000
Issued and outstanding shares -- none in
1995 and 1996
Common stock, no par value:
Authorized shares -- 10,000,000
Issued and outstanding shares -- 3,474,428
in 1995 and 3,811,639 in 1996 14,384,100 16,067,400
Deficit accumulated during the development
stage (7,234,800) (8,673,900)
----------- -----------
7,149,300 7,393,500
Less stock subscriptions receivable 5,000 5,000
----------- -----------
Total shareholders' equity 7,144,300 7,388,500
----------- -----------
Total liabilities and shareholders' equity $ 8,403,700 $ 8,647,700
----------- -----------
----------- -----------
See Accompanying Notes
Note: The balance sheet at December 31, 1995 has been derived from the
audited financial statements at that date.
2
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LIFERATE SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
JULY 18, 1990
(DATE OF
INCEPTION) TO
THREE MONTHS ENDED MARCH 31, MARCH 31,
----------------------------
1995 1996 1996
--------- ----------- --------------
<S> <C> <C> <C>
Net revenues $ 65,000 $ 109,200 $ 683,800
Cost of revenues -- 43,900 88,900
---------- ----------- ------------
Gross profit 65,000 65,300 596,900
Operating expenses:
Sales and marketing 302,000 618,900 3,530,700
Research and development 46,500 491,900 3,193,600
General and administrative 285,300 483,400 2,702,600
---------- ----------- ------------
Loss from operations (548,800) (1,528,900) (8,830,000)
Interest income 7,300 91,100 188,100
Interest expenses -- 1,300 32,000
---------- ----------- ------------
Net loss $ (541,500) $(1,439,100) $(8,673,900)
---------- ----------- ------------
Net loss per share $ (0.36) $ (0.39) $ (8.43)
---------- ----------- ------------
Weighted average number of
common shares outstanding 1,497,992 3,725,111 1,029,136
---------- ----------- ------------
</TABLE>
See Accompanying Notes
3
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LIFERATE SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 18, 1990
(DATE OF
INCEPTION) TO
THREE MONTHS ENDED MARCH 31, MARCH 31,
----------------------------
1995 1996 1996
--------- ----------- --------------
<S> <C> <C> <C>
Operating activities $ (541,500) $(1,439,100) $(8,673,900)
Net loss
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 5,000 41,100 129,000
Writedown of software development costs
to net realizable value 599,600
Stock issued for services 79,500 0 187,500
Changes in operating assets and liabilities:
Accounts receivable (50,300) (257,600) (362,000)
Advances to agent (236,500) 0 0
Prepaids and other current assets (8,900) (8,700) (69,700)
Other assets 1,500 (158,200) (170,000)
Accounts payable and other accrued
liabilities 154,800 (385,000) 1,079,100
Deferred revenue 0 398,500 459,400
Deferred rent 7,300 (3,000) 25,700
---------- ---------- -----------
Net cash used in operating activities (589,100) (1,812,000) (6,795,300)
Investing activities
Software development costs (90,700) 0 (750,900)
Purchase of furniture and equipment (60,900) (373,300) (743,100)
---------- ---------- -----------
Net cash used in investing activities (151,600) (373,300) (1,494,000)
Financing activities
Payments on notes payable and capital
lease obligations (10,600) (10,700) (144,200)
Stock subscription received 102,000 0 0
Proceeds from issuance of notes payable 30,000 0 290,200
Proceeds from issuance of common stock 4,241,900 1,683,300 15,381,100
---------- ---------- -----------
Net cash provided by financing activities 4,363,300 1,672,600 15,527,100
---------- ---------- -----------
Increase in cash and cash equivalents 3,608,000 (512,700) 7,237,800
Cash and cash equivalents at beginning
of period 613,200 7,750,500 --
---------- ---------- -----------
Cash and cash equivalents at end of period $4,221,200 $7,237,800 $7,237,800
</TABLE>
See Accompanying Notes
4
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LIFERATE SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1996
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
LifeRate Systems, Inc. is a development stage enterprise engaged in
marketing proprietary clinical systems and related software to health care
providers and payors to produce information to measure and quantify the
quality and cost of health care.
2. BASIS OF PRESENTATION
The financial information presented as of March 31, 1995 and March 31, 1996
has been prepared from the books and records without audit. Financial
information as of December 31, 1995 is based on audited financial
statements of LifeRate Systems, Inc. but does not include all disclosures
required by generally accepted accounting principles. In the opinion of
management, all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial information
for the periods indicated have been included. For further information
regarding the Company's accounting policies, refer to the financial
statements and related notes included in the Company's Form 10-KSB for the
fiscal year ended December 31, 1995, as filed with the Securities and
Exchange Commission.
5
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MANAGEMENT'S DISCUSSION AND ANALYSIS
INTRODUCTION
The Company's activities during 1995 and through the first quarter
of 1996 primarily consisted of completing development of its core software
system, completing the outpatient module of LifeRate Cardiovascular,
developing the cath lab and operating room modules of LifeRate
Cardiovascular, building its National Cardiology Database, establishing its
sales, marketing, clinical and systems support functions, focusing its
product development and marketing efforts on the cardiology market, and
installing the system at cardiology practice groups. The Company also
established strategic relationships with Medtronic, Inc. and Pfizer, Inc. in
December 1995.
The Company installed its core software system at a customer site
for Beta testing in April 1995. Following testing, the Company made a number
of improvements and enhancements to its core system and developed the
outpatient module of LifeRate Cardiovascular. LifeRate released
demonstration versions of the core system, along with the outpatient module,
in August 1995 and commercial versions in December 1995. The Company
accepted its first orders in the third quarter and began installation in the
fourth quarter of 1995. To date, the Company has entered into agreements for
the sale and installation of LifeRate Cardiovascular with five cardiovascular
practice groups. LifeRate is also developing the cath lab and operating room
modules of LifeRate Cardiovascular, which integrate to form one
cardiovascular continuum of care. The initial cath lab module was completed
in May 1996 for Beta test site installation, and the operating room module is
expected to be available for general commercial release in August 1996. The
Company's national cardiology data base which integrates with LifeRate's
cardiovascular outpatient, cath lab, and operating room software included
over 4,500 lives at March 31, 1996.
