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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
or
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934
COMMISSION FILE NO. 0-25530
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LIFERATE SYSTEMS, INC.
(Exact name of small business issuer as specified in its charter)
MINNESOTA 41-1682994
(State of Incorporation) (IRS Employer Identification No.)
7210 METRO BOULEVARD
MINNEAPOLIS, MINNESOTA 55439
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 844-0599
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
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Check whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES __X__ NO _____
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained herein, and no disclosure will be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The Registrant's revenues for the fiscal year ended December 31, 1996
were $ 615,700.
As of March 1, 1997, 3,819,708 shares of Common Stock of the Registrant
were outstanding, and the aggregate market value of the Common Stock of the
Registrant as of that date (based upon the average between the closing bid and
asked prices for the Common Stock on that date), excluding shares owned
beneficially by executive officers, directors and greater-than-5% shareholders,
was approximately $6,702,045.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-KSB incorporates by reference
information (to the extent specific sections are referred to herein) from the
Registrant's Proxy Statement for its Annual Meeting to be held May 22, 1997 (the
"1997 Proxy Statement").
Transitional Small Business Disclosure Format (check one): YES ____ NO __X__
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
INTRODUCTION
Today's healthcare environment requires that physicians and provider
organizations document and report clinical outcomes to prove to payors and
buyers of healthcare that they are delivering the highest quality care at the
most cost-effective price. LifeRate Systems, Inc. (the "Company" or "LifeRate")
has developed and is marketing a proprietary software system that stores,
retrieves, integrates and analyzes data necessary to prove the quality and value
of the care that healthcare providers deliver. The Company's system also allows
providers to operate more efficiently, to better manage and control internal
processes and to improve healthcare delivery in the face of widespread changes
in the healthcare environment. The Company believes that the need for such
systems will grow as providers and payors seek to compete effectively in this
rapidly changing market.
The Company first 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
Cardiovascular Outpatient module. LifeRate released demonstration versions of
the core system, along with the Cardiovascular 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.
During 1996 the Company continued its development activities focusing
on releasing two Cardiovascular Outpatient product enhancements designed to add
functionality to the core system to increase the operational benefits to users
of the system. In addition, the Company began modification to its core software
system to develop an Asthma and Allergy Outpatient module. Development also
continued on the Cath Lab module of the Cardiovascular system, which is now
scheduled for release in 1997.
Also during 1996 the Company began to invest in the structure required
to support the commercial activities of the Company. Executive management
changed in the spring of 1996 to help the Company in this phase of its
development. During the course of the year, important investments were made in
technical support, customer service and field sales as the Company internalized
these functions. Prior to 1996, the Company contracted with an outside firm to
provide substantially all of these functions. In addition, marketing and
software quality assurance functions were established.
In 1996, considerable effort was devoted to the commercial development
of the Company's products with emphasis on sales. To date, the Company has
entered into agreements for the sale and installation of its Cardiovascular
Outpatient system with seven cardiovascular practice groups and the sale and
installation of its Asthma and Allergy Outpatient system with three asthma and
allergy practice groups.
As disclosed in Note 9 to the financial statements, included in this
report, in prior years the Company had entered into agreements with a physician
group, The Atlanta Cardiology Group, P.C. ("ACG") and an advisor, Anthony
Furnary, M.D., both of which had assisted the Company in developing its
products. The agreements called for the Company to pay the respective parties
royalties and other amounts based upon future product sales. Throughout 1996,
the Company was negotiating with the respective parties to allow for the Company
to better position itself for future growth.
In March 1997, the Company and ACG canceled the agreement in place
between the parties and entered into a new agreement that called for the Company
to issue ACG a $2,250,000 convertible subordinated note bearing interest at 10%
per year. The note matures on April 1, 2002. The note replaces all future
royalty payments and other amounts due under the previous agreement for services
provided by ACG. Under the new agreement, the Company will pay to ACG 50% of the
interest accrued each year with the remainder due on the note's maturity date.
Under the terms of the convertible subordinated note, ACG may convert up to
$2,000,000 into shares of the Company's common stock at a conversion rate of
$3.60 per share. In addition, ACG is entitled to have a designated individual
attend all of the Company's Board of Director meetings.
Also in March 1997, the Company and Dr. Furnary modified the existing
agreement between the parties. Under the terms of the modified agreement,
beginning in 1999 (or sooner if the Company reaches $20,000,000 of cumulative
revenues) the Company will pay royalties in the amount of 3% on all gross
revenues (as defined in the agreement) up to $100,000,000, and thereafter, 3.6%
on all gross revenues. The existing royalty rate of 7.5% of gross revenues
remained in place through March 31, 1997. In addition, among other things, under
the modification the Company agreed (i) to make certain milestone payments
totaling $450,000 when the Company reaches certain revenue levels; (ii) to issue
options to Dr. Furnary, for services previously rendered, to purchase 550,000
shares of the Company's common stock at an exercise price of $2.625; (iii) to
enter into a 5-year consulting agreement with Dr. Furnary, including the payment
of fees of $100,000 per year, and (iv) to appoint Dr. Furnary to the Company's
Board of Directors within 90 days.
The Company was incorporated in Minnesota on July 18, 1990. The
Company's offices are located at 7210 Metro Boulevard, Minneapolis, Minnesota
55439; its telephone number is (612) 844-0599.
BACKGROUND
Propelled by the rapid transition to managed care, the Health Care
Information Systems ("HCIS") market is already well in excess of $5 billion and
is expected to be one of the fastest growing sectors of the healthcare market by
the year 2000. This market sector is fragmented with many computer-based systems
performing a range of different functions; for example, billing, scheduling or
patient satisfaction assessment.
In an effort to control healthcare spending, a shift in the marketplace
has occurred away from the traditional cost plus system driven by the provider
(rewarding more rather than less care) to a managed care environment driven by
the payor (rewarding controlled use of healthcare resources and moving towards
capitation (a fixed amount paid per person). Healthcare decision-making is
shifting from the provider (physician) to the payor and/or intermediaries
representing the payor (insurer, managed care company, third party
administrator). With the emphasis on controlling costs, both healthcare
purchasers and providers are consolidating, and the need for improved
computer-based communications and information systems is becoming more urgent.
Initially, computer-based systems focused on transactional and administrative
applications (billing, accounting, scheduling and purchasing). Now, due to the
increase in managed care and capitated contracts, the focus of healthcare has
shifted to total disease management controlled from the outpatient setting. This
has caused an overall shift in the emphasis of computer-based systems from
administrative to clinical, and from hospital to outpatient.
Specialty physicians are being required by payors to provide care that
achieves the best possible clinical outcome at the lowest appropriate costs. To
do so, physician groups need to be able to define and prove the lowest price and
document cost-effective outcomes. The new requirements have increased the need
for structured clinical information systems capable of integrating and managing
complex clinical and financial data collected across the continuum of care. To
accomplish this, the Company believes that healthcare providers need a clinical
information system that links three measures:
* patient reported data (functional status, patient satisfaction)
* detailed clinical data (patient history and procedures,
laboratory test and pharmacy data)
* financial data (including charges and costs)
The Company believes that doctors and hospitals need patient centered
information, captured throughout the entire continuum of care, to convincingly
demonstrate that their healthcare services deliver positive medical outcomes in
a cost effective manner. Thus came the concept for unique computer-based tools
that would integrate medical data and be capable of producing meaningful,
applicable and, most importantly, useful information to providers of care.
LIFERATE CLINICAL INFORMATION SYSTEM
LifeRate's Clinical Information System is a patient centered,
point-of-care data collection and analysis tool that follows a patient
throughout the complete continuum of care. The system's data collection tools
populate a vast relational data repository that can be queried to analyze the
quality and effectiveness of patient care including: morbidity and mortality,
repeat procedures, functional status, utilization data, and more, with an
extensive interface capability, making it truly unique in the healthcare
information management marketplace.
LifeRate has created a versatile computer based patient record (CPR)
and outcomes management tool that assists clinical professionals and healthcare
administrators with a real time point-of-care information system which allows
providers to collect, store, retrieve, and analyze patient centered clinical and
financial information. LifeRate's CPR is built on a powerful relational database
that provides a unique longitudinal view of each patient through the patient's
continuum of care. A key related capability is the ability to integrate and
interface data, regardless of the source of that data. LifeRate's outcomes tools
aid healthcare providers in accurately measuring the cost-effectiveness and
quality of the care that they deliver, in demonstrating their value to payor
organizations, and in providing an edge in an ever-growing competitive market.
The LifeRate Clinical Information System currently has three unique
applications: Cardiovascular Outpatient; Reports & Guidelines; and Asthma &
Allergy Outpatient. Two additional applications, Cath Lab and Noninvasive
Cardiac Tests, are scheduled for release in 1997.
The following table depicts how the Company believes that the information
provided by its system can be made to work for healthcare providers:
<TABLE>
<CAPTION>
- --------------------------------------- -------------------------------------- ----------------------------------
REVENUE PROVIDERS OPERATIONS
------- --------- ----------
GAIN COMPETITIVE EDGE WHEN INCREASE PATIENT VOLUMES TO OFFSET MAXIMIZE PROFITS FOR CAPITATED
NEGOTIATING CONTRACTS DECLINING REIMBURSEMENT PATIENTS
OBTAIN REFERRING PHYSICIAN PROVIDE BETTER PATIENT CARE REDUCE OPERATIONAL FTES (FULL
BUSINESS TIME EQUIVALENTS)
<S> <C> <C>
* Provide quality and cost data * Reduced dictation and * Clinically relevant data for
to contracting entities transcription comprehensive and comparable
* Timely referring physician note * Fast time on-site and remote outcome reporting
* Powerful decision support tools access to patient information * Reduce medical record and
that are capable of processing * Monitor patient status transcription FTEs
practice guidelines, clinical * Freedom from the paper chart * Interfacing capabilities to
trial protocols, outcomes, and external systems
strategic operational and * Complete and accurate
quality improvement reports documentation
* Increased accuracy of * Reduce duplicate data entry
information
- --------------------------------------- -------------------------------------- ----------------------------------
</TABLE>
Product features which support the above benefits include:
* Point-of-care data entry
* Codified data elements
* ICD9 and CPT4 coding
* Customizable Visit Note
* Flexible guidelines engine
* Total disease state management
* Interfacing capabilities to external systems
* Quality and cost data for contracting entities
LifeRate's technical architecture is industry standard and state of the
art. LifeRate's technology plan is also compatible with Microsoft's products for
healthcare including:
* Relational database: Microsoft SQL Server
* Robust operating system: Microsoft Windows NT
* Windows environment
* Data integration capabilities
* Intuitive graphical user interface written in PowerBuilder, the market
leader for client/server tools
* Comprehensive set of data elements exceeding 5,000 data points. The data
points are also compatible with certain national registries including ACC,
MCR/MAR and SCAI.
SALES AND MARKETING STRATEGY
MARKETING FOCUS
LifeRate's initial marketing strategy is to target the specialty
physician practice which treats patients with high cost chronic diseases that
have increasingly become the focus of cost containment. These specialty
physician groups direct medical practice patterns, drive hospital referrals and
account for the majority of healthcare claims dollars. To date, physicians in
the clinical outpatient environment have had little access to the kind of
sophisticated clinical information systems being developed for the hospital
market. The Company believes that an effective computer based system that can
determine clinical outcomes based on monitoring and quantifying both the cost
and quality of care is becoming critical in competing for managed care
contracts. More and more, managed care payors are demanding objective data to
evaluate provider performance with respect to both the quality and cost of care.
The Company's initial product focus is on providing a specialty
oriented clinical software system for cardiology and pulmonology. These medical
specialties accounted for more than half of the $1 trillion spent on healthcare
in 1995.
LifeRate's decision to concentrate on the specialty physician practice
was driven by several factors:
* The focus of cost containment on the effective management of high
cost chronic diseases, for which treatment patterns are directed
primarily in the outpatient environment. A study published in the
"Journal of The American Medical Association" in November 1996
estimates that non-institutionalized Americans with chronic
conditions account for three-quarters of U.S. health
expenditures. The study estimated total costs for these chronic
conditions were $659 billion in 1990.
* Increasing competition for managed care contracts, which is
forcing physicians to recognize the need to quantify outcomes
(both quality and cost) not just to win a contract, but to be
able to assess its economic consequences.
* The lack of real-time clinical data in the practice management
environment and the growing need for access to clinical data
repositories for routine and ad hoc analysis of treatment
patterns. Although some products on the market purport to offer
clinical data analyses, often the analysis is derived from claims
data that has previously been stripped of its clinical integrity.
* The increasing need to share real-time clinical and financial
data across networks as physicians consolidate into larger group
practices, forging alliances with management services
organizations (MSOs) and playing an increasingly important role
in the formation and management of integrated delivery networks
(IDN's).
STRATEGIC ALLIANCES
MEDTRONIC, INC. In December 1995, the Company entered into an
Investment Agreement, Licensing and Development Agreement, and a Shareholder
Voting Agreement with Medtronic, Inc. Pursuant to the Investment Agreement, the
Company privately sold to Medtronic 600,000 shares of its common stock for $4.8
million. Pursuant to the License and Development Agreement, the Company granted
to Medtronic a 30 year worldwide, fully paid, royalty free license granting
Medtronic certain rights relating to the sale and use of the Company's system in
the cardiovascular and neurological fields. In addition, the Company agreed to
install the system at certain clinical sites specified by Medtronic on a
preferred pricing basis, and to install the system at one site specified by
Medtronic, at no cost. The LifeRate system can be used to assist Medtronic in
its internal clinical outcomes measurement efforts, and to augment value-added
programs and services that Medtronic provides to its customers. The LifeRate
System can also be used by Medtronic to assist in its clinical/economic value
analysis of products and therapies as well as assisting in automating its
internal clinical research processes.
PFIZER, INC. In January 1996, Pfizer, Inc. entered into a three year
agreement with LifeRate for a pilot program to begin using LifeRate's
Cardiovascular System at five cardiology practices in the U.S. Under the
agreement, LifeRate received $125,000 initially. The Company received an
additional $125,000 when the five sites were selected. To date, all five sites
have been identified and two sites are installed and producing data. Pfizer's
interest in the LifeRate system is to test its effectiveness and utilization in
Pfizer's efforts to explore ways to capture clinical and financial data.