In April 1996, the Company made key management changes and made two
new significant appointments. David D. Koentopf was elected Chairman of the
Board. Mr. Koentopf, a Twin Cities-based private investor and business
consultant, has been a member of the Board of Directors of the Company since
1993. The Board also elected William W. Chorske as President and Chief
Executive Officer and a member of the Board. Prior to joining the Company,
Mr. Chorske had been employed since 1987 by Medtronic, Inc. in a variety of
capacities, including Senior Vice President and Chief Financial Officer from
1987 to 1991 and most recently as President, Medtronic Europe.
RESULTS OF OPERATIONS
Revenues of $109,200 in the first quarter of 1996 consist mainly of
fees earned for the development of software under a contract with a new
customer. Revenues of $65,000 in the first quarter of 1995 included recurring
installation fees associated with the Company's first cardiology guidelines
installation and non-recurring fees associated with new guideline
installation agreements. The Company anticipates that installations and
conversion fees, as well as ongoing license fees, will become a more
significant portion of total revenue in the second quarter of 1996 based on
LifeRate Cardiovascular installations in process late in the first quarter of
1996 and expected to be completed in the second quarter of 1996. Through
April 30, 1996, LifeRate Cadiovascular had been installed at five practice
groups.
The cost of revenues recorded in the first quarter of 1996 includes
$18,700 of development expenses for the development contract which produced
the majority of revenue in the period. This cost item also includes the
amortization of capitalized software in the amount of $25,200.
The Company incurred $618,900 and $302,000 in sales and marketing
expense in the first quarter of 1996 and 1995 respectively. The increase in
these expenses in 1996 was related to the development of the organization to
support the intensified sales and installation pace the Company
6
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is experiencing. During 1995, Clinical Sales & Services, Inc. ("CSSI")
provided substantially all of the Company's sales, marketing and clinical
support functions. Effective January 1, 1996, the employees of CSSI became
employees of the Company, and, since that time, the Company has directly
employed its sales, marketing, and clinical support personnel. Management
believes that sales and marketing expenses will stabilize for the
remainder of 1996. For this reason and because some of these expenses are
billable to customers as part of the installation process, sales and
marketing expenses are expected to decline as a percent of revenue throughout
the year. The Company is currently obligated to pay royalties to third
parties based on revenues, consisting of an obligation to pay royalties equal
to 10% of sales of the LifeRate Cardiovascular System and 7.5% of sales of
LifeRate's system. The Company is also obligated to pay royalties equal to 2%
of database sales from August 1, 1996 through July 30, 2001.
Expenses for research and development in the first quarter of 1996
increased by $445,400 over the amount in same period of 1995. The expense of
$491,900 in the first quarter of 1996 includes costs for intensified
development efforts for the cath lab and operating room modules of LifeRate
Cardiovascular, the addition of a software quality assurance function, as
well as a number of one-time costs associated with the recruitment and
relocation of key staff members and the costs associated with accommodating
the increase in staff size. Though the Company intends to continue to invest
in the resources necessary to develop the product capabilities being demanded
by its customer base and potential future customers, the Company anticipates
that the growth in research and development expenses will decrease in 1996.
The Company incurred general and administration expense of $485,400
in the first quarter of 1996 compared to $265,300 in the same period of 1995.
This increase reflects the overall higher level of activity of the Company
due to the commercialization of its first product as well as the costs
associated with becoming a public entity.
LIQUIDITY AND CAPITAL RESOURCES
In January 1996, the Company completed a private placement of
295,546 shares of Common Stock at a price of $6.50 per share from which it
received $1,683,300 in net proceeds.
At March 31, 1996, the Company's cash and cash equivalents totaled
$7,237,800 compared to $7,750,500 at December 31, 1995. During the first
quarter of 1996, the Company used cash of approximately $1,800,000 for
operations and $373,000 for the purchase of equipment.
The Company does not have significant commitments to purchase
additional equipment, but it does plan to continue to fund such purchases as
required to support product and market development needs.
The Company believes that cash and cash equivalent balances at
March 31, 1996 are sufficient to fund the Company's operations through the
end of 1996. Thereafter, the Company will require additional capital to
continue operations. There can be no assurance that the Company will be able
to obtain additional financing or that, if available, the terms of any such
financing will be satisfactory to the Company.
7
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On May 10, 1996, Donna J. Edmonds, a former officer and director of
the Company, filed a complaint in District Court, Hennepin County,
Minnesota, naming the Company and an employee of the Company as
defendants and served such complaint on the Company. Edmonds seeks
damages in excess of $50,000 for her allegedly forced resignation as
an officer and director of the Company based on breach of contract,
promissory estoppel, fraud, tortious interference of contract and
defamation. Edmonds also seeks rescission of her allegedly forced
resignation. The Company has not yet answered the complaint. The
Company plans to vigorously defend this action and may allege various
counter claims against Edmonds.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
10.1 Employment Agreement, dated April 29, 1996, between the
Company and William W. Chorske.
10.2 Stock Option Agreement, dated April 29, 1996, between the
Company and William W. Chorske.
27.1 Financial Data Schedule.
(B) REPORTS ON FORM 8-K
The Company filed a report on Form 8-K during the first quarter of the
fiscal year ending December 31, 1996. The Company filed a Form 8-K,
dated April 24, 1996, to report the announcement of various changes
in its executive officers and directors.
8
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SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant has caused this report to be signed on its behalf by the
undersigned, thereunder duly authorized.