Internally, Pfizer could use the data to bring new products to market more
swiftly through more efficient clinical trials, as well as helping Pfizer to
assess product utilization. Externally, Pfizer will be assessing the usefulness
of the LifeRate system in improving access to customers who make decisions on
the utilization of Pfizer products.
NATIONAL ASTHMA AND ALLERGY SYSTEM (NAAS) The National Allergy and
Asthma System (NAAS) is a partnership of leading asthma and allergy group
practices including the National Jewish Respiratory Center in Denver and several
other sites across the country. The business objectives of NAAS are to provide
disease management services and MSO services which include an information system
to members and customers. In February 1996, NAAS entered into an agreement with
LifeRate to partner in the development of an asthma and allergy specific
clinical information system. Development of the initial system was successfully
completed in October of 1996 and installed for beta testing at three sites in
the last quarter of 1996. The initial phase of the agreement calls for an
additional five sites to be installed in 1997. NAAS has paid LifeRate $250,000
and is obligated to pay LifeRate an additional $250,000 as the initial eight
sites are installed. Each site will commit to a three year technical support
agreement that will generate ongoing revenue to LifeRate and NAAS. NAAS provides
access to LifeRate to a membership which includes 37 asthma and allergy
practices across the U.S. The NAAS relationship also provides LifeRate with an
opportunity to expand the application of its core system to another specialty,
in this case asthma and allergy.
NATIONAL JEWISH MEDICAL AND RESEARCH CENTER In January 1997, National
Jewish Medical and Research Center entered into an agreement with LifeRate to
develop a computerized patient record to expand their disease management
programs in respiratory medicine and immunology. The system being developed will
allow National Jewish to evaluate and scrutinize the data needs for a variety of
unique patient and physician situations within National Jewish. LifeRate will
also integrate the data from other existing systems at National Jewish into a
Master Patient Index. The collaboration between National Jewish and LifeRate is
expected to result in a system that will more efficiently manage National
Jewish's patient and physician data throughout the world, including the medical
specialties of Pulmonology, Immunology, Rheumatology, Infectious Disease and
Allergy and Asthma. LifeRate views this agreement as a significant step in the
adaptation of its core technology into these other medical specialties.
CUSTOMER CONTRACTS
In the fourth quarter of 1995, the Company began marketing commercial
versions of the Outpatient module of the LifeRate Cardiovascular System. These
marketing efforts have continued throughout 1996. In addition to Atlanta
Cardiology Group, the beta site, the Company to date has entered into agreements
with six additional cardiovascular practices for the sale and installation of
its Cardiovascular Clinical Information System. The agreements are with the
following cardiovascular practice groups:
* South Carolina Heart Center (formerly Cardiovascular Associates,
P.A.) of Columbia, South Carolina, a practice providing full
cardiology services at 13 locations and the four hospitals in
Columbia, South Carolina.
* Buffalo Cardiology and Pulmonary, a 24 member practice providing
full services in cardiology and pulmonology in Western New York
for over 20 years.
* Central Cardiovascular Clinic, a four physician practice serving
four hospitals in San Antonio, Texas.
* Cardiovascular Consultants, P.A., and eight physician practice
with two locations in Tacoma Park, Maryland.
* Southeastern Cardiology Consultants, P.C. of Montgomery, Alabama,
a cardiology group with eight locations serving 10 hospitals in
central Alabama.
* Savannah Cardiology (Savannah Heart and Lung), a full-service
cardiac and pulmonary practice providing cardiac and pulmonary
rehabilitation services at several hospitals in Georgia.
Since introducing the Asthma and Allergy product in October of 1996,
the Company has entered into three contractual agreements for the implementation
of the Asthma and Allergy Outpatient module with:
* Asthma Alliance, P.A., Houston, Texas, a
multi-site/multi-physician practice specializing in the treatment
of pediatric and adult asthma and allergy patients in the Houston
area.
* Allergy & Asthma Medical Group and Research Center of San Diego,
California, a multi-physician practice managing pediatric and
adult patients with asthma and allergic diseases, and conducting
clinical trials for major drug companies.
* Aaronson Asthma & Allergy Associates, Ltd., a Chicago, IL group
serving adult and pediatric allergy and asthma patients.
COMPETITION
From an information need perspective, physician practices can be
divided into two sectors: practices with a primary care focus looking for
practice management systems (e.g., billing and scheduling); and specialty
practices looking for clinically-oriented software to demonstrate practice
quality and cost effectiveness. The HCIS market initially developed satisfying
the need for computer-based systems focused largely on transactional and
administrative applications (e.g., billing, accounting, scheduling and
purchasing). As the HCIS market has evolved, more companies have begun to build
integrated systems that extend automation to departments including pharmacies,
clinical laboratories, radiology departments and operating rooms. Some vendors
are attempting to add the clinical capability to their practice management
systems.
LifeRate's product has been designed specifically as a clinically
oriented outcomes based information system. While there are numerous companies
competing in the HCIS marketplace, ranging from HBO & Company, SMS and Cerner to
many niche players, the Company does not believe that competing products can
provide the relational database, patient centered information that can integrate
clinical devices and diverse software applications in a product such as the one
offered by LifeRate. The following products, while not directly competing on a
per product capability basis, are potential competitors: Health Point's ACS,
Medical Logic's Logician, Cerner and Clinitec's Next Gen. These products are
generally considered to be electronic medical record systems. The Company
believes that its system has the following competitive advantages over these
systems:
* In-depth clinical data collection points in the specialty
practice areas of cardiology and pulmonology.
* Access to comprehensive and comparable outcomes.
* Guidelines embedded in the system that can be used to validate,
update and quantify outcomes. This allows for the analysis of
extremely complex queries, and the generation in minutes of
reports covering entire practice populations that would otherwise
require months of personnel time spent in abstracting paper
charts.
* Easy to use data entry.
* Capture and reporting capability of more than 6500 data
collection points.
* Leading edge technology including a relational database that is
patient-centered and problem oriented, which offers scalability,
remote management, fault tolerance and file security.
In general, the Company's competitors have greater financial, research,
development, and personnel resources and more extensive business experience than
the Company. Although the Company believes that its system has advantages over
competing products currently being marketed, there can be no assurance that the
Company will be able to compete effectively in the marketplace as its present
and potential competitors are able to duplicate or improve upon its products,
marketing strategy or other services.
RESEARCH AND DEVELOPMENT
During 1996, LifeRate completed development of its core software
system, including outpatient modules for Cardiovascular and Asthma and Allergy
specialists. The software was released in two phases, Version 1.1 in February,
1996 and Version 1.2 in October, 1996. Work on Version 1.3, scheduled for
release in April, 1997, was started in October, 1996. The goal of these releases
was to add functionality to the core system and to increase the operational
benefit of using the system. Especially important was the development of a
Clinical Note which summarizes the activities that take place during a clinic
visit, and can be used in place of the traditional physician dictation method.
During 1997 the Company plans to continue dedicating significant
resources to research and development activities. The Company anticipates that
these research and development activities will focus on enhancing the existing
Cardiovascular and Asthma and Allergy outpatient products, completion of the
Cardiac Catheterization laboratory product, adaptation of the core system for
specialties such as Pulmonology and Immunology in conjunction with the Company's
contract with National Jewish Medical Research Center, and the development of
significant outcomes and guidelines reports.
The Company spent $5,309,900, $2,104,500 and $215,800 respectively on
research and development in the years ended December 31, 1996, 1995 and 1994.
PROPRIETARY PROTECTION
The Company currently relies solely on common law copyrights and trade
secrets for proprietary protection of its system. LifeRate does not currently
have patent protection with respect to any aspect of its system, although it has
filed one patent application and may file additional applications on certain
aspects of its system. The current patent application was filed in March 1997
and is for a proprietary data entry method. There can be no assurance that the
Company's measures to protect its proprietary information will be successful,
that it will be granted any patents or that any patents that may be granted will
be of value to the Company. In the absence of meaningful intellectual property
protection, the Company may be vulnerable to competitors who could lawfully
attempt to copy the Company's products. Moreover, there can be no assurance that
other competitors may not independently develop the same or similar technology.
Similarly, while LifeRate believes that it has all rights necessary to market
and sell its system without infringement of intellectual property rights held by
others, the Company has not conducted a formal infringement search and there can
be no assurance that such conflicting rights do not exist.
The Company has entered into an agreement with Anthony Furnary, MD
under which the Company has acquired certain software technology developed by
Dr. Furnary and engaged Dr. Furnary as a consultant. The Company is obligated to
pay certain royalties to Dr. Furnary. See "Description of Business -
Introduction" and Note 9 to the Company's financial statements included in this
Report.
EMPLOYEES
As of March 1, 1997, the Company had 46 full-time employees, including
9 in management and administration, 19 in software development, 7 in sales and
marketing and 11 in customer support.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's facilities are currently located at 7210 Metro
Boulevard, Minneapolis, Minnesota 55439, and consist of approximately 10,368
square feet of office space. The Company leases this space pursuant to a lease
which provides for rent of approximately $14,000 per month (including operating
expenses and real estate taxes) and expires on September 30, 2001.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not currently involved in any material legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this Report.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of the Company, their ages, and the offices
held as of March 31, 1997 are as follows:
Name Age Position
- ---- --- --------
William W. Chorske 60 President and Chief Executive Officer
Paul D. Benson 50 Senior Vice President, Strategic Business
Development
Thomas M. Niccum 39 Vice President, Product Development
Ken C. Thoreson 46 Vice President, Sales
WILLIAM W. CHORSKE, PRESIDENT AND CHIEF EXECUTIVE OFFICER. Mr. Chorske joined
LifeRate as the President and Chief Executive Officer in April, 1996 following
nearly a decade as a senior executive at Medtronic, Inc., an international
medical device company. He served as President, Medtronic Europe, following his
initial assignment as Senior Vice President and Chief Financial Officer from
1987 to 1991. Prior to joining Medtronic, Mr. Chorske was employed for 19 years
with the Perkin-Elmer Corporation, where he held several senior operating and
financial positions including Group Executive, Data Systems Group and Executive
Vice President, Chief Financial Officer. He received his bachelors and masters
degrees in electrical engineering from the University of Minnesota and an MBA
from Harvard University.
PAUL D. BENSON, SENIOR VICE PRESIDENT, STRATEGIC BUSINESS DEVELOPMENT. Mr.
Benson joined LifeRate Systems in 1993 with more than 25 years of experience in
sales and marketing, primarily in the financial services and insurance
industries. Mr. Benson is responsible for the strategic development and
management of new markets and key accounts. Prior to joining the Company, Mr.
Benson's career included five years as a consultant to the financial services
industry in the areas of marketing and database management. He also spent 18
years in sales and management positions with Minnesota Mutual Life Insurance
Company. Mr. Benson received his bachelors degree in economics from Concordia
College and an MBA from the University of Wisconsin.
THOMAS M. NICCUM, VICE PRESIDENT, PRODUCT DEVELOPMENT. Mr. Niccum joined the
Company in June 1995 as Chief Technologist and was promoted to Vice President,
Product Development in December 1995. From 1991 to 1995, he was a consultant to
the Company. Mr. Niccum has almost 20 years experience in software design,
development and engineering. His experience includes graduate work in
high-performance computing and advanced database design. As the principal
architect of LifeRate's software based solutions, he also works directly with
the Company's physician advisors on all issues regarding product design,
database construction and data integrity. Mr. Niccum received both his bachelors
and masters degrees in computer science from the University of Minnesota, and
has authored numerous articles in advanced computer science publications.
KEN C. THORESON, VICE PRESIDENT, SALES. Mr. Thoreson joined the Company in
February 1997 as Vice President, Sales and is responsible for the overall
direction and performance of the Company's field sales organization. In that
role, he has primary responsibility for the sales strategy and resources
required to deliver sales results. Prior to joining LifeRate, Mr. Thoreson
served in executive sales positions for Medvision Corporation., J3 Learning and
Versyss Corporation resulting in twenty years of experience in sales and
national sales management achievement in computer and software related
businesses including 10 years with medical software applications. Mr. Thoreson
received his bachelors degree in economics and business administration from the
University of Wisconsin.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
The Company's Common Stock has been traded on the Nasdaq SmallCap
Market System under the symbol "LRSI" since March 16, 1995, the date of the
Company's initial public offering. Prior to that time, there was no public
trading market for the Company's Common Stock. The following table sets forth,
for each of the calendar periods indicated, the quarterly high and low bid
quotations for the Company's Common Stock as reported by the Nasdaq SmallCap
Market System. The prices in the table represent prices between dealers, and do
not include adjustments for retail mark-ups, mark-downs or commissions and may
not represent actual transactions.
COMMON STOCK
------------
HIGH LOW
---- ---
1995:
First quarter (since March 16, 1995) 5 1/2 5 1/8
Second quarter 6 1/4 5
Third quarter 7 7/8 6 5/32
Fourth quarter 11 1/8 7 1/8
1996:
First quarter 11 7/8 9 5/8
Second quarter 10 1/4 7 15/32
Third quarter 8 3 7/8
Fourth quarter 5 1/8 1 3/4
As of March 1, 1997, there were approximately 130 record holders of
the Company's Common Stock.
No cash dividends were declared or paid by the Company during 1994,
1995 or 1996.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
Revenues for 1996 were $615,700, a $352,400 increase from 1995.
Revenues of $343,800, or 55.8% of total revenue, were generated from National
Allergy and Asthma System (NAAS), an asthma specialty disease and physician
management services company. Revenues of $68,200, or 11.1% of total revenue,
were generated from two Pfizer related Cardiovascular Outpatient product
installations and two Pfizer evaluation sites. The Company recognized $25,000,
or 4.1 % of total revenue, in 1996 from National Jewish Medical & Research
Center. The remaining $141,600 of 1996 revenues are related to the installation
and monthly license fees generated from the Company's Cardiovascular Outpatient
product at five sites and other developmental work.
Revenues in 1995 were $263,300, a $143,600 increase from 1994. The 1995
revenues consisted of $57,500 generated from the beta site installation of
LifeRate's Cardiovascular Outpatient product, $31,000 from evaluation sites of
the Cardiovascular Outpatient product and $30,000 from Pfizer-related
Cardiovascular Outpatient installations. The remaining $144,800 in 1995 revenue
represent contract fees for other development work. Revenues of $119,700 in 1994
primarily reflect contract work related to the definition of system
requirements.
Cost of revenues in 1996 was $180,400, a $137,400 increase from 1995.