Dated: May 15, 1996 LifeRate Systems, Inc.
By:/s/ William W. Chorske
------------------------
William W. Chorske
President and Chief Executive Officer
(Principal Executive Officer)
By:/s/ Bruce T. Klein
-------------------------
Bruce T. Klein
Chief Financial Officer
(Principal Financial and
Accounting Officer)
9
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LIFERATE SYSTEMS, INC.
EXHIBIT INDEX TO QUARTERLY REPORT
ON FORM 10-QSB
For the Quarterly Period Ended March 31, 1996
Item No. Item Method of Filing
- - -------- ---- ----------------
10.1 Employment Agreement, dated April 29, 1996,
between the Company and William W. Chorske . . . Filed herewith.
10.2 Stock Option Agreement, dated April 29, 1996,
between the Company and William W. Chorske . . . Filed herewith.
27.1 Financial Data Schedule . . . . . . . . . . . . . Filed herewith.
10
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EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT is effective as of April 29, 1996 between LIFERATE SYSTEMS,
INC., a Minnesota corporation ("the Company"), and WILLIAM W. CHORSKE (the
"Employee").
WHEREAS, the parties wish to provide for the employment of the Employee by
the Company;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the Company and the Employee, each intending to be legally bound, agree as
follows:
1. EMPLOYMENT. Subject to all of the terms and conditions of this
Agreement, the Company agrees to employ the Employee as the Chief Executive
Officer and President of the Company, and the Employee accepts this employment.
2. DUTIES.
(a) The Employee will diligently and conscientiously perform the
duties of Chief Executive Officer and President of the Company, all within
the general guidelines to be determined by the Board. The Employee will
make the best use of his energy, knowledge and training in advancing the
Company's interests and will not actively be engaged in other employment
with any other entity or concern.
(b) During the term of this Agreement, the Employee will also serve
as a director of the Company and will perform all duties incident to such
service.
3. TERM. The Employee's term of employment will commence on May 1, 1996
and will continue until April 30, 1997, subject to earlier termination in
accordance with Section 4 hereof.
4. TERMINATION. Subject to the respective continuing obligations of the
Company and the Employee under Sections 8, 9, 10 and 11 hereof:
(a) This Agreement may be terminated by the Company on 10 days'
written notice to the Employee "for cause," with the basis for termination
specified in such notice.
(b) This Agreement may be terminated upon the Employee's death or
Total Disability. For purposes of this Agreement, "Total Disability" will
be as defined in the long-term disability plan of the Company then in
effect or, if no such plan exists, will mean such disability that prevents
the Employee from performing his duties under Section 2 of this Agreement
for a continuous period of 90 days.
(c) This Agreement may be terminated for Good Reason (as defined
below) by the Employee following a Change in Control (as defined below)
upon 30 days written notice.
(d) For purposes of this Agreement, "for cause" will mean (i) any
unlawful or criminal activity of a serious nature, (ii) if not corrected
within 60 days after written notice thereof, any willful breach of duty,
habitual neglect of duty or unreasonable job performance, or (iii) a
material breach of any provision of this Agreement.
5. COMPENSATION.
(a) BASE SALARY. In consideration of the Employee's services under
this Agreement, the Company agrees to pay the Employee an annual base
salary (the "Base Salary"). The Base Salary will be set at $250,000. The
Base Salary will be payable in accordance with the standard payroll
practices of the Company.
(b) STOCK OPTIONS. Upon the execution of this Agreement, the Employee
will receive a stock option (the "Option") to purchase 61,667 shares of the
Company's common
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stock, no par value (the "Common Stock"), in substantially
the form of Exhibit A attached hereto. The Option will be granted outside
the Company's 1993 Stock Option Plan. The Option will have an exercise
price equal to the closing bid price of the Common Stock on the date hereof
(the "Exercise Price") representing the fair market value of the Common
Stock on the date of acceptance of employment, shall become fully vested on
April 30, 1997, and shall be exercisable from such date until the
expiration of the Option in accordance with the terms specified in Exhibit
A. In addition to the Option referred to above, the Employee shall receive
an option to purchase 13,333 shares of Common Stock as a result of the
Employee becoming a director of the Company and such option shall be
subject to the same terms and conditions, including vesting and
exercisability, as the options granted other directors.
(c) BONUS. In the event that on the termination date of this
Agreement, the Aggregate Value (as defined below) of the Option is less
than $150,000, then the Employee shall be entitled to receive a cash bonus,
payable within 30 days after the termination date, equal to the difference
between $150,000 and the Aggregate Value. "Aggregate Value" means an
amount equal to the product of (i) 50,000 (which represents a portion of
the shares subject to the Option) TIMES (ii) the positive difference, if
any, between (a) the average closing bid price for the Company's Common
Stock for the 20 business days immediately prior to the termination date of
this Agreement and (b) the Exercise Price.
(d) BENEFIT PLANS. The Employee does not choose to participate in
and receive benefits under benefit plans or programs of the Company, other
than the Company's vacation policy. In lieu of participating in such
benefits and plans, the Company shall pay the Employee the amount of
$20,000 within 10 business days after the commencement of the term of
employment hereunder.
(e) EXPENSES. The Company will pay or reimburse the Employee for all
reasonable expenses (including, without limitation, expenses for
entertainment, travel, personal business education, meals, hotel
accommodations) that the Employee incurs while performing his duties under
this Agreement, provided that the Employee accounts properly for such
expenses to the Company in accordance with Company policies.
6. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the
Company will mean the following:
(i) the sale, lease, exchange or other transfer, directly or
indirectly, of substantially all of the assets of the Company (in one
transaction or in a series of related transactions) to a person or
entity that is not controlled by the Company;
(ii) the approval by the shareholders of the Company of any plan
or proposal for the liquidation or dissolution of the Company;
(iii) a merger or consolidation to which the Company is a party
if the shareholders of the Company immediately prior to effective date
of such merger or consolidation have "beneficial ownership" (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), immediately following the effective
date of such merger or consolidation, of securities of the surviving
corporation representing (A) more than 50%, but not more than 80%, of
the combined voting power of the surviving corporation's then
outstanding securities ordinarily having the right to vote at
elections of directors, unless such merger or consolidation has been
approved in advance by the Incumbent Directors, or (B) 50% or less of
the combined voting power of the surviving corporation's then
outstanding
2
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securities ordinarily having the right to vote at elections of
directors (regardless of any approval by the Incumbent Directors);
(iv) any person becomes after the effective date of this
Agreement the "beneficial owner" (as defined in Rule 13d-3 of the
Exchange Act), directly or indirectly, of (A) 20% or more, but not 50%
or more, of the combined voting power of the Company's outstanding
securities ordinarily having the right to vote at elections of
directors, unless the transaction resulting in such ownership has been
approved in advance by the Incumbent Directors, or (B) 50% or more of
the combined voting power of the Company's outstanding securities
ordinarily having the right to vote at elections of directors
(regardless of any approval by the Incumbent Directors);
(v) the Incumbent Directors cease for any reason to constitute at
least a majority of the Board; or
(vi) a change in control of the Company of a nature that would be
required to be reported pursuant to Section 13 or 15(d) of the
Exchange Act, whether or not the Company is then subject to such
reporting requirements.
(b) For purposes of this Section 6, the Incumbent Directors will mean
any individual who is a member of the Board on the effective date of this
Agreement and any individual who subsequently becomes a member of the Board
whose election, or nomination for election by the Company's shareholders,
was approved by a vote of at least a majority of the directors comprising
the Board on the effective date of this Agreement (either by specific vote
or by approval of the proxy statement of the Company in which such
individual is named as a nominee for director without objection to such
nomination).
(c) Subject to the limitations of Section 7(e) hereof, if a Change in
Control occurs, the Option will become immediately exercisable in full and
will remain exercisable for the remainder of its term, regardless of
whether the Employee remains in the employ or service of the Company.
7. PAYMENTS UPON TERMINATION.
(a) If this Agreement is terminated by the Company pursuant to
Section 4(a) of this Agreement, the Employee will be paid (i) his Base
Salary through the date of termination, and (ii) any unpaid expense
reimbursement.
(b) If this Agreement is terminated pursuant to Section 4(b) of this
Agreement, the Employee will be paid (i) his Base Salary through the end of
the month following his death or termination as a result of Total
Disability, (ii) any bonus, determined in accordance with Section 5(c) of
this Agreement, to which the Employee would have been entitled for the
fiscal year in which his death or termination for Total Disability
occurred, pro rated to the end of the month following his death or
termination for Total Disability, and (iii) any unpaid expense
reimbursement.
(c) If this Agreement is terminated by the Employee, following a
Change in Control, pursuant to Section 4(c) of this Agreement for Good
Reason, the Employee (i) will continue to be paid his then current Base
Salary, at the same times and in the same manner as prior to his
termination, for the remainder of the then current term of this Agreement,
provided that such payments will continue only so long as the Employee
continues to comply with all of the terms and conditions of Sections 8, 9
and 10 of this Agreement, (ii) will be paid any bonus, determined in
accordance with Section 5(c) of this Agreement, to which the Employee would
have been entitled for the entire fiscal year in which he was terminated
had
3
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his employment with the Company not been terminated; and (iii) will be
paid any unpaid expense reimbursement.
(d) For purposes of this Agreement, "Good Reason" will mean the good
faith determination by the Employee, in his sole judgment, that any one or
more of the following events has occurred, without the Employee's written
consent, following a Change in Control:
(i) an adverse change in the Employee's status or position as an
executive of the Company as in effect immediately prior to the Change
in Control, including, without limitation, any adverse change in the
Employee's status or position as a result of a material diminution in
his or her duties or responsibilities (other than, if applicable, any
such change directly attributable to the fact that the Company is no
longer publicly owned) or the assignment to the Employee of any duties
or responsibilities that, in the Employee's reasonable judgment, are
inconsistent with such status or position, or any removal of the
Employee from or any failure to reappoint or reelect the Employee to
such position (except in connection with the termination of his
employment "for cause" or as a result of his death or Total Disability
or by the Employee other than for Good Reason); provided, however,
that Good Reason will not include an adverse change in the Employee's
status or position caused by an insubstantial and inadvertent action
that is remedied by the Company promptly after receipt of notice of
such change is given by the Employee;
(ii) a reduction by the Company in the Employee's annual Base
Salary, or an adverse change in the form or timing of the payment
thereof, as in effect immediately prior to the Change in Control or as
thereafter increased;
(iii) the failure by the Company to continue in effect any
benefit plan in which the Employee (including, for purposes of this
paragraph, his family or dependents) is participating at any time
during the 90-day period immediately preceding the Change in Control
(or benefit plans providing the Employee with at least substantially
similar benefits) other than as a result of the normal expiration of
any such benefit plan in accordance with its terms as in effect
immediately prior to the 90-day period immediately preceding the
Change in Control, or the taking of any action, or the failure to act,
by the Company that would adversely affect an Employee's continued
participation in any of such benefit plans on at least as favorable a
basis to such Employee as is the case immediately prior to the Change
in Control or that would materially reduce the Employee's benefits in
the future under any such benefit plans or deprive an Employee of any
material benefit enjoyed by such Employee immediately prior to the
Change in Control;
(iv) the Company's requiring the Employee to be based more than
30 miles from where his or her office is located immediately prior to
the Change in Control, except for required travel pursuant to the
Company's business travel obligations that the Employee undertook on
behalf of the Company during the 90-day period immediately preceding
the Change in Control;
(v) the failure of the Company to obtain an assumption of the
obligations of the Company to perform this Agreement by any successor
to the Company; or
(vi) any material breach of this Agreement by the Company.