No cost of revenue expense was recorded in 1994. The expense in 1996 consists of
$100,800 in amortization of software development costs, $46,100 in royalty
expenses, with the remainder in travel and other expenses directly related to
product installation at customer sites. In 1995, no royalty expense or software
development amortization costs were incurred.
Cost of revenues in future periods will continue to be affected by
royalty payments. As described in Notes 9 to the financial statements, in March
1997, the Company completed a modified agreement with Anthony Furnary, M.D.
Beginning in 1999 (or sooner if the Company reaches $20,000,000 of cumulative
revenues) the Company is obligated to pay royalties in the amount of 3.0% on all
gross revenues (as defined in the agreement) up to $100,000,000 and, thereafter,
3.6% on all gross revenues. Through March 31, 1997, the Company was obligated to
pay royalties of 7.5% of gross revenues under the prior agreement with Dr.
Furnary. In March 1997, the Company also issued a convertible subordinated note
to The Atlanta Cardiology Group, P.C. ("ACG") in the principal amount of
$2,250,000 in exchange for the cancellation of the royalty agreement with ACG
which required the Company to pay royalties to ACG at the rate of 10% of gross
sales of the Company's cardiology system and 2% of all database sales. The
Company incurred royalty expenses of $46,100 and $0 in 1996 and 1995,
respectively, under these agreements.
Sales and marketing expense in 1996 was $2,568,800, a $43,000, or 1.7%
increase from 1995 expense of $2,525,800. Sales and marketing expenses increased
$2,358,000 in 1995 from 1994. Prior to 1995, the Company did not have an
established sales, marketing or product support infrastructure. The Company's
sales and marketing expenses were modest in 1994 as the commercial release of
LifeRate's system did not occur until 1995. With the release of demonstration
versions of the Cardiovascular Outpatient product in August 1995, the Company
began to develop the internal structure needed to support product installation,
training, and customer support needed for licensing revenues, as well as an
on-going direct sales effort. This effort continued into 1996 and expanded to
support the beta releases of the Asthma and Allergy Outpatient product and the
Guidelines product.
Research and development activities in 1996 were focused on completion
of LifeRate's core software system and Outpatient modules for Cardiovascular and
Asthma and Allergy specialists. Additional functionality was added to the core
system in 1996 to increase the operational benefit of using the system. The
Company also added a Quality Assurance department in 1996. Research and
development expenses in 1996 were $5,309,900, an increase of $3,205,400, or
152.3%, from 1995. The 1996 increase mainly reflects the costs to cancel a
royalty agreement with ACG and to modify a royalty agreement with Dr. Furnary.
The Company issued a $2,250,000 convertible subordinated note to ACG in exchange
for canceling the ACG agreement and in consideration for the prior development
and implementation work provided by ACG. In connection with the modification to
the royalty agreement with Dr. Furnary, the Company granted Dr. Furnary options
to purchase 550,000 shares of common stock at an exercise price of $2.625 for
services previously rendered. The fair value of these options at the date of
grant using a Black-Scholes option pricing model was $924,000. These two
transactions resulted in additional research and development expenses of
$3,174,000 in 1996. In 1995, research and development efforts focused on
developing the Company's core software product which was designed to be
adaptable to various medical specialties. In 1994 research and development
expenditures were $215,800. The nature and scope of activity in 1994 was limited
to data repository design, which is now a component of the overall system. The
Company plans to continue dedicating significant resources to research and
development activities in 1997.
The Company capitalizes software development costs in accordance with
the provisions of FASB Statement No. 86. These costs are included in research
and development expenses. In the second quarter of 1995, the Company began
capitalizing software development costs after achieving technological
feasibility on the core LifeRate system. A total of $751,000 of development
costs was capitalized during 1995. The Company recorded a writedown of
approximately $600,000 in the fourth quarter of 1995 due to a decrease in the
net realizable value of the capitalized costs because of significant
enhancements to the core system planned in 1996. These enhancements have been
released in 1996 as part of ongoing product maintenance. No software development
costs were capitalized in 1996, as the efforts were on enhancements released to
customers when technological feasibility was obtained.
General and administrative expenses were $2,685,700 in 1996, an
increase of $1,432,700, or 114.3%, from 1995 expenses of $1,253,000. The 1996
increase reflects the overall higher activity level of the Company plus several
one time expenses. One time expenses incurred in 1996 include $181,000 for the
cancellation penalty on a lease for new office space, $190,000 to settle a
lawsuit brought by a former officer of the Company and $50,000 to settle a
lawsuit brought by a former employee. The Company also incurred $133,100 in
additional legal fees in 1996. These legal expenses were incurred primarily in
connection with the management change completed in the second quarter of 1996
and the above mentioned lease cancellation and lawsuit settlements. Other
increases in general and administrative expenses in 1996 from 1995 which are of
a recurring nature were $177,500 in depreciation due to the fixed asset
additions made in 1996, $65,000 in insurance premiums due to increased insurance
coverage, and $443,700 in increased payroll and related expenses. General and
administrative expenses in 1997 are expected to approximate 1996 levels with the
exception of the one time expenses mentioned above. In 1995 the Company incurred
$1,253,000 in general and administrative expense, a $645,800 increase over 1994.
This increase reflects an overall higher activity level in 1995 compared to 1994
as LifeRate's product had been completed for commercial release and the added
costs associated with becoming a public entity.
In 1996, $261,900 in interest income was generated on cash funds raised
during a private equity placement in December 1995 and January 1996. Interest
income of $97,000 was earned in 1995 on funds raised in March 1995 in the
Company's initial public offering. There was no interest income in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily
through private and public placement of Common Stock.
At December 31, 1996, the Company had $2,072,000 in cash and cash
equivalents, a $5,678,500 decrease from December 31, 1995. In January 1996, an
additional 295,546 shares of Common Stock were sold in a private placement at a
price of $6.50 per share raising net proceeds of $1,667,200. During 1996, the
Company also received $235,400 from the exercise of 41,665 stock options. In
1996 the Company used $6,955.600 to fund operations and $602,600 to purchase
furniture and equipment.
In March 1997, the Company issued a convertible subordinated note to
ACG in the principal amount of $2,250,000, maturing on April 1, 2002. The note
accrues interest at the rate of 10% per year and interest is payable at the rate
of 5% per year, with the remainder payable at the maturity date. Up to
$2,000,000 of the principal amount of the note is convertible by ACG into common
stock at the rate of $3.60 per share, subject to adjustment in certain cases to
protect ACG from certain dilutive events. The note was issued in exchange for
the cancellation of a royalty agreement with ACG.
The Company does not have significant commitments to purchase
additional equipment, but does plan to continue to fund software development
efforts.
The Company estimates that its current cash balances will enable it to
continue operations through some time in the second quarter of 1997. Thereafter,
the Company will require significant additional capital in order to continue
operations. Accordingly, the report of the independent auditor's on the
Company's 1996 financial statements contains an explanatory paragraph regarding
the Company's ability to continue as a going concern. The Company is currently
exploring its options to raise additional capital to fund operations. There can
be no assurance that the Company will be able to obtain additional financing on
satisfactory terms, or at all. If the Company is unable to obtain additional
financing it will be forced to cease operations and may be forced to seek
protection under bankruptcy laws.
ITEM 7. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
The following Financial Statements and Independent Auditors' Report
thereon are included herein on the pages indicated:
Financial Statements: Page
- --------------------- ----
Report of Independent Auditors............................................ 17
Balance Sheets as of December 31, 1996 and 1995........................... 18
Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 and the period
from July 18, 1990 (date of inception) to December 31, 1996............... 20
Statements of Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994.......................................... 21
Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 and the period
from July 18, 1990 (date of inception) to December 31, 1996............... 24
Notes to Financial Statements............................................. 26
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
(a) DIRECTORS OF THE REGISTRANT.
The information under the Captions "Election of
Directors--Information About Nominees" and "Election of Directors--Other
Information About Nominees" in the Company's 1997 Proxy Statement is
incorporated herein by reference.
(b) EXECUTIVE OFFICERS OF THE REGISTRANT.
The information concerning Executive Officers of the Company is
included in this Report under Item 4A, "Executive Officers of the Registrant."
(c) COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The information under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's 1997 Proxy Statement is incorporated
herein by reference.
ITEM 10. EXECUTIVE COMPENSATION.
The information under the captions "Election of Directors -- Director
Compensation" and "Compensation and Other Benefits" in the Company's 1997 Proxy
Statement is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information under the caption "Principal Shareholders and
Beneficial Ownership of Management" in the Company's 1997 Proxy Statement is
incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information under the captions "Election of Directors -- Director
Compensation" and "Certain Transactions" in the Company's 1997 Proxy Statement
is incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
Reference is made to the Exhibit Index hereinafter contained, on
pages 39 to 43 of this Report.
A copy of any of the exhibits listed or referred to above will be
furnished at a reasonable cost to any person who was a shareholder of the
Company as of March 5, 1997, upon receipt from any such person of a written
request for any such exhibit. Such request should be sent to LifeRate Systems,
Inc., 7210 Metro Boulevard, Minneapolis, MN 55439, Attention: Chief Financial
Officer.
The following is a list of each management contract or compensatory
plan or arrangement required to be filed as an Exhibit to this Report, the
location of which is indicated in the Exhibit Index of this Report:
(1) Employee Stock Purchase Plan.
(2) LifeRate Systems, Inc. 1993 Stock Option Plan, as amended.
(3) Form Incentive Stock Option Agreement for Employees.
(4) Form Non-Statutory Stock Option Agreement for Non-Employees.
(5) Employment Agreement, dated April 29, 1996, between the Company
and William W. Chorske.
(6) Stock Option Agreement, dated April 29, 1996, between the Company
and William W. Chorske.
(7) Agreement, dated September 1, 1996, between the Company and
William Knopf, M.D.
(8) Consulting and Advisory Agreement, dated September 1, 1996,
between the Company and William Knopf, M.D.
(9) Non-Statutory Stock Option Agreement dated September 1, 1996,
between the Company and William Knopf, M.D.
(10) Consulting Agreement, dated March 25, 1997, between the Company
and Anthony Furnary, M.D.
(b) REPORTS ON FORM 8-K
The Company did not file any Current Reports on Form 8-K during the
fourth quarter of fiscal 1996.
Report of Independent Auditors
Board of Directors
LifeRate Systems, Inc.
We have audited the accompanying balance sheets of LifeRate Systems, Inc. (a
development stage company) as of December 31, 1996 and 1995, and the related
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1996, and for the period from July
18, 1990 (inception) to December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of LifeRate Systems, Inc. (a
development stage company) at December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996 and for the period from July 18, 1990 (inception) to December
31, 1996, in conformity with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, the Company's recurring
losses and negative cash flow from operations raise substantial doubt about its
ability to continue as a going concern. Management's plans as to these matters
are also described in Note 2. The 1996 financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
February 13, 1997, except for Note 9,
as to which the date is April 1, 1997
<TABLE>
<CAPTION>
LifeRate Systems, Inc.
(A Development Stage Company)
Balance Sheets
DECEMBER 31
1996 1995
-----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,072,000 $ 7,750,500
Accounts receivable, less allowance of $60,350 in
1996 and $7,500 in 1995 142,400 104,400
Prepaid expenses and other current assets 122,700 61,000
-----------------------------
Total current assets 2,337,100 7,915,900
Furniture and fixtures 177,400 56,200
Computer equipment 837,200 355,800
-----------------------------
1,014,600 412,000
Less accumulated depreciation 325,900 87,300
-----------------------------
688,700 324,700
Software development costs net of amortization of
$100,800 in 1996 50,500 151,300
Other assets -- 11,800
-----------------------------
Total assets $ 3,076,300 $ 8,403,700
=============================
DECEMBER 31
1996 1995
-----------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 251,700 $ 499,400
Accrued compensation 43,900 244,800
Accrued consulting fees 86,100 382,600
Accrued royalties 36,100 --
Other current liabilities 73,900 1,500
Current portion of notes payable - related parties -- 6,500
Current portion of notes payable 10,800 9,900
Current portion of capitalized lease obligations 1,000 11,500
-----------------------------
Total current liabilities 503,500 1,156,200
Convertible subordinated note 2,250,000 --
Notes payable 1,800 12,600
Capitalized lease obligation -- 1,000
Deferred rent 16,800 28,700
Deferred revenue 151,800 60,900
Shareholders' equity
Preferred stock, no par value:
Authorized shares - 1,000,000
Issued and outstanding shares - none in 1996
and 1995
Common stock, no par value:
Authorized shares - 10,000,000
Issued and outstanding shares - 3,811,639 in 1996
and 3,474,428 in 1995 17,260,700 14,384,100
Deficit accumulated during the development stage (17,108,300) (7,234,800)
-----------------------------
152,400 7,149,300
Less stock subscriptions receivable -- 5,000
-----------------------------
Total shareholders' equity 152,400 7,144,300
-----------------------------
Total liabilities and shareholders' equity $ 3,076,300 $ 8,403,700
=============================
SEE ACCOMPANYING NOTES.
</TABLE>
<TABLE>
<CAPTION>
LifeRate Systems, Inc.
(A Development Stage Company)
Statements of Operations
PERIOD FROM
JULY 18, 1990
(DATE OF
INCEPTION) TO
YEAR ENDED DECEMBER 31 DECEMBER 31,
1996 1995 1994 1996
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $ 615,700 $ 263,300 $ 119,700 $ 1,190,300
Cost of revenues 180,400 43,000 -- 223,400
---------------------------------------------------------------
Gross profit 435,300 220,300 119,700 966,900
Operating expenses:
Sales and marketing 2,568,800 2,525,800 167,800 5,480,600
Research and development 5,309,900 2,104,500 215,800 8,011,600
General and administrative 2,685,700 1,253,000 607,200 4,904,900
---------------------------------------------------------------
Loss from operations (10,129,100) (5,663,000) (871,100) (17,430,200)
Interest income 261,900 97,000 -- 358,900
Interest expense 6,300 29,300 1,400 37,000
---------------------------------------------------------------
Net loss $ (9,873,500) $ (5,595,300) $ (872,500) $(17,108,300)
===============================================================
Net loss per share $ (2.61) $ (2.66) $ (.89)
==============================================
Weighted average number of common
shares outstanding 3,783,931 2,105,811 982,456
==============================================
SEE ACCOMPANYING NOTES.
</TABLE>
<TABLE>
<CAPTION>
LifeRate Systems, Inc.