(e) Notwithstanding any other provisions of this Agreement or any
other agreement, contract or understanding heretofore or hereafter entered
into between the Company and the Employee, if any "payments" (including,
without limitation, any benefits or transfers of property or the
acceleration of the vesting of any benefits) in the nature of
4
<PAGE>
compensation under any arrangement that is considered contingent on a
Change in Control for purposes of Section 280G of the Internal Revenue Code
of 1986, as amended (the "Code"), together with any other payments that
the Employee has the right to receive from the Company or any corporation
that is a member of an "affiliated group" (as defined in Section 1504(a) of
the Code without regard to Section 1504(b) of the Code) of which the
Company is a member, would constitute a "parachute payment" (as defined in
Section 280G of the Code), such payments will be reduced to the largest
amount as will result in no portion of such payments being subject the
excise tax imposed by Section 4999 of the Code; provided, however, that the
Employee will be entitled to designate those payments that will be reduced
or eliminated in order to comply with the foregoing provision.
8. INVENTIONS.
(a) "Inventions," as used in this Section 8, means any discoveries,
improvements, formulae, proprietary rights or data, trade secrets, shop
rights, ideas and know-how (whether or not they are in writing or reduced
to practice) or works of authorship (whether or not they can be patented or
copyrighted) that the Employee makes, authors, or conceives (either alone
or with others) and that:
(i) concern directly the Company's business or the Company's
present or possible future research or development;
(ii) result from any work the Employee performs for the Company;
(iii) use the Company's equipment, supplies, facilities, or trade
secret information; or
(iv) the Employee develops during any such time that Section 2
above obligates him to perform his employment duties.
(b) The Employee agrees that all Inventions he makes during or within
six months after the term of this Agreement will be the Company's sole and
exclusive property. The Employee will, with respect to any such Invention:
(i) keep current, accurate, and complete records, which will
belong to the Company and be kept and stored on the Company's premises
while the Employee is employed by the Company;
(ii) promptly and fully disclose the existence and describe the
nature of the Invention to the Company in writing (and without
request);
(iii) assign (and the Employee does hereby assign) to the Company
all of his rights to the Invention, any applications he makes for
patents or copyrights in any country, and any patents or copyrights
granted to him in any country; and
(iv) acknowledge and deliver promptly to the Company any written
instruments, and perform any other acts necessary in the Company's
opinion to preserve property rights in the Invention against
forfeiture, abandonment, or loss and to obtain and maintain letters
patents and/or copyrights on the Invention and to vest the entire
right and title to the Invention in the Company.
The requirements of this subsection 8(b) do not apply to an Invention for
which no equipment, supplies, facility or trade secret information of the
Company was used and which was developed entirely on the Employee's own
time, and (x) which does not relate directly to the Company's business or
to the Company's actual or demonstrably anticipated research or
development, or (y) which does not result from any work the Employee
performed for
5
<PAGE>
the Company. Except as previously disclosed to the Company in
writing, the Employee does not have, and will not assert, any claims to
or rights under any Inventions as having been made, conceived, authored or
acquired by the Employee prior to his employment by the Company.
9. CONFIDENTIAL INFORMATION.
(a) "Confidential Information," as used in this Section 9, means
information that is not generally known and that is proprietary to the
Company or that the Company is obligated to treat as proprietary. This
information includes, without limitation:
(i) trade secret information about the Company and its products;
(ii) "Inventions," as defined in Section 8(a) hereof;
(iii) information concerning the Company's business, as the
Company has conducted it during the last five years or as it may
conduct it in the future; and
(iv) information concerning any of the Company's past, current,
or possible future products, including (without limitation)
information about the Company's research, development, engineering,
purchasing, manufacturing, accounting, marketing, selling or leasing.
Any information that the Employee reasonably considers or that the Company
treats as Confidential Information will be presumed to be Confidential
Information (whether the Employee or others originated it and regardless of
how he obtained it).
(b) Except as required in his duties to the Company, the Employee
will never, either during or after his employment by the Company, use or
disclose Confidential Information to any person not authorized by the
Company to receive it. When the Employee's employment with the Company
ends, he will promptly turn over to the Company all records and any
compositions, articles, devices, apparatus and other items that disclose,
describe or embody Confidential Information, including all copies,
reproductions and specimens of the Confidential Information in his
possession, regardless of who prepared them.
10. COMPETITIVE ACTIVITIES. The Employee agrees that during his
employment with the Company and, unless the Employee is terminated following a
Change in Control other than for cause, for a period of two years after his
employment with the Company ends:
(a) He will not alone, or in any capacity with another firm:
(i) directly or indirectly engage in any commercial activity
that competes with the Company's business, as the Company has
conducted it during the five years before the Employee's employment
with the Company ends, (A) within any state in the United States, or
(B) within any country in which the Company directly or indirectly
markets or services products or provides services or reasonably
intends during such period to market or service products or provide
services;
(ii) in any way interfere or attempt to interfere with the
Company's relationships with any of its current or potential
customers; or
(iii) employ or attempt to employ any of the Company's then
employees on behalf of any other entity competing with the Company.
6
<PAGE>
(b) He will, prior to accepting employment with any new employer,
inform that employer of this Agreement and provide that employer with a
copy of this Agreement.
(c) Notwithstanding the foregoing provisions of this Section 10, the
Employee may, however, accept employment (i) with an entity competing with
the Company so long as the business of such entity is diversified and, as
to a separately managed and operated part of its business, does not compete
with the Company; provided, however, that prior to accepting such
employment, the Employee and such competing entity will provide the Company
with written assurances satisfactory to the Company that the Employee will
not render services directly or indirectly to any part of such entity's
business that competes with the business of the Company or (ii) with
Medtronic, Inc. (or any of its subsidiaries or affiliates) (collectively
referred to as "Medtronic"); provided that the Employee will not render
services to any part of Medtronic's business that competes with the
business of the Company.