(A Development Stage Company)
Statements of Shareholders' Equity
DEFICIT
ACCUMULATED
COMMON STOCK ISSUED DURING STOCK
----------------------- DEVELOPMENT SUBSCRIPTIONS
SHARES AMOUNTS STAGE RECEIVABLE TOTAL
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Founder's common stock issued during July 1990 444,400 $ 1,000 $ -- $ -- $ 1,000
Net loss for the period -- -- (200) -- (200)
-----------------------------------------------------------------
Balance December 31, 1990 444,400 1,000 (200) -- 800
Net loss -- -- (3,400) -- (3,400)
-----------------------------------------------------------------
Balance December 31, 1991 444,400 1,000 (3,600) -- (2,600)
Common stock issued 392,254 29,400 -- (14,400) 15,000
Net loss -- -- (188,600) -- (188,600)
-----------------------------------------------------------------
Balance December 31, 1992 836,654 30,400 (192,200) (14,400) (176,200)
Sale of common stock 32,000 2,400 -- (1,900) 500
Private placement of common stock, net of offering
costs of $30,700 99,999 269,400 -- (25,000) 244,400
Conversion of debt into common stock 25,000 75,000 -- -- 75,000
Repurchase of common stock (17,733) (1,300) -- -- (1,300)
Canceled stock subscriptions (140,000) (10,500) -- 10,500 --
Payments on stock subscription -- -- -- 2,600 2,600
Net loss -- -- (574,800) -- (574,800)
-----------------------------------------------------------------
Balance December 31, 1993 (carried forward) 835,920 365,400 (767,000) (28,200) (429,800)
</TABLE>
<TABLE>
<CAPTION>
LifeRate Systems, Inc.
(A Development Stage Company)
Statements of Shareholders' Equity (continued)
DEFICIT
ACCUMULATED
COMMON STOCK ISSUED DURING STOCK
------------------------ DEVELOPMENT SUBSCRIPTIONS
SHARES AMOUNTS STAGE RECEIVABLE TOTAL
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1993 (brought forward) 835,920 $ 365,400 $ (767,000) $ (28,200) $ (429,800)
Private placement of common stock, net of offering costs
of $30,700 71,557 183,900 -- -- 183,900
Payments on stock subscriptions -- -- -- 26,000 26,000
Common stock issued for services 19,331 58,000 -- -- 58,000
Canceled stock subscriptions (1,600) (100) -- 100 --
Common stock issued in connection with bridge financing 155,555 700,000 -- -- 700,000
Conversion of accrued salaries into common stock 66,664 300,000 -- -- 300,000
Conversion of notes payable and other indebtedness to
related parties into common stock 26,652 120,000 -- -- 120,000
Sale of common stock 79,997 310,000 -- (125,000) 185,000
Net loss -- -- (872,500) -- (872,500)
--------------------------------------------------------------------
Balance December 31, 1994 1,254,076 2,037,200 (1,639,500) (127,100) 270,600
Sale of common stock, net of offering costs of $1,393,744 2,209,353 12,297,400 -- -- 12,297,400
Common stock issued for services 17,665 79,500 -- -- 79,500
Stock subscription canceled as consideration for services
provided -- -- -- 50,000 50,000
Stock subscription canceled (6,666) (30,000) -- 30,000 --
Payments on stock subscriptions -- -- -- 42,100 42,100
Net loss -- -- (5,595,300) -- (5,595,300)
--------------------------------------------------------------------
Balance December 31, 1995 (carried forward) 3,474,428 14,384,100 (7,234,800) (5,000) 7,144,300
</TABLE>
<TABLE>
<CAPTION>
LifeRate Systems, Inc.
(A Development Stage Company)
Statements of Shareholders' Equity (continued)
DEFICIT
ACCUMULATED
COMMON STOCK ISSUED DURING STOCK
-------------------------- DEVELOPMENT SUBSCRIPTIONS
SHARES AMOUNTS STAGE RECEIVABLE TOTAL
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1995 (brought forward) 3,474,428 $ 14,384,100 $ (7,234,800) $ (5,000) $ 7,144,300
Private placement of common stock, net of offering
costs of $253,846 295,546 1,667,200 -- -- 1,667,200
Payments on stock subscriptions -- -- -- 5,000 5,000
Stock options exercised 41,665 235,400 -- -- 235,400
Value of stock options granted for services rendered -- 974,000 -- -- 974,000
Net loss -- -- (9,873,500) -- (9,873,500)
======================================================================
Balance December 31, 1996 3,811,639 $ 17,260,700 $(17,108,300) $ -- $ 152,400
======================================================================
SEE ACCOMPANYING NOTES.
</TABLE>
<TABLE>
<CAPTION>
LifeRate Systems, Inc.
(A Development Stage Company)
Statements of Cash Flows
PERIOD FROM
JULY 18, 1990
(DATE OF
INCEPTION) TO
YEAR ENDED DECEMBER 31 DECEMBER 31,
1996 1995 1994 1996
------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(9,873,500) $ (5,595,300) $ (872,500) $(17,108,300)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 238,600 61,100 18,500 326,500
Amortization 100,800 - - 100,800
Value of stock options granted for services rendered 974,000 - - 974,000
Convertible subordinated note issued for services
rendered 2,250,000 - - 2,250,000
Writedown of software development costs to net
realizable value - 599,600 - 599,600
Stock issued for services - 129,500 58,000 187,500
Changes in operating assets and liabilities:
Accounts receivable (38,000) (80,900) (23,500) (142,400)
Advances to agent - 108,000 (108,000) -
Prepaids and other current assets (61,700) (61,000) - (122,700)
Other assets 11,800 (1,200) (10,600) -
Accounts payable (247,700) 381,400 82,500 276,500
Accrued compensation (200,900) (34,700) 225,400 343,900
Accrued consulting fees (296,500) 333,400 8,900 86,100
Accrued royalties 36,100 - - 36,100
Other current liabilities 72,400 (1,500) 6,800 84,900
Deferred revenue 90,900 (29,600) 90,500 151,800
Deferred rent (11,900) (8,600) 15,200 16,800
------------------------------------------------------------------
Net cash used in operating activities (6,955,600) (4,199,800) (508,800) (11,938,900)
INVESTING ACTIVITIES
Software development costs - (750,900) - (750,900)
Purchase of furniture and equipment (602,600) (332,400) (36,300) (972,400)
------------------------------------------------------------------
Net cash used in investing activities (602,600) (1,083,300) (36,300) (1,723,300)
FINANCING ACTIVITIES
Payments on notes payable and capital lease obligations (27,900) (55,900) (65,100) (161,400)
Stock subscriptions received 5,000 - - 5,000
Proceeds from issuance of notes payable - 51,800 - 290,200
Proceeds from issuance of common stock 1,902,600 12,424,500 1,009,800 15,600,400
------------------------------------------------------------------
Net cash provided by financing activities 1,879,700 12,420,400 944,700 15,734,200
------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (5,678,500) 7,137,300 399,600 2,072,000
Cash and cash equivalents at beginning of period 7,750,500 613,200 213,600 -
------------------------------------------------------------------
Cash and cash equivalents at end of period $ 2,072,000 $ 7,750,500 $ 613,200 $ 2,072,000
==================================================================
SEE ACCOMPANYING NOTES.
</TABLE>
LifeRate Systems, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DESCRIPTION OF BUSINESS
LifeRate Systems, Inc. (the Company) is a development stage enterprise engaged
in marketing a proprietary software operating system to healthcare providers and
payors throughout the United States to produce information to measure and
quantify the quality and cost of healthcare.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. The fair value of the cash
equivalents approximates costs, and these securities are available-for-sale.
FURNITURE AND EQUIPMENT
Furniture and equipment, principally computer equipment, is stated at cost.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets ranging from 3 to 7 years.
NET LOSS PER SHARE
Net loss per share is based on the weighted average number of common shares
outstanding during the period. Common share equivalents, including warrants and
stock options, have not been considered because the impact is antidilutive.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of assets and liabilities and their respective tax
bases. The Company utilizes the cash basis for income tax filing requirements.
SOFTWARE DEVELOPMENT COSTS
The Company capitalizes software development costs in accordance with the
provisions of FASB Statement No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed." Capitalization of software
development costs, including significant product enhancements, begins upon the
establishment of technological feasibility for the product and concludes when
the product is available for release to customers. The establishment of
technological feasibility and the ongoing assessment of the recoverability of
these costs requires considerable judgment by management with respect to certain
external factors, including, but not limited to, anticipated future gross
product revenue, estimated economic life and changes in software and hardware
technology. During 1995, the Company recorded write-downs to the net realizable
value of software development costs totaling $599,600 due to pending product
upgrades.
REVENUE RECOGNITION
The Company records revenue on a percentage of completion basis relating to its
services for configuring and assisting in defining the requirements of the
customer's particular system. The Company also recognizes revenue from recurring
monthly transaction fees that vary from customer to customer based upon the
number of providers and patients who are the subjects of the collected and
reported data.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from the estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company will record impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.
STOCK-BASED COMPENSATION
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," but
applies Accounting Principles Board Opinion No. 25 (APB) 25) and related
interpretations in accounting for its plans. Under APB 25, when the exercise
price of employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
2. CONTINUED EXISTENCE
The Company has incurred losses since inception and has an accumulated deficit
of $17,108,300 at December 31, 1996. The Company's ability to continue as a
going concern and the realization of its assets and orderly satisfaction of its
liabilities are dependent on obtaining additional funds from outside sources and
generating sufficient working capital from operations. The Company is currently
exploring financing alternatives and anticipates completing a financing
transaction in 1997. The Company believes that the successful completion of a
financing transaction will satisfy its cash requirements at least through the
end of 1997. However, there can be no assurance that the Company will be
successful in completing a financing transaction.
3. DEBT
NOTES PAYABLE - RELATED PARTY
The Company entered into a settlement agreement with a former employee and
director to remit unpaid compensation amounting to $6,500, which was paid in
full during 1996.
NOTES PAYABLE - OTHER
In 1995, the Company entered into a note with a bank that bears interest at the
bank's reference rate plus 1%. The balance on this note was $12,600 and $22,500
at December 31, 1996 and 1995, respectively. The note requires monthly payments
of $970, including interest. The note is secured by the Company's assets. Future
minimum payments on this note are as follows:
1997 $10,800
1998 1,800
==============
$12,600
==============
The carrying value of the notes payable in the balance sheet approximates fair
value.
4. COMMON STOCK
In December 1994, the Company raised $700,000 through the sale of 155,555 shares
of common stock. Each investor that participated in this stock issue was issued
a warrant to purchase one share of common stock at a price of $4.50 per share
for each share purchased. The warrants expire in December 1999.
In December 1994, three of the Company's employees converted $300,000 of accrued
salaries, net of accrued payroll taxes of $175,000, into 66,664 shares of common
stock at a conversion price of $4.50 per share. In addition, two of the
employees converted amounts owed to them by the Company plus accrued interest
totaling $120,000 into 26,652 shares of common stock.
On December 9, 1994, the Company's Board of Directors approved a 1-for-7.5
reverse stock split, which was approved by the Company's shareholders on
December 29, 1994. Accordingly, all per share, weighted average share, and stock
option information has been restated to reflect the split.
In March 1995, the Company sold 1,046,500 shares of common stock in an initial
public offering. The offering resulted in net proceeds to the Company of
$4,294,700. In connection with the public offering the Company granted the
underwriter warrants to purchase 91,000 shares of common stock at $6.00 per
share. The warrants may be exercised over a four year period beginning March 16,
1996.
In December 1995, the Company sold 600,000 shares of common stock to Medtronic,
Inc., resulting in net proceeds to the Company of $4,782,400. In connection with
the sale of common stock, the Company entered into a license and development
agreement with Medtronic (see Note 10).
Also in December 1995, the Company sold 562,853 shares of common stock in a
private placement. The sale resulted in net proceeds to the Company of
$3,220,300.
In January 1996, the Company sold an additional 295,546 shares of common stock
resulting in net proceeds to the Company of $1,667,200. In connection with the
sale, the Company has agreed to grant the underwriter warrants to purchase
shares equal to 10% of the total shares sold in the private placement. The
warrants are exercisable at a price of $6.50 and remain outstanding for a period
of ten years.
5. STOCK OPTIONS
On December 3, 1993, the Company adopted the LifeRate Systems, Inc. 1993 Stock
Option Plan (the "Plan"). The Company has reserved 750,000 shares for issuance
to employees and consultants as either incentive based options or non-qualified
options. Under the Plan, incentive stock options may be granted at prices not
less than the fair market value of the Company's common stock at the grant date.
The grant price of non-qualified options is determined by the Board Committee
administering the Plan, but the grant price must be at least 85% of the fair
market value of the common stock as of the grant date. Options are exercisable
based on terms set by the Board Committee administering the Plan, and the option
term may not exceed ten years from the date of grant.
Option activity is summarized as follows:
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE PER
OUTSTANDING SHARE
------------------------------------
Balance December 31, 1993 44,443 $3.00
Granted 39,999 3.75
--------------
Balance December 31, 1994 84,442 3.36
Granted 271,665 5.77
Canceled (80,000) 5.875
--------------
Balance December 31, 1995 276,107 5.00
Granted 354,333 8.02
Exercised (41,665) 5.66
Canceled 73,333 7.35
==============
Balance December 31, 1996 515,442 6.69
==============
The following table summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------ ---------------------------------
WEIGHTED
NUMBER AVERAGE NUMBER
OUTSTANDING AT REMAINING WEIGHTED EXERCISABLE AT WEIGHTED
RANGE OF DECEMBER 31, CONTRACTUAL AVERAGE DECEMBER 31, AVERAGE
EXERCISE PRICES 1996 LIFE EXERCISE PRICE 1996 EXERCISE PRICE
- -------------------------- ------------------------------------------------ ---------------------------------
<S> <C> <C> <C> <C> <C>
$3.00 to $4.50 114,442 7 Years $ 3.66 104,439 $3.58
$5.1875 to $8.625 251,667 8 Years 6.38 203,004 6.36
$9.375 to $10.625 149,333 9 Years 11.42 90,889 9.46
============= =============
515,442 6.69 398,332 6.34
============= =============
</TABLE>
The weighted-average fair value of options granted during the years ended
December 31, 1996 and 1995 was $4.69 and $3.27, respectively.
Exercise prices for options outstanding as of December 31, 1996 ranged from
$3.00 to $10.625. The number of options exercisable as of December 31, 1996,
1995 and 1994 was 398,332, 176,111 and 31,108, respectively, at weighted average
exercise prices of $6.34, $3.93 and $3.00 per share, respectively.
Pro forma information regarding net loss and loss per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for both
1996 and 1996: risk-free interest rate of 6%; dividend yield of 0%; volatility
factor of the expected market price of the Company's common stock of .642; and a
weighted-average expected life of the option of 5 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
1996 1995
----------------------------------
Pro forma net loss $(7,930,700) $(5,931,700)
Pro forma loss per share $ (2.10) $ (2.82)
Note: The pro forma effect on the net loss for 1996 and 1995 is not
representative of the pro forma effect on net income (loss) in future years
because it does not take into consideration pro forma compensation expense
related to grants made prior to 1995.
6. INCOME TAXES
The tax effects of significant components of the Company's deferred tax assets
and liabilities are as follows:
1996 1995
--------------------------------
Deferred tax assets:
Net operating loss carryforwards $6,704,000 $2,579,900
Deferred rent 6,700 11,500
Deferred revenue 60,700 24,400
Accrued salaries 17,200 91,600
Accrued consulting fees 34,400 153,000
Deferred tax liabilities:
Depreciation 56,300 8,000
--------------------------------
Net deferred tax assets 6,766,700 2,852,400
Valuation allowance 6,766,700 2,852,400
================================
$ - $ -
================================
At December 31, 1996, the Company had net operating loss carryforwards of
approximately $16,760,000 that expire at various times through the year 2011.
The Company's ability to utilize these carryforwards to offset future taxable
income is subject to certain restrictions under Section 382 of the Internal
Revenue Code in the event of certain changes in the equity ownership of the
Company. The Company experienced ownership changes in 1993 and 1995. However,
the Company does not believe that such changes will significantly limit its
ability to use the existing net operating loss carryforwards.
7. COMMITMENTS
LEASES
The Company leases its office facilities under an operating lease that expires
September 30, 2001. Operating expenses including maintenance, utilities, real
estate taxes and insurance are paid by the Company. Total rent expense under the
operating lease was $107,104 and $72,300 for the years ended December 31, 1996
and 1995, respectively. Subsequent to December 31, 1996, the Company leased
office equipment under operating leases that expire December 31, 1999.
Future minimum rental payments required under the leases are as follows:
Year ending December 31:
1997 $ 243,131
1998 237,644
1999 277,191
2000 217,307
2001 139,329
===============
$1,114,602
===============
8. MARKETING AGREEMENTS
In November 1994, the Company entered into a marketing arrangement with Clinical
Sales and Services, Inc. (CSSI), pursuant to which CSSI agreed to assist the
Company in coordinating and conducting marketing of the Company's system to
healthcare providers and payors. The agreement had an initial term of three
years and was renewable on an annual basis thereafter. Under this agreement, the
Company issued CSSI 10,666 shares of common stock for services rendered during
1994. Beginning November 1, 1994, the Company agreed to pay a 20% commission on
sales to healthcare payors, with a 15% commission on revenues from maintenance
and support relating to such sales. The Company paid CSSI a monthly draw of
$30,000 to be credited against future commissions. At December 31, 1994, total
payments of $108,000 had been made to CSSI under this arrangement.
Under this agreement, the Company also granted CSSI options to purchase 33,332
shares of common stock at an exercise price of $3.00 per share. The options were
granted outside of the Company's 1993 Stock Option Plan. CSSI exercised 6,666
options in July 1994 and the remaining 26,666 options in December 1994.
The proceeds from the December 1994 option exercise were received on January 27,
1995.
In September 1995, the Company entered into a new sales and marketing agreement
with CSSI. The agreement called for monthly business development fees of $30,000
to be offset by commissions earned by CSSI on product sales. The amount of
business development fees paid per month is subject to adjustment by the
parties. In addition, the Company granted certain individuals affiliated with
CSSI options to purchase 100,000 shares of the Company's common stock. The
options are exercisable at a price of $5.875 and remain outstanding for ten
years from the date of grant.
In December 1995, the Company's Board of Directors approved the direct
employment of CSSI personnel by the Company and the termination of the September
1995 sales and marketing agreement. In connection with this resolution, the
Company granted options for the purchase of 299,000 shares of the Company's
common stock to certain CSSI individuals. These options were granted at exercise
prices ranging from $7.13 to $9.00 per share. During 1996, these options were
subsequently canceled.
Expenses incurred in 1996 and 1995 by the Company related to CSSI business
development fees and other costs amounted to $-0- and $1,650,000, respectively.
9. LICENSE, ROYALTY AND DEVELOPMENT AGREEMENTS
In 1995, the Company entered into an agreement with a physician group, of which
a doctor in the group is a member of the Company's Board of Directors. The
agreement called for the physician group to assist in the development and
implementation of practice guidelines and clinical outcomes associated with the
Company's software products. In 1995 the Company incurred expense of $150,000
related to assistance provided by the physician group and recorded $50,000 of
revenue for system design work and implementation. In addition, the agreement
called for the Company to issue the physician group shares of common stock if
certain product sales levels were attained and pay royalties on sales of the
cardiovascular system and sales of the Company's database. In March 1997, this
agreement was terminated. The Company issued the physician group a $2,250,000
convertible subordinated note for services previously rendered by the physician
group. The note matures on April 1, 2002 and bears interest at 10% per year. Of
the interest incurred, 50% will be payable each year, with the remainder due
upon maturity of the note. The physician group may convert up to $2,000,000 of
the convertible subordinated note into common stock at a conversion rate of
$3.60 per share, subject to certain antidilution provisions.
In July 1995, the Company entered into a license agreement with an advisor to
the Company. The agreement called for the Company to grant to the advisor a
license to utilize software developed by the advisor at one healthcare facility.
In addition, the Company has agreed to pay to the advisor a royalty of 7.5%
through December 31, 1998, and 5% thereafter on certain products sales. In 1996,
the Company incurred royalty expense of $46,200, under the agreement. No
royalties were incurred under the agreement in 1995. In connection with the
agreement, the Company granted the advisor options to purchase 26,000 shares of
the Company's common stock at an exercise price of $4.50 per share. In March
1997, this agreement was modified. Under the terms of the modified agreement,
after March 31, 1997, no royalties will be due until the sooner of the Company
reaching $20,000,000 of cumulative revenue or January 1, 1999, at which time the
Company will pay royalties of 3% of gross sales to the physician. The Company
will pay the physician royalties of 3.6% on all gross revenues once the Company
has reached $100,000,000 of gross revenues. In addition, the Company has agreed
to make certain milestone payments aggregating $450,000 based upon the Company
reaching certain revenue goals and has agreed to pay the physician $100,000 per
year for the next five years under a consulting agreement. Also, the Company
granted the physician an option to purchase 550,000 shares of common stock at
$2.625 per share for assistance with the development of the Company's system.
The fair value of these options at the date of grant was $924,000.
10. MEDTRONIC AGREEMENT
In December 1995, the Company entered into a license and development agreement
with Medtronic, Inc. Under the agreement, the Company granted Medtronic a
30-year world-wide, royalty free license relating to the sale and use of the
Company's systems sold by Medtronic under the agreement. The Company has agreed
to pay a commission to Medtronic relating to any assessment, installation,
training, data conversion and monthly service fees. In addition, the Company has
agreed to install its system in certain clinical sites specified by Medtronic on
a preferred pricing basis, to install its system at one site specified by
Medtronic at no cost and to engage with Medtronic in joint development of
products and services.
11. SUPPLEMENTAL CASH FLOW INFORMATION
The Company entered into the following non-cash transactions:
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995 1994
---------------------------------------------
<S> <C> <C> <C>
Stock subscription receivable canceled as
consideration for services provided $ - $ 50,000 $ -
Conversion of accounts and notes payable into
common stock - - 300,000
Note payable issued for contribution of
furniture and equipment - - 120,000
</TABLE>
12. SUBSEQUENT EVENTS
In January 1997, the Company issued a standby letter of credit in the amount of
$50,000, expiring December 31, 2001, which is being maintained to support the
installation of software. The agreement provides for a reduction of the letter
of credit by $10,000 each at October 1, 1997, October 1, 1998, October 1, 1999
and October 1, 2000. Partial draws are not permitted.
13. MAJOR CUSTOMERS
In 1996, the Company had two customers that accounted for 55.8% and 11.1% of
revenue, respectively. In 1995, one customer accounted for 19.0% of revenue.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LIFERATE SYSTEMS, INC.
Dated: By: /s/ William W. Chorske
-----------------------------------------
William W. Chorske
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant on March 21, 1997 in the capacities indicated.
<TABLE>
<CAPTION>
NAME TITLE
- ---- -----
<S> <C>
/s/ William W. Chorske Chief Executive Officer, President and Director
- ------------------------------------ (principal executive officer, principal financial
William W. Chorske officer and principal accounting officer)
/s/ David D. Koentopf Chairman of the Board of Directors
- -----------------------------------
David D. Koentopf
/s/ Stanley R. Cowle Director
- -----------------------------------
Stanley R. Cowle
/s/ William D. Knopf, M.D. Director
- -----------------------------------
William D. Knopf, M.D.
/s/ Daniel A. Pelak Director
- -----------------------------------
Daniel A. Pelak
/s/ Kevin L. Roberg Director
- -----------------------------------
Kevin L. Roberg
/s/ Donald C. Wegmiller Director
- -----------------------------------
Donald C. Wegmiller
/s/ Carl J. Schramm, Ph.D. Director
- -----------------------------------
Carl J. Schramm, Ph.D.
</TABLE>
<TABLE>
<CAPTION>
LIFERATE SYSTEMS, INC.
EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1996
Item No. Item Method of Filing
-------- ---- ----------------
<S> <C>
3.1 Amended and Restated Articles of Incorporation..........Incorporated by reference to Exhibit 3.1 of the
Company's Registration Statement on Form SB-2
(File No. 33-89016C).
3.2 Amended and Restated Bylaws, as amended.................Incorporated by reference to Exhibit 3.2 of the
Company's Annual Report on Form 10-KSB, dated
March 29, 1996 (File No. 0-25530)
4.1 Form of the Company's Common Stock Certificate..........Incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form SB-2
(File No. 33-89016C).
10.1 Form of Employment Agreement............................Incorporated by reference to Exhibit 10.1 to
the Company's Registration Statement on Form
SB-2 (File No. 33-89016C).
10.2 Employment Agreement, dated April 29, 1996,
between the Company and William W. Chorske..............Incorporated by reference to Exhibit 10.1 of
the Company's Quarterly Report on Form 10-QSB,
dated May 15, 1996 (File No. 0-25530).
10.3 Stock Option Agreement, dated April 29, 1996,
between the Company and William W. Chorske..............Incorporated by reference to Exhibit 10.1 of
the Company's Quarterly Report on Form 10-QSB,
dated May 15, 1996 (File No. 0-25530).
10.4 Employee Stock Purchase Plan, as amended................Incorporated by reference to Exhibit 10.27 of
the Company's Annual Report on Form 10-KSB/A
(Amendment No. 1), dated April 30, 1996 (File
No. 0-25530)
10.5 1993 Stock Option Plan, as amended......................Incorporated by reference to Exhibit 99.1 to
the Company's Registration Statement on Form
S-8 as filed on March 29, 1995.
10.6 Form Incentive Stock Option Agreement for Employees.....Incorporated by reference to Exhibit 10.14 to
the Company's Registration Statement on Form
SB-2 (File No. 33-89016C).
10.7 Form Non-Statutory Stock Option Agreement for
Non-Employees...........................................Incorporated by reference to Exhibit 10.15 to
the Company's Registration Statement on Form
SB-2 (File No. 33-89016C).
10.8 Letter Agreement with The Atlanta Cardiology
Group, dated September 28, 1994 (confidential
portions have been omitted and filed with the
Secretary of the Commission)............................Incorporated by reference to Exhibit 10.2 to
the Company's Registration Statement on Form
SB-2 (File No. 33-89016C).
10.9 Agreement with Clinical Sales and Service, Inc.,
dated July 1, 1994......................................Incorporated by reference to Exhibit 10.3 to
the Company's Registration Statement on Form
SB-2 (File No. 33-89016C).
10.10 Agreement with Clinical Sales and Service, Inc.,
dated November 1, 1994..................................Incorporated by reference to Exhibit 10.4 to
the Company's Registration Statement on Form
SB-2 (File No. 33-89016C).
10.11 Amendment to Marketing Agreement with Clinical
Sales and Service, Inc., dated December 31, 1994........Incorporated by reference to Exhibit 10.5 to
the Company's Registration Statement on Form
SB-2 (File No. 33-89016C).
10.12 Promissory Note, dated January 24, 1995, from Paul
Benson to the Company...................................Incorporated by reference to Exhibit 10.19 to
the Company's Registration Statement on Form
SB-2 (File No. 33-89016C).
10.13 Lease Agreement with Alpha Associates, Inc. dated
April 30, 1993..........................................Incorporated by reference to Exhibit 10.20 to
the Company's Registration Statement on Form
SB-2 (File No. 33-89016C).
10.14 Shareholder Voting Agreement, dated as of December
26, 1995 by and among the Company, Medtronic,
Inc., Donna J. Edmonds, Jeffrey B. Comer, David W.
Haskin and Paul D. Benson...............................Incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K, dated
December 22, 1995 (File No. 0-25530).
10.15 Investment Agreement, dated as of December 26,
1995 between the Company and Medtronic, Inc.............Incorporated by reference to Exhibit 10.2 to
the Company's Current Report on Form 8-K, dated
December 22, 1995 (File No. 0-25530).
10.16 License and Development Agreement, dated as of
December 26, 1995 between the Company and
Medtronic, Inc..........................................Incorporated by reference to Exhibit 10.3 to
the Company's Current Report on Form 8-K, dated
December 22, 1995 (File No. 0-25530).
10.17 Computer Software Purchase Agreement, dated July
2, 1995, between the Company, Anthony Furnary,
M.D. and APF, LLC.......................................Incorporated by reference to Exhibit 10.28 of
the Company's Annual Report on Form 10-KSB,
dated March 29, 1996 (File No. 0-25530).
10.18 Sales and Marketing Services Agreement, dated as
of September 18, 1995, between the Company and
Clinical Sales and Services, Inc........................Incorporated by reference to Exhibit 10.29 of
the Company's Annual Report on Form 10-KSB,
dated March 29, 1996 (File No. 0-25530).