11. CONFLICTING BUSINESS. The Employee agrees that he will not transact
business with the Company personally, or as agent, owner, partner or shareholder
of any other entity; provided, however, that the Employee may enter into any
business transaction that is, in the opinion of the Board, reasonable, prudent
or necessary to the Company, so long as any such business transaction is at
arm's-length as though between independent and prudent individuals.
12. NO ADEQUATE REMEDY. The Employee understands that if he fails to
fulfill his obligations under this Agreement, the damages to the Company would
be very difficult to determine. Therefore, in addition to any other rights or
remedies available to the Company at law, in equity or by statute, the Employee
hereby consents to the specific enforcement by the Company of Sections 8, 9 and
10 of this Agreement through an injunction or restraining order issued by an
appropriate court.
13. INDEMNIFICATION. The Company shall indemnify the Employee for all
acts as an officer and director of the Company to the fullest extent permitted
by the Articles of Incorporation, the Bylaws of the Company and Minnesota law.
The Employee shall also be covered by the Company's directors' and officers'
insurance policy.
14. MISCELLANEOUS.
(a) SUCCESSORS AND ASSIGNS. Except as provided in the next sentence,
this Agreement may not be assigned without the Employee's consent, which
consent will not be unreasonably withheld. In any event, the Company may
assign this Agreement without the consent of the Employee in connection
with a merger, consolidation, assignment, sale, or other disposition of
substantially all of its assets or business.
(b) MODIFICATION. This Agreement may be modified or amended only by
a writing signed by each of the parties hereto.
(c) GOVERNING LAW. The laws of the State of Minnesota will govern
the validity, construction, and performance of this Agreement, without
regard to the conflict of laws provisions of any other jurisdictions. Any
legal proceeding related to this Agreement will be brought in an
appropriate Minnesota court, and each of the parties hereto hereby consents
to the exclusive jurisdiction of that court for this purpose.
(d) CONSTRUCTION. Wherever possible, each provision of this
Agreement will be interpreted so that it is valid under applicable law. If
any provision of this Agreement is to any extent invalid under applicable
law in any jurisdiction, that provision will still be effective to the
extent it remains valid. The remainder of this Agreement also will
continue to be valid, and the entire Agreement will continue to be valid in
other jurisdictions.
7
<PAGE>
(e) NON-WAIVER. No failure or delay by either the Company or the
Employee in exercising any right or remedy under this Agreement will waive
any provision of the Agreement. Nor will any single or partial exercise by
either the Company or the Employee of any right or remedy under this
Agreement preclude either of them from otherwise or further exercising
these rights or remedies, or any other rights or remedies granted by any
law or any related document.
(f) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will constitute an original, but all of which,
when taken together, will constitute one and the same instrument.
(g) ENTIRE AGREEMENT. This Agreement supersedes all previous and
contemporaneous oral negotiations, commitments, writings, and
understandings among the parties hereto concerning the matters in this
Agreement, including, without limitation, any policy or personnel manuals
of the Company or any of its subsidiaries or affiliates.
(h) NOTICES. All notices and other communications required or
permitted under this Agreement will be in writing and hand delivered or
sent by registered first-class mail, postage prepaid, and will be effective
upon receipt if hand delivered, and five (5) business days after mailing if
sent by mail, to the following addresses or such other addresses as either
party will have notified the other party:
If to the Company: LifeRate Systems, Inc.
7210 Metro Boulevard
Edina, Minnesota 55439
ATTN: Chairman of Board
If to the Employee: William W. Chorske
2270 West Lake of the Isles Parkway
Minneapolis, Minnesota 55405
IN WITNESS WHEREOF, the Company and the Employee have executed this
Agreement as of the date first above written.
LIFERATE SYSTEMS, INC.
By: /s/ David D. Koentopf
--------------------------------
Its: Chairman of the Board
-----------------------------
/s/ William W. Chorske
-----------------------------------
William W. Chorske
8
<PAGE>
EXHIBIT 10.2
STOCK OPTION AGREEMENT
THIS AGREEMENT is entered into and effective as of April 29, 1996 (the
"Date of Grant"), by and between LifeRate Systems, Inc. (the "Company") and
William W. Chorske (the "Optionee").
A. The Company desires to give the Optionee an inducement to acquire a
proprietary interest in the Company and an added incentive to advance the
interests of the Company by granting to the Optionee an option to purchase
shares of common stock of the Company pursuant to the Plan.
B. This option is being granted in connection with the Employment
Agreement dated April 29, 1996 between the Company and the Optionee (the
"Employment Agreement").
Accordingly, the parties hereby agree as follows:
ARTICLE 1. GRANT OF OPTION.
The Company hereby grants to the Optionee the right, privilege, and option
(the "Option") to purchase Sixty-One Thousand Six Hundred Sixty-Seven (61,667)
shares (the "Option Shares") of the Company's common stock (the "Common Stock"),
according to the terms and subject to the conditions set forth in this
Agreement.
ARTICLE 2. OPTION EXERCISE PRICE.
The per share price to be paid by Optionee in the event of an exercise of
the Option shall be $9.375.
ARTICLE 3. DURATION OF OPTION AND TIME OF EXERCISE
3.1 PERIOD OF EXERCISABILITY. The Option shall become exercisable with
respect to the Option Shares in one installment. The following table sets forth
the initial dates of exercisability of the installment and the number of Option
Shares as to which this Option shall become exercisable on such dates:
INITIAL DATE OF NUMBER OF OPTION SHARES
EXERCISABILITY AVAILABLE FOR EXERCISE
April 30, 1997 61,667
The foregoing rights to exercise this Option shall be cumulative with respect to
the Option Shares becoming exercisable on such date but in no event shall this
Option be exercisable after, and this Option shall become void and expire as to
all unexercised Option Shares at, 5:00 p.m. (Minneapolis, Minnesota time) on
April 30, 2006 (the "Time of Termination").