10.19 Separation Agreement and Release, dated as of
February 2, 1996 between the Company and Donald B.
Olson...................................................Incorporated by reference to Exhibit 10.30 of
the Company's Annual Report on Form 10-KSB,
dated March 29, 1996 (File No. 0-25530).
10.20 Separation Agreement and Release, dated as of
February 2, 1996 between the Company and Merry M.
Olson...................................................Incorporated by reference to Exhibit 10.31 of
the Company's Annual Report on Form 10-KSB,
dated March 29, 1996 (File No. 0-25530).
10.21 Agreement, dated June 4, 1996, between the Company
and Jeffrey B. Comer....................................Filed herewith electronically.
10.22 Consulting Agreement, dated June 4, 1996, between
the Company and Jeffrey B. Comer........................Filed herewith electronically.
10.23 Non-Statutory Stock Option Agreement, dated June
6, 1995, between the Company and Jeffrey B. Comer.......Filed herewith electronically.
10.24 Agreement, dated June 5, 1996, between the Company
and David W. Haskin.....................................Filed herewith electronically.
10.25 Agreement, dated September 1, 1996, between the
Company and William Knopf, M.D..........................Incorporated by reference to Exhibit 10.1 of
the Company's Quarterly Report on Form 10-QSB,
dated November 14, 1996 (File No. 0-25530).
10.26 Consulting and Advisory Agreement, dated September
1, 1996, between the Company and William Knopf,
M.D.....................................................Incorporated by reference to Exhibit 10.2 of
the Company's Quarterly Report on Form 10-QSB,
dated November 14, 1996 (File No. 0-25530).
10.27 Non-Statutory Stock Option Agreement dated
September 1, 1996, between the Company and William
Knopf, M.D..............................................Incorporated by reference to Exhibit 10.3 of
the Company's Quarterly Report on Form 10-QSB,
dated November 14, 1996 (File No. 0-25530).
10.28 Agreement, dated September 25, 1996, between the
Company and Donna J. Edmonds............................Filed herewith electronically.
10.29 Non-Statutory Stock Option Agreement, dated
September 1, 1996, between the Company and Donna
J. Edmonds..............................................Filed herewith electronically.
10.30 Software Development Agreement, dated December 18,
1996, between the Company and National
Jewish Center(1)........................................Filed herewith electronically.
10.31 Technical Support Agreement, dated December 18,
1996, between the Company and National Jewish Center....Filed herewith electronically.
10.32 Agreement, dated March 28, 1997 between The
Company and Atlanta Cardiology Group,
P.C.....................................................Filed herewith electronically.
10.33 Convertible Subordinated Note, dated
March 28, 1997, issued by the Company to The
Atlanta Cardiology Group,
P.C.....................................................Filed herewith electronically.
10.34 Mutual Release, dated March 28, 1997, between the
Company and The Atlanta Cardiology Group,
P.C.....................................................Filed herewith electronically.
10.35 Master Agreement, dated March 25, 1997, among the
Company, Anthony Furnary, M.D. and APF, LLC.............Filed herewith electronically.
10.36 Modification Agreement, dated March 25, 1997,
among the Company, Anthony Furnary, M.D. and APF,
LLC ....................................................Filed herewith electronically.
10.37 Consulting Agreement, dated March 28, 1997,
between the Company and Anthony Furnary, M.D............Filed herewith electronically.
10.38 Non-Statutory Stock Option Agreement, dated March
24, 1997, covering 550,000 shares between the
Company and APF,LLC.....................................Filed herewith electronically.
10.39 Non-Statutory Stock Option Agreement, dated March
4, 1997, covering 26,000 shares between the
Company and APF,LLC.....................................Filed herewith electronically.
10.40 Non-Statutory Stock Option Agreement, dated March
4, 1997, covering 10,333 shares between the
Company and Anthony Furnary, M.D........................Filed herewith electronically.
23.1 Consent of Independent Auditors.........................Filed herewith electronically.
27.1 Financial Data Schedule.................................Filed herewith electronically.
(1) Confidential treatment has been requested with respect to designated
portions of this document. Such portions have been omitted and filed
separately with the Commission pursuant to Rule 24b-2 of the Securities
and Exchange Act of 1934, as amended.
</TABLE>
AGREEMENT
THIS AGREEMENT, dated as of June 4, 1996 is entered into by and between
LifeRate Systems, Inc., a Minnesota corporation (the "Company"), and Jeffrey B.
Comer, an individual presently residing in the State of Maryland (the "Former
Executive").
A. The Former Executive's employment with the Company terminated
effective April 24, 1996 (the "Termination Date").
B. The Company and the Former Executive desire to (i) enter into a
consulting arrangement and (ii) settle and resolve in a final and binding way
any and all existing and potential claims or disputes between the Company and
the Former Executive relating in any way to their prior employment and
consulting relationship and the termination of such relationships.
In consideration of the foregoing and the mutual agreements set forth
below, the parties hereto agree as follows:
1. In consideration for the Release by the Company provided in Section
2(d) and the other terms and conditions hereof, the Former Executive agrees to
the following:
(a) He will execute contemporaneously herewith the Release in
the form attached hereto as Exhibit A, the terms of which are incorporated
herein by reference.
(b) He will execute contemporaneously herewith the Consulting
Agreement in the form attached hereto as Exhibit B, the terms of which are
incorporated herein by reference.
2. In consideration for the Release by the Former Executive provided in
Section 1 and the other terms and conditions hereof, the Company agrees to the
following:
(a) The Company will use its reasonable efforts to cause a
Registration Statement on Form S-3 to be filed with the Securities and Exchange
Commission which includes 17,599 shares of Common Stock of the Company owned by
the Former Executive.
(b) The Company will execute the Consulting Agreement in the
form attached hereto as Exhibit B ("Consulting Agreement"), the terms of which
are incorporated herein by reference.
(c) The Company will execute the Non-Statutory Stock Option
Agreement in the form attached hereto as Exhibit C ("Option Agreement"), the
terms of which are incorporated herein by reference. The Company also confirms
the fact that Consultant holds an option to purchase 9,667 shares of Common
Stock of the Company, which option may be exercised at any time prior to June 5,
2005 at the exercise price of $5.875 per share.
(d) The Company will execute the Release in the form attached
hereto as Exhibit D (together with the Release referred to in Section 1(a), the
"Releases"), the terms of which are incorporated herein by reference.
3. The Former Executive agrees that he will not, at any time,
disparage, demean or criticize, or do or say anything to cause injury to, the
technology, products, customer relationships, business or management of the
Company. In addition, the Former Executive agrees that he will hold the facts
and circumstances of this Agreement in strict confidence and will not reveal the
existence or the terms of this Agreement to anyone except his immediate family,
tax advisers, lawyers or accountants or as may otherwise be required by law or
by this Agreement. The Company agrees it will not, at any time, disparage,
demean or criticize, or do anything to cause injury to the Former Executive.
4. The Former Executive agrees to cooperate fully with the Company and
its counsel in connection with any litigation matters or disputes involving the
Company with respect to which the Former Executive has information that would be
relevant to such matters and agrees to make himself available as may reasonably
be necessary in connection with such matters, including, without limitation,
litigation matters involving Donna Edmonds and/or Clinical Sales and Services,
Inc. ("CSSI"). The Company will make a good faith effort to ensure that this
cooperation and assistance will not unreasonably interfere with the Former
Executive's employment or other business activities.
5. Without in any way limiting the scope of the Release referred to in
Section 1(a), the Former Executive agrees not to assert as an employee, officer,
director, or shareholder of CSSI or in any other capacity, any claims or causes
of action against the Company, or any of its directors, officers or employees,
nor to cooperate or voluntarily assist other parties in the assertion of any
such claims or causes of action, for or in respect of any matters, actions or
relationships between the Company and CSSI, including, without limitation, in
respect of the Sales and Marketing Services Agreement dated as of September 18,
1995. This provision does not preclude the Former Executive from responding to a
subpoena or other legal process.
6. The Former Executive agrees and understands that he is entitled to
no other compensation or benefits other than those enumerated in this Agreement
and will not accrue or become entitled to any benefits other than as provided
herein.
7. The Former Executive hereby acknowledges he has had up to 21 days to
consider the terms of this Agreement before signing, that he fully understands
and accepts the terms of this Agreement, that his signature is freely,
voluntarily and knowingly given, and that he has been provided a full
opportunity to review and reflect on the terms of this Agreement and to obtain
the advice of legal counsel of his choice, which advice the Company has
encouraged him to obtain.
8. After executing this Agreement, the Former Executive understands
that he may rescind this Agreement by delivering written notice of such
rescission ("Notice of Rescission") within 15 days of the date of such execution
by certified mail, return receipt requested, to LifeRate Systems, Inc., 7210
Metro Boulevard, Edina, Minnesota 55439; Attn: Chief Executive Officer. The
Former Executive understands that in the event he exercises this right of
rescission, then this Agreement, the Consulting Agreement, the Option Agreement
and the Releases shall all be simultaneously deemed to be rescinded and rendered
null and void in all respects upon receipt by the Company of the Notice of
Rescission.
9. This Agreement does not constitute an admission that the Company
violated any statute or principle of common law or engaged in any wrongdoing.
10. This Agreement constitutes the entire agreement between the parties
and supersedes all previous negotiations, representations and agreements
heretofore made by the parties with respect to the subject matter hereof. No
amendment, waiver or discharge hereof shall be valid unless in writing and
executed by both parties hereto.
11. The laws of the State of Minnesota will govern the validity,
construction and performance of this Agreement, without regard to the conflict
of law provisions of any jurisdictions. Any legal proceeding related to this
Agreement will be brought in an appropriate Minnesota court, and both the
Company and the Former Executive hereby consent to the exclusive jurisdiction of
that court for this purpose.
12. Whenever possible, each provision of this Agreement will be
interpreted so that it is valid under the applicable law. If any provision of
this Agreement is to any extent invalid under the applicable law, 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.
13. The Former Executive may not assign this Agreement to any third
party for whatever purpose without the express written consent of the Company.
The Company may not assign this Agreement to any third party, except by
operation of law through merger, consolidation, liquidation or recapitalization,
or by sale of all or substantially all of the assets of the Company, without the
express written consent of the Former Executive.
14. The parties hereto agree that the rights granted by this Agreement
are both unique and special, and the parties contemplate that enforcement of
this Agreement may be had by recourse to the equitable remedies available in
courts of appropriate jurisdiction in addition to any other remedies which may
be or may become available at law.
The parties have duly executed this Agreement as of the dates set forth
below.
LIFERATE SYSTEMS, INC.
Dated: June 4, 1996 By: _____________________________
Title: __________________________
Dated: June 4, 1996 _________________________________
Jeffrey B. Comer
Address: ________________________
________________________
________________________
EXHIBIT B
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT, dated as of June 4, 1996 by and between
LifeRate Systems, Inc., a Minnesota corporation (the "Company") and Jeffrey B.
Comer, an individual presently residing in the State of Maryland ("Consultant").
A. The Company and Consultant desire to establish a consulting
arrangement.
B. The Company and Consultant are entering into this Consulting
Agreement in conjunction with the simultaneous execution of the Agreement, dated
of even date herewith, between the Company and Consultant regarding the
settlement of certain claims (the "Settlement Agreement").
In consideration of the foregoing and of the respective covenants and
agreements of the parties herein contained, the receipt and sufficiency of which
consideration are hereby acknowledged, the parties hereto agree as follows:
1. Consultancy. The Company agrees to retain Consultant as a consultant, and
Consultant agrees to serve the Company, on the terms and conditions set forth
herein. The retention of Consultant by the Company as a consultant shall be for
the period commencing on June 1, 1996 and expiring December 1, 1996 (the
"Expiration Date"), unless such consultancy shall have been sooner terminated as
hereinafter set forth in Section 4.
2. Responsibilities. Consultant shall report directly to the Chief Executive
Officer of the Company and shall perform such duties as the Chief Executive
Officer shall reasonably assign from time to time to Consultant. While the daily
commitment required by Consultant to fulfill his duties hereunder will vary, it
is understood that such duties assigned hereunder shall constitute, in the
aggregate, approximately 50% of Consultant's normal full-time workload over the
duration of the Consulting Agreement.
3. Compensation and Support
(a) During the term of his consultancy hereunder, Consultant shall
receive a consulting fee of $10,000, per month, payable bi-weekly. In addition,
the Company agrees to pay Consultant $20,000 upon execution of this Agreement
(the "Advance"), as an advance payment of the bonus payable under Section 3(b).
In the event either (i) this Consulting Agreement is rescinded as provided in
Section 10(h) or terminated prior to December 1, 1996 by Consultant for any
reason or by the Company for any reason which does not constitute a breach
hereunder, or (ii) the bonus referred to in Section 3(b) does not become payable
by its terms because the terms thereof are not satisfied, then in either case
Consultant agrees to repay the Advance to the Company promptly upon demand. If
Consultant is requested to travel to render services hereunder, the Company
shall reimburse Consultant for all necessary and reasonable expenses incurred by
Consultant in accordance with and as permitted by the expense reimbursement
policies adopted by the Company.
(b) In addition to the fees payable under Section 3(a), Consultant
shall receive a bonus of $100,000, payable within 30 days after December 1,
1996, subject to compliance with the following terms and conditions:
(i) Consultant shall have fully and faithfully performed and
discharged his duties under this Consulting Agreement from the date hereof
through December 1, 1996 and Consultant shall not be in material breach of any
terms, duties or obligations hereunder as of December 1, 1996.
(ii) Consultant shall have fully and faithfully performed and
discharged his obligations and duties under the Settlement Agreement from the
date hereof through December 1, 1996 and Consultant shall not be in material
breach of any terms, duties or obligations under the Settlement Agreement.
(c) The Company agrees to provide the Former Executive with necessary
administrative support such as office space, a desk, a telephone and secretarial
assistance to the extent reasonably necessary to conduct the requested
consultant services.
4. Termination
(a) Death. Consultant's consultancy hereunder shall terminate upon his
death.