3.2 TERMINATION OF EMPLOYMENT OR OTHER SERVICE. Except as
otherwise provided in Section 3.3 below:
(a) In the event that the Optionee's employment or other
service with the Company and all Subsidiaries (as defined in the Plan) is
terminated by reason of the Optionee's death, or Total Disability (as such terms
are defined in the Employment Agreement) or the expiration of this Agreement by
its terms or by the Optionee for "Good Reason" under Section 4(c) of the
Employment Agreement, this Option shall remain exercisable to the extent
exercisable as of such termination or expiration until the Time of Termination.
<PAGE>
(b) In the event the Optionee's employment or other service
with the Company and all Subsidiaries is terminated for any reason other as set
forth in subsection 3.2(a) all rights of the Optionee under this Agreement shall
immediately terminate without notice of any kind, and this Option shall no
longer be exercisable.
(c) Notwithstanding anything in this Agreement to the
contrary, in the event that the Optionee materially breaches the terms of any
confidentiality or non-compete agreement entered into with the Company or any
Subsidiary, whether such breach occurs before or after termination of the
Optionee's employment or other service with the Company or any Subsidiary, the
Company in its sole discretion may immediately terminate all rights of the
Optionee under this Agreement without notice of any kind.
3.3 CHANGE IN CONTROL.
(a) For purposes of this Section 3.3, the term "Change in
Control" shall have the meaning set forth in Section 6 of the Employment
Agreement.
(b) If any events constituting a Change in Control of the
Company shall occur, then this Option shall become immediately exercisable in
full until the Time of Termination, whether or not the Optionee remains in the
employ or service of the Company or any Subsidiary. In addition, if a Change in
Control of the Company shall occur, the Company, in its sole discretion, and
without the consent of the Optionee, may determine that the Optionee shall
receive, with respect to some or all of the Option Shares, as of the effective
date of any such Change in Control of the Company, cash in an amount equal to
the excess of the Fair Market Value (as defined in the Plan) of such Option
Shares immediately prior to the effective date of such Change in Control of the
Company over the option exercise price per share of this Option.
(c) Notwithstanding anything in this Section 3.3 to the
contrary, if, with respect to the Optionee, acceleration of the exercisability
of this Option or the payment of cash in exchange for all or part of this Option
as provided above (which acceleration or payment could be deemed a payment
within the meaning of Section 280G(b)(2) of the Code), together with any other
payments which the Optionee has the right to receive from the Company or any
corporation which is a member of an "affiliated group" (as defined in
Section 1504(a) of the Code without regard to Section 1504(b) of the Code) of
which the Company is a member, would constitute a "parachute payment" (as
defined in Section 280G(b)(2) of the Code), then the acceleration of
exercisability and the payments to the Optionee as set forth herein shall be
reduced to the largest amount as, in the sole judgment of the Company, will
result in no portion of such payments being subject to the excise tax imposed by
Section 4999 of the Code.
ARTICLE 4. MANNER OF OPTION EXERCISE.
4.1 NOTICE. This Option may be exercised by the Optionee in
whole or in part from time to time, subject to the conditions contained herein,
by delivery, in person or by registered mail, to the Company at its principal
executive office in Minneapolis, Minnesota (Attention: Chief Financial Officer),
of a written notice of exercise. Such notice shall be in a form satisfactory to
the Company, shall identify the Option, shall specify the number of Option
Shares with respect to which this Option is being exercised, and shall be signed
by the person or persons so exercising this Option. Such notice shall be
accompanied by payment in full of the total purchase price of the Option Shares
purchased. In the event that the Option is being exercised by any person or
persons other than the Optionee, the notice shall be accompanied by appropriate
proof of right of such person or persons to exercise this Option. As soon as
practicable after the effective exercise of this Option, the Optionee shall be
recorded on the stock transfer books of the Company as the owner of the Option
Shares purchased, and the Company shall deliver to the Optionee one or more duly
issued stock certificates evidencing such ownership.
2
<PAGE>
4.2 PAYMENT. At the time of exercise of this Option, the
Optionee shall pay the total purchase price of the Option Shares to be purchased
solely in cash (including a personal check or a certified or bank cashier's
check, payable to the order of the Company); provided, however, that to the
extent permitted by the Company, in its sole discretion, may allow such payments
to be made, in whole or in part, by delivery of a Broker Exercise Notice or a
promissory note (containing such terms and conditions as the Company may in its
discretion determine), by transfer from the Optionee to the Company of
Previously Acquired Shares, or by a combination thereof. For purposes of this
Agreement, the terms "Broker Exercise Notice" and "Previously Acquired Shares"
shall have the meanings set forth in the Plan. In the event the Optionee is
permitted to pay the total purchase price of this Option in whole or in part
with Previously Acquired Shares, the value of such shares shall be equal to
their Fair Market Value on the date of exercise of this Option.
4.3 INVESTMENT PURPOSE. The Company shall not be required to
issue or deliver any shares of Common Stock under this Option unless (1)(a) such
shares are covered by an effective and current registration statement under the
Securities Act of 1933 and applicable state securities laws or (b) if the
Company has determined not to so register such shares, exemptions from
registration under the Securities Act of 1933 and applicable state securities
laws are available for such issuance (as determined by counsel to the Company)
and the Company has received from the Optionee (or, in the event of death or
disability, the Optionee's heir(s) or legal representative(s)) any
representations or agreements requested by the Company in order to permit such
issuance to be made pursuant to such exemptions, and (2) the Company has
obtained any other consent, approval or permit from any state or federal
governmental agency which the Company shall, in its sole discretion upon the
advice of counsel, deem necessary or advisable. In the event that, at the time
of the attempted exercise of this Option, any of these conditions to the
issuance of a certificate for shares of Common Stock have not been satisfied,
such exercise shall be deemed withdrawn and the Company shall return any
payments made with respect thereto unless the Optionee, within 15 days after
being informed of the nonsatisfaction of such conditions, gives the Company
written notice that he or she wants such exercise to remain suspended (in which
event such exercise shall be deemed to be effective on the earliest date upon
which such conditions have been satisfied). Unless a registration statement
under the Securities Act of 1933 is in effect with respect to the issuance or
transfer of Option Shares, each certificate representing any such shares shall
be restricted by the Company as to transfer unless the Company receives an
opinion of counsel satisfactory to the Company to the effect that registration
under the Securities Act of 1933 and applicable state securities laws is not
required with respect to such transfer.
4.4 DISPOSITION. Prior to making a disposition of any shares
of Common Stock acquired pursuant to the exercise of this Option before the
expiration of two years after the Date of Grant or before the expiration of one
year after the date of exercise of this Option and the date on which such shares
of Common Stock were transferred to the Optionee pursuant to exercise of this
Option, the Optionee shall send written notice to the Company of the proposed
date of such disposition, the number of shares to be disposed of, the amount of
proceeds to be received from such disposition and any other information relating
to such disposition that the Company may reasonably request. The right of the
Optionee to make any such disposition shall be conditioned on the receipt by the
Company of all amounts necessary to satisfy any federal, state or local
withholding and employment-related tax requirements attributable to such
disposition. The Company shall have the right, in its sole discretion, to
endorse the certificates representing such shares with a legend restricting
transfer and to cause a stop transfer order to be entered with the Company's
transfer agent until such time as the Company receives the amounts necessary to
satisfy such withholding and employment-related tax requirements or until the
later of the expiration of two years from the Date of Grant or one year from the
date on which such shares were transferred to the Optionee pursuant to the
exercise of this Option.
ARTICLE 5. TRANSFERABILITY.
3
<PAGE>
This Option may be transferred by the Optionee upon receipt by
the Company of an opinion of counsel, acceptable to the Company, that such
transfer complies with applicable state and federal securities laws.
ARTICLE 6. LIMITATION OF LIABILITY.
Nothing in this Agreement shall be construed to (a) limit in
any way the right of the Company to terminate the employment or service of the
Optionee at any time, or (b) be evidence of any agreement or understanding,
express or implied, that the Company will retain the Optionee in any particular
position, at any particular rate of compensation or for any particular period of
time.
ARTICLE 7. WITHHOLDING TAXES.
The Company is entitled to (a) withhold and deduct from future
wages of the Optionee (or from other amounts which may be due and owing to the
Optionee from the Company), or make other arrangements for the collection of,
all legally required amounts necessary to satisfy any federal, state or local
withholding and employment-related tax requirements attributable to the grant or
exercise of this Option or to a disqualifying disposition of the Option Shares
acquired upon exercise of this Option, or otherwise incurred with respect to
this Option, or (b) require the Optionee promptly to remit the amount of such
withholding to the Company before acting on the Optionee's notice of exercise of
this Option. In the event that the Company is unable to withhold such amounts,
for whatever reason, the Optionee hereby agrees to pay to the Company an amount
equal to the amount the Company would otherwise be required to withhold under
federal, state or local law.
ARTICLE 8. ADJUSTMENTS.
In the event of any reorganization, merger, consolidation,
recapitalization, liquidation, reclassification, stock dividend, stock split,
combination of shares, rights offering, extraordinary dividend or divestiture
(including a spin-off) or any other change in the corporate structure or shares
of the Company, the Company (or, if the Company is not the surviving corporation
in any such transaction, the board of directors of the surviving corporation),
in order to prevent dilution or enlargement of the rights of the Optionee, shall
make appropriate adjustment (which determination shall be conclusive) as to the
number, kind and exercise price of securities subject to this Option.
ARTICLE 9. MISCELLANEOUS.
9.1 BINDING EFFECT. This Agreement shall be binding upon the
heirs, executors, administrators and successors of the parties hereto.
9.2 GOVERNING LAW. This Agreement and all rights and
obligations hereunder shall be construed in accordance with the Plan and
governed by the laws of the State of Minnesota.
9.3 ENTIRE AGREEMENT. This Agreement sets forth the entire
agreement and understanding of the parties hereto with respect to the grant and
exercise of this Option and supersedes all prior agreements, arrangements, plans
and understandings relating to the grant and exercise of this Option.
4
<PAGE>
9.4 AMENDMENT AND WAIVER. This Agreement may be amended,
waived, modified or canceled only by a written instrument executed by the
parties hereto or, in the case of a waiver, by the party waiving compliance.
The parties hereto have executed this Agreement effective the
day and year first above written.
LIFERATE SYSTEMS, INC.
By: /s/ David D. Koentopf
---------------------------------
Its: Chairman of the Board
---------------------------------
OPTIONEE
/s/ William W. Chorske
---------------------------------
William W. Chorske
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF EARNINGS AND THE BALANCE SHEET AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 7,238
<SECURITIES> 0
<RECEIVABLES> 370
<ALLOWANCES> 8
<INVENTORY> 0
<CURRENT-ASSETS> 7,670
<PP&E> 785
<DEPRECIATION> 103
<TOTAL-ASSETS> 8,648
<CURRENT-LIABILITIES> 774
<BONDS> 0
0
0
<COMMON> 16,067
<OTHER-SE> (8,674)
<TOTAL-LIABILITY-AND-EQUITY> 8,648
<SALES> 109
<TOTAL-REVENUES> 109
<CGS> 44
<TOTAL-COSTS> 1,638
<OTHER-EXPENSES> (91)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> (1,439)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,439)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,439)
<EPS-PRIMARY> (.39)
<EPS-DILUTED> (.39)
</TABLE>