(b) Cause. The Company may terminate Consultant's consultancy hereunder
for Cause. For the purposes of this Consulting Agreement, the Company shall have
"Cause" to terminate Consultant's consultancy hereunder upon Consultant's (i)
willful, continuing, material and bad faith failure to perform and discharge his
duties and responsibilities hereunder, or (ii) gross misconduct that is
materially and demonstratively injurious to the Company, or (iii) conviction of
a felony (unless such conviction is reversed in any final appeal thereof);
provided that, in the case of termination under clauses (i) or (ii)of this
Section 4(b), Consultant shall have first received written notice of proposed
termination at least 30 days prior thereto, specifying the grounds for such
termination and Consultant shall have failed to cure such matters.
(c) Date of Termination. "Date of Termination" shall mean the earlier
of (i) the Expiration Date or (ii) if Consultant's employment is terminated by
his death, then the date of his death, or if pursuant to Section 4(b), then the
date specified in the notice of termination.
5. Competitive Activities
Consultant agrees that during his consultancy hereunder, for a period
of 12 months after his consultancy with the Company ends:
(a) He will not alone, or in any capacity with another entity:
(i) directly or indirectly engage in any commercial activity
that competes with the Company's business, as the Company has conducted it
during the 12-month period before the Consultant's consultancy with the Company
ends, within any state in the United States in which the Company directly or
indirectly markets or services products or provides 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.
(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) Consultant may seek the advice of the Company from time to time on
whether prospective employment he proposes would, in the Company's opinion,
violate the provisions of this Section 5, by submitting in writing to the
Company appropriate information.
6. Confidential Information
(a) Confidential Information. For purposes of this Agreement, the term
"Confidential Information" means information that is not generally known and
that is proprietary to the Company, including (i) trade secret information about
the Company and its products and services; and (ii) information relating to the
business of the Company as conducted at any time or anticipated to be conducted
by the Company, and to any of its past, current or anticipated products and
services, including without limitation, information about the Company's
research, development, design, manufacturing, purchasing, accounting,
engineering, marketing, selling, leasing or servicing. All information that
Consultant has a reasonable basis to consider Confidential Information or which
is treated by the Company as being Confidential Information shall be presumed to
be Confidential Information, whether originated by Consultant or by others, and
without regard to the manner in which Consultant obtains access to such
information. Notwithstanding the foregoing, information shall cease to be
Confidential Information for purposes of this Section 6 when (i) it is required
by law or legal process to be disclosed in the public domain or (ii) it has
become public information as a direct or indirect result of disclosure by any
person other than Consultant. In the event Consultant receives any notice of any
action to require disclosure of any Confidential Information, as required by law
or legal process, Consultant immediately shall notify the Company of the notice
and any action to require disclosure of Confidential Information to permit the
Company to challenge the required disclosure and seek a protective order.
(b) Restricted Use and Nondisclosure. Consultant shall not, either
during the term of this Agreement or for a period of five years following
expiration or termination of this Agreement, (i) use any Confidential
Information for any purpose other than the performance of his duties and
responsibilities under this Agreement for the benefit of the Company or (ii)
disclose any Confidential Information to any person not employed by the Company,
without the prior written authorization of the Company. Consultant shall
exercise prudence and the highest degree of care to safeguard and protect, and
to prevent the unauthorized disclosure of, all such Confidential Information.
(c) Return of Information at Termination. Upon termination of the
consultancy, Consultant shall deliver to the Company all materials, including
but not limited to product formulations, customer lists, business plans,
business strategies, instruction sheets, drawings, manuals, letters, notes,
notebooks, books, reports and copies thereof, computer records, audiotapes and
videotapes or other media that include Confidential Information. Consultant
shall not retain any copies or reproductions of any materials, product
formulations, customer lists, business plans, business strategies, instruction
sheets, drawings, manuals, letters, notes, notebooks, books, reports and copies
thereof, computer records, audiotapes, videotapes or other materials of the
Company that came into Consultant's possession at any time during the term of
this Agreement.
7. Inventions.
(a) Inventions. For purposes of this Agreement, the term "Inventions"
means any business plan, strategy, technology, discovery, improvement,
innovation, idea, formula, shop right, trademark or work of authorship or
expression (whether or not patentable or copyrightable, and whether or not put
into writing or reduced to practice) made, generated, or conceived by Consultant
(whether alone or with others) while employed by the Company or to which
Consultant has agreed to assign the rights, interest and ownership under this
Agreement or under any other document or instrument.
NOTICE: Pursuant to Minnesota Statutes Section 181.78, Consultant is
hereby notified that this Agreement does not apply to an invention for which no
equipment, supplies, facility, Confidential Information or trade secret
information of the Company was used and which was developed entirely on
Consultant's own time and does not relate (1) directly to the business of the
Company or (2) to the Company's actual or demonstrably anticipated research or
development, or does not result from any work performed by Consultant for the
Company.
(b) Property of the Company. All Inventions made, authored or conceived
by Consultant, either solely or jointly with others, during Consultant's
consultancy with the Company or within one (1) year after the termination of
this Agreement, are works made for hire and the entire title and ownership
interest in such items in any form shall be the sole and exclusive property of
the Company. Consultant shall execute instruments of assignment confirming the
foregoing as requested by the Company.
(c) Disclosure. Consultant shall promptly and without request by the
Company fully disclose to the Company in writing any Inventions. Consultant
shall report on a monthly basis to the Company, or more frequently as requested
by the Company, regarding any and all research and development activities during
that period.
(d) Cooperation. Upon the request of the Company, Consultant shall
apply for such United States or foreign trademarks, patents or copyrights as the
Company may deem desirable, and Consultant shall do any and all acts necessary
in connection with such applications for trademarks, patents or copyrights, or
assignments, in order to establish in the Company the entire right, title and
interest in and to such trademarks, patents or copyrights. All costs and
expenses incurred in connection with any such application for such trademarks,
patents or copyrights shall be paid by the Company, and Consultant shall be
reimbursed by the Company to the extent any such costs and expenses were
incurred personally by Consultant.
8. Injunctive Relief
Consultant and the Company acknowledge that a breach by the other of
any of the terms of Sections 5, 6 or 7 of this Agreement will render irreparable
harm to the other and that the Company or Consultant (as the case may be) shall
therefore be entitled to any and all equitable relief, including but not limited
to injunctive relief, and to any other remedy that may be available under any
applicable law or agreement between the parties.
9. Representations of Consultant.
Consultant represents and warrants that his execution and delivery of
this Agreement and performance by Consultant of his obligations under this
Agreement shall in no way violate the terms and conditions of any other
agreement, written or oral, or any other instrument or arrangement to which
Consultant is a party or by which Consultant is bound.
10. Miscellaneous.
(a) Waiver. No waiver of any term, condition or covenant of this
Agreement shall be deemed to be a waiver of subsequent breaches of the same or
other terms, covenants or conditions hereof.
(b) Amendment. This Agreement may not be amended, altered or modified
except by a written agreement between the parties hereto.
(c) Assignability.
(i) Consultant Assignability. Consultant shall not assign this
Agreement to any third party for whatever purpose without the express,
prior written consent of the Company.
(ii) Company Assignability. The Company shall have the right
to assign this contract to its successors or permitted assigns, (but
not to other persons,) and all covenants or agreements hereunder shall
inure to the benefit of and be enforceable by or against its successors
or assigns.
(iii) Definitions. The terms "successor" and "permitted
assigns" shall include any person, individual or entity that buys all
or substantially all the Company's assets, or a controlling portion of
its stock, or with which it merges or consolidates.
(d) Invalidity and Severability. In the event part or any portion of
this Agreement is determined to be invalid or unenforceable by any court of
competent jurisdiction, the parties agree that this Agreement as so construed
shall remain in force and effect between them and shall be applied as if the
offending part or portion did not comprise an element hereof.
(e) Notices. Any notice required to be given hereunder shall be duly
and properly given if hand delivered, transmitted by facsimile or mailed postage
prepaid to either party at the addresses set forth below, effective as of the
date of mailing:
If to Consultant: Jeffrey B. Comer
6615 Nahal Drive
Fredrick, MD 21702
With a copy to: Terrence J. Fleming, Esq.
Lindquist & Vennum P.L.L.P.
4200 IDS Center
80 South Eighth Street
Minneapolis, MN 55402-2205
If to the Company: LifeRate Systems, Inc.
7210 Metro Boulevard
Minneapolis, MN 55439-2128
Attention: Chief Executive Officer
With a copy to: Michel A. LaFond, Esq.
Oppenheimer Wolff & Donnelly
45 South Seventh Street
Suite 3400
Minneapolis, MN 55402
Either party may change its address by giving ten days' prior written
notice to the other party of the new address.
(f) Definitions. For purposes of this Agreement, the following words
shall have the meanings indicated:
(i) Technology. The term "technology" means all know-how,
trade secrets, processes, inventions, specifications, equipment,
computer software, trademarks, trade names, service marks, patents,
patent applications, proprietary information, copyrights and other
related intellectual property.
(ii) Trade Secret. The term "trade secret" means any
information or compilation of information possessed by the Company that
derives independent economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper means
by other persons who can obtain economic value from its disclosure or
use. For purposes of this Agreement, the term "trade secret" includes
both information disclosed to Consultant by the Company and information
developed by Consultant in the course of his employment.
(g) Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Minnesota.
(h) Rescission of Agreement. Notwithstanding any provision in this
Consulting Agreement to the contrary, in the event Consultant delivers a Notice
of Rescission (as defined in the Settlement Agreement) to the Company, then this
Consulting Agreement shall, upon receipt of the Notice of Rescission by the
Company, also be deemed to be simultaneously rescinded and rendered null and
void in all respects.
IN WITNESS WHEREOF, the parties have duly executed, or caused to be
executed by a duly authorized representative, this Agreement as of the date
first set forth above.
LIFERATE SYSTEMS, INC.
By_________________________
CONSULTANT
___________________________
Jeffrey B. Comer
NON-STATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT is entered into and effective as of June 6, 1995 (the
"Date of Grant"), by and between LifeRate Systems, Inc. (the "Company") and
Jeffrey Comer (the "Optionee").
A. The Company has adopted the 1993 Stock Option Plan (the "Plan")
authorizing the Board of Directors of the Company, or a committee as provided
for in the Plan (the Board or such a committee to be referred to as the
"Committee"), to grant non-statutory stock options to employees and nonemployee
consultants and independent contractors of the Company.
B. Optionee is an employee or consultant to Clinical Sales and Services,
Inc. ("CSSI"), a Virginia corporation that provides sales and marketing services
to the Company.
C. 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.
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 Twenty-Nine Thousand (29,000) 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 and the
Plan. The Option is not intended to be an "incentive stock option," as that term
is used in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
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 $5.875.
ARTICLE 3. DURATION OF OPTION AND TIME OF EXERCISE
3.1 Initial Period of Exercisability. The Option shall become
exercisable with respect to the Option Shares in three installments. The
following table sets forth the initial dates of exercisability of each
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
-------------- ----------------------
June 6, 1995 9,666
June 6, 1996 9,667
June 6, 1997 9,667
The foregoing rights to exercise this Option shall be cumulative with
respect to the Option Shares becoming exercisable on each 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 June 5, 2005 (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 the Optionee's employment or other service with CSSI is
terminated for "cause" (as defined in the Plan), all rights of the Optionee
under the Plan and this Agreement shall immediately terminate without notice of
any kind, and this Option shall no longer be exercisable. In the event that the
Optionee's employment or other service with CSSI is terminated for any reason
other than cause or CSSI is no longer engaged by the Company to provide sales
and marketing services, this Option shall remain exercisable to the extent
exercisable as of such termination for a period of three months after such
termination (but in no event after the Time of Termination).
(b) Notwithstanding anything in this Agreement or the Plan 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 the
Optionee's actions result in a material breach of the terms of any
confidentiality or non-compete agreement between the Company and CSSI, whether
such breach occurs before or after termination of the Optionee's employment or
other service with CSSI, the Committee in its sole discretion may immediately
terminate all rights of the Optionee under this Agreement and the Plan 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 9.1 of the Plan.
(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 or CSSI. In addition, if a Change in
Control of the Company shall occur, the Committee, 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 Committee, 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 in the Plan and
herein, by delivery, in person or by registered mail, to the Company at its
principal executive office in Edina, Minnesota (Attention: Chief Financial
Officer), of a written notice of exercise. Such notice shall be in a form
satisfactory to the Committee, shall identify the Option, shall specify the
number of Option Shares with respect to which the Option is being exercised, and
shall be signed by the person or persons so exercising the 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, as
provided by the Plan and Section 3.2 above, 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 the Option. As soon as practicable after the
effective exercise of the 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.
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 Plan, the Committee, 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 Committee 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
Committee 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 Committee 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.
ARTICLE 5. NONTRANSFERABILITY.
Neither this Option nor the Option Shares acquired upon exercise may be
transferred by the Optionee, either voluntarily or involuntarily, or subjected
to any lien, directly or indirectly, by operation of law or otherwise, except as
provided in the Plan. Any attempt to transfer or encumber this Option or the
Option Shares other than in accordance with this Agreement and the Plan shall be
null and void and shall void this Option.
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 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 Committee (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. SUBJECT TO PLAN.
The Option and the Option Shares granted and issued pursuant to this
Agreement have been granted and issued under, and are subject to the terms of,
the Plan. The terms of the Plan are incorporated by reference herein in their
entirety, and the Optionee, by execution hereof, acknowledges having received a
copy of the Plan. The provisions of this Agreement shall be interpreted as to be
consistent with the Plan, and any ambiguities herein shall be interpreted by
reference to the Plan. In the event that any provision hereof is inconsistent
with the terms of the Plan, the terms of the Plan shall prevail.
ARTICLE 10. MISCELLANEOUS.
10.1 Binding Effect. This Agreement shall be binding upon the heirs,
executors, administrators and successors of the parties hereto.
10.2 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.
10.3 Entire Agreement. This Agreement and the Plan set forth the entire
agreement and understanding of the parties hereto with respect to the grant and
exercise of this Option and the administration of the Plan and supersede all
prior agreements, arrangements, plans and understandings relating to the grant
and exercise of this Option and the administration of the Plan.
10.4 Amendment and Waiver. Other than as provided in the Plan, this
Agreement may be amended, waived, modified or cancelled 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 _________________________
Its ________________________
[By execution hereof, the OPTIONEE
Optionee acknowledges having
received a copy of the Plan.] _____________________________
Jeffrey Comer
AGREEMENT
THIS AGREEMENT, dated as of June 5, 1996 is entered into by and between
LifeRate Systems, Inc., a Minnesota corporation (the "Company") and David W.
Haskin, an individual presently residing in the State of Minnesota (the "Former
Executive").
A. The Former Executive's employment with the Company terminated
effective April 24, 1996 (the "Termination Date").
B. The Company and the Former Executive desire to settle and resolve in
a final and binding way any and all existing and potential claims or disputes
between the Company and the Former Executive relating in any way to their
employment relationship and the termination of such employment relationship.
In consideration of the foregoing and the mutual agreements set forth
below, the parties hereto agree as follows:
1. In consideration for entering into and performing his obligations
under this Agreement and waiving the claims described in Section 4(a), subject
to the occurrence of the Effective Date (as defined in Section 9), the Former
Executive will be entitled to receive the benefits set forth in this Section 1.
The Company will pay or reimburse the Former Executive, up to a maximum of
$10,000 per year (less any applicable withholding taxes and pro rated for any
portion of a year), for premiums on health insurance coverage for himself and
his spouse in respect of private health insurance purchased by the Former
Executive from the Termination Date and until such time as the Former Executive
reaches age 65 (the "Payment Period").
2. The Former Executive reaffirms the provisions of his Employment,
Non-Compete and Confidentiality Agreement, entered into as of July 1, 1992,
relating to (a) non-competition with the Company and (b) assignment of
inventions and non-disclosure of confidential and proprietary information and
agrees to continue to be fully bound by the terms of such provisions at all
times after the date hereof in accordance with the terms and conditions of such
provisions.
3. In consideration for the release from the Former Executive provided
in Section 4(a) and the other terms and conditions hereof, the Company agrees to
the following:
(a) Promptly following the Effective Date, the Company will
use its reasonable efforts to cause a Registration Statement on Form S-3 (the
"Registration Statement") to be filed with the Securities and Exchange
Commission which includes 31,555 shares of Common Stock of the Company owned by
the Former Executive (out of a total of 191,555 shares of Common Stock of the
Company (the "Shares") owned by the Former Executive).
(b) Promptly following the Effective Date, the Company will
use its reasonable efforts to obtain a release of (I) 31,555 Shares (which are
to be included in the Registration Statement) from the MJK Lock-up (as defined
below) and (ii) the following portion of the Shares at the respective times
indicated from both the Cheap Stock Escrow (as defined below) and the MJK
Lock-up: 20,000 Shares no later than June 1, 1996 (or as soon thereafter as
practicable ); 20,000 Shares no later than December 1, 1996; 20,000 Shares no
later than June 1, 1997; and 20,000 Shares no later than December 1, 1997. It is
understood that the Former Executive may elect, in his sole discretion, to
request fewer shares than specified above to be released from the Cheap Stock
Escrow or the MJK lock-up and the Company shall use its reasonable efforts to
reduce the requested release in such event. "Cheap Stock Escrow" means the
"cheap stock" escrow with the Commissioner of Commerce for the State of
Minnesota covering certain shares of the Company's common stock including
160,000 of the Shares, and the "MJK Lock-up" means a certain lock-up arrangement
with Miller, Johnson & Kuehn, Inc. The Former Executive acknowledges his
understanding that the decision to release the Shares from the Cheap Stock
Escrow and the MJK Lock-up are solely within the discretion of the Minnesota
Commissioner of Commerce and Miller, Johnson & Kuehn, Inc., respectively, and
that the Company has no control or influence over such discretionary decisions.
(c) Promptly following the Effective Date, the Company will
execute the Release referred to in Section 4(b).
4. (a) The Former Executive agrees to execute the Release
attached hereto as Exhibit A, the terms of which are incorporated herein by
reference.
(b) The Company agrees to execute the Release attached hereto
as Exhibit B, the terms of which are incorporated herein by reference.
5. The Former Executive agrees that he will not, at any time,
disparage, demean or criticize, or do or say anything to cause injury to, the
technology, products, customer relationships, business or management of the
Company. In addition, the Former Executive agrees that he will hold the facts
and circumstances of this Agreement in strict confidence and will not reveal the
existence or the terms of this Agreement in strict confidence and will not
reveal the existence or the terms of this Agreement to anyone except his
immediate family, tax advisers or accountants or as may otherwise be required by
law or by subpoena resulting from judicial or administrative proceedings. The
Company agrees it will not, at any time, disparage, demean or criticize, or do
anything to cause injury to, the Former Executive.
6. The Former Executive agrees to cooperate fully with the Company and
its counsel in connection with any litigation matters or disputes involving the
Company with respect to which the Former Executive has information that would be
relevant to such matter and agrees to make himself available as may reasonably
be necessary in connection with such matters.
7. The Former Executive agrees and understands that he is entitled to
no other compensation or benefits other than those enumerated in this Agreement
and will not accrue or become entitled to any benefits during the Payment Period
other than as provided herein.
8. The Former Executive hereby acknowledges he has had up to 21 days to
consider the terms of this Agreement before signing, that he fully understands
and accepts the terms of this Agreement, that his signature is freely,
voluntarily and knowingly given, and that he has been provided a full
opportunity to review and reflect on the terms of this Agreement and to obtain
the advice of legal counsel of his choice, which advice the Company has
encouraged him to obtain.
9. After executing this Agreement, the Former Executive understands
that he may rescind this Agreement by delivering written notice of such
rescission within 15 days of such execution by certified mail, return receipt
requested, to Life Rate Systems, Inc., 7210 Metro Boulevard, Edina, Minnesota
55439; Attn: Chief Executive Officer. The Former Executive understands that this
Agreement will not become effective until the end of such 15-day period (the
"Effective Date") and only if the Former Executive does not rescind this
Agreement.
10. This Agreement does not constitute an admission that the Company
violated any statute or principle of common law or engaged in any wrongdoing.
11. This Agreement constitutes the entire agreement between the parties
and supersedes all previous negotiations, representations and agreements
heretofore made by the parties with respect to the subject matter hereof. No
amendment, waiver or discharge hereof shall be valid unless in writing and
executed by both parties hereto.
12. The laws of the State of Minnesota will govern the validity,
construction and performance of this Agreement, without regard to the conflict
of law provisions of any jurisdictions. Any legal proceeding related to this
Agreement will be brought in an appropriate Minnesota court, and both the
Company and the Former Executive hereby consent to the exclusive jurisdiction of
that court for this purpose.
13. Whenever possible, each provision of this Agreement will be
interpreted so that it is valid under the applicable law. If any provision of
this Agreement is to any extent invalid under the applicable law, 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.
14. The Former Executive may not assign this Agreement to any third
party for whatever purpose without the express written consent of the Company.
The Company may not assign this Agreement to any third party, except by
operation of law through merger, consolidation, liquidation or recapitalization,
or by sale of all or substantially all of the assets of the Company, without the
express written consent of the Former Executive.
15. The parties hereto agree that the rights granted by this Agreement
are both unique and special, and the parties contemplate that enforcement of
this Agreement may be had by recourse to the equitable remedies available in
courts of appropriate jurisdiction in addition to any other remedies which may
be or may become available at law.
The parties have duly executed this Agreement as of the dates set forth
below.
LIFERATE SYSTEMS, INC.
Dated: June 5, 1996 By: /s/ David Koentopf
Title: Chairman
Dated: June 6, 1996 /s/ David W. Haskin
Address: 1308 Laura St.
Mendota Heights, MN 55118
AGREEMENT
THIS AGREEMENT, dated as of September 25, 1996 is entered into by and
between LifeRate Systems, Inc., a Minnesota corporation (the "Company"), and
Donna J. Edmonds, an individual presently residing in the State of Virginia (the
"Former Executive").
A. The Former Executive's employment with the Company terminated
effective April 24, 1996 (the "Termination Date").
B. The Company and the Former Executive desire to settle and resolve in
a final and binding way any and all existing and potential actions, claims or
disputes between the Company and the Former Executive relating in any way to
their prior employment and consulting relationship and the termination of such
relationships.
In consideration of the foregoing and the mutual agreements set forth
below, the parties hereto agree as follows:
1. In consideration for the Release by the Company provided in Section
2(c) and the other terms and conditions hereof, the Former Executive agrees to
the following:
(a) The Former Executive will execute contemporaneously
herewith the Release in the form attached hereto as Exhibit A-1 and the Release
by Clinical Sales and Services, Inc. ("CSSI") in the form of Exhibit A-2, the
terms of which Releases are incorporated herein by reference.
(b) The Former Executive will (i) execute a stipulation of
dismissal with prejudice, in the form attached hereto as Exhibit D (the "Edmonds
Stipulation"), to fully and finally resolve the Former Executive's claims and
causes of action in the action now pending in Hennepin Count District Court,
Case No. EM 96-009311 and styled DONNA J. EDMONDS V. LIFERATE SYSTEMS, INC. AND
TERRI PILACZYNSKI (the "Edmonds Litigation"), and (ii) otherwise cooperate with
the Company to seek the dismissal with prejudice of the Edmonds Litigation.
2. In consideration for the Releases by the Former Executive and CSSI
provided in Section 1 and the other terms and conditions hereof, the Company
agrees to the following:
(a) The Company will pay the Former Executive (or designee)
the sum of One Hundred Eighty Thousand Dollars ($180,000) within five business
days after the date hereof.
(b) The Company will pay the Former Executive (or designee),
as reimbursement for certain expenses incurred during the term of employment by
or consultancy with the Company, the sum of Ten Thousand Dollars ($10,000)
within five business days after the date hereof.
(c) The Company will execute the Non-Statutory Stock Option
Agreement in the form attached hereto as Exhibit B ("Option Agreement"), the
terms of which are incorporated herein by reference. The Company also agrees
that, with respect to the Former Executive's Non-Statutory Stock Option issued
on June 5, 1995 under the Company's 1993 Stock Option Plan (the "Plan Option"),
(i) the Plan Option shall be vested with respect to 20,000 shares thereof and
(ii) the Plan Option may be exercised with respect to the vested portion at any
time prior to June 5, 2005 at the exercise price of $5.875 per share. The
Company shall use its reasonable efforts to include in a Registration Statement
on Form S-8 (or any successor form thereto), which will be filed within 45 days
hereafter, the shares issuable in respect of the Plan Option and the Option
Agreement.
(d) The Company will execute the Release in the form attached
hereto as Exhibit C (together with the Releases referred to in Section 1, the
"Releases"), the terms of which are incorporated herein by reference.
(e) The Company agrees (i) to execute and file the Edmonds
Stipulation to fully and finally resolve all counterclaims which the Company has
asserted against the Former Executive in the Edmonds Litigation and (ii) to
execute and file the stipulation and order for dismissal of third-party claim,
in the form attached hereto as Exhibit E, to dismiss with prejudice its third
party action now pending in Hennepin County District Court, Case No. EM
96-013086 and styled TERRI PILACZYNSKI V. LIFERATE SYSTEMS, INC., and to
cooperate with the Former Exective in seeking the dismissal with prejudice of
the Company's third party claims in that action.
3. The Former Executive agrees that she will not, at any time,
disparage, demean or criticize, or do or say anything to cause injury to, the
technology, products, customer relationships, business or management of the
Company. In addition, each party hereto agrees that such party will hold the
facts and circumstances of this Agreement in strict confidence and will not
reveal the existence or the terms of this Agreement to anyone except, in the
case of the Former executive, to her immediate family, tax advisers, lawyers or
accountants, or, in the case of the Company, to its officers, directors,
employees, lawyers or accountants, or as may otherwise be required by law or by
this Agreement. The Company agrees it will not, at any time, disparage, demean
or criticize, or do anything to cause injury to the Former Executive.
4. The Former Executive agrees that from the date hereof and until the
first anniversary hereof she will not alone, or in any capacity with another
entity, become employed by, consult with or provide advice to Seattle Systems,
Medical Logic or Summit Medical Systems, or any affiliate of any such entity.
5. The Former Executive agrees and understands that she is entitled to
no other compensation or benefits other than those enumerated in this Agreement
and will not accrue or become entitled to any benefits other than as provided
herein.
6. The Former Executive hereby acknowledges she has had up to 21 days
to consider the terms of this Agreement before signing, that she fully
understands and accepts the terms of this Agreement, that her signature is
freely, voluntarily and knowingly given, and that she has been provided a full
opportunity to review and reflect on the terms of this Agreement and to obtain
the advice of legal counsel of her choice.
7. This Agreement does not constitute an admission that the Company or
the Former Executive violated any statute or principle of common law or engaged
in any wrongdoing.
8. This Agreement constitutes the entire agreement between the parties
and supersedes all previous negotiations, representations and agreements
heretofore made by the parties with respect to the subject matter hereof. No
amendment, waiver or discharge hereof shall be valid unless in writing and
executed by both parties hereto.
9. The laws of the State of Minnesota will govern the validity,
construction and performance of this Agreement, without regard to the conflict
of law provisions of any jurisdictions. Any legal proceeding related to this
Agreement will be brought in an appropriate Minnesota court, and both the
Company and the Former Executive hereby consent to the exclusive jurisdiction of
that court for this purpose.
10. Whenever possible, each provision of this Agreement will be
interpreted so that it is valid under the applicable law. If any provision of
this Agreement is to any extent invalid under the applicable law, 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.
11. The Former Executive may not assign this Agreement to any third
party for whatever purpose without the express written consent of the Company.
The Company may not assign this Agreement to any third party, except by
operation of law through merger, consolidation, liquidation or recapitalization,
or by sale of all or substantially all of the assets of the Company, without the
express written consent of the Former Executive.
12. The parties hereto agree that the rights granted by this Agreement
are both unique and special, and the parties contemplate that enforcement of
this Agreement may be had by recourse to the equitable remedies available in
courts of appropriate jurisdiction in addition to any other remedies which may
be or may become available at law.
The parties have duly executed this Agreement as of the dates set forth
below.
LIFERATE SYSTEMS, INC.
Dated: September ___, 1996 By: __________________________
Title: _______________________
Dated: September ___, 1996 ______________________________
Donna J. Edmonds
Address: _____________________
_____________________
_____________________
EXHIBIT B
To Agreement
NON-STATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT is effective as of September 1, 1996 (the "Date of
Grant"), by and between LifeRate Systems, Inc. (the "Company") and Donna J.
Edmonds (the "Optionee").
A. Optionee has entered into an Agreement with the Company dated the
date hereof (the "Agreement") regarding the settlement of certain claims.
B. The Company desires to advance the interests of the Company by
granting to the Optionee an option to purchase shares of common stock of the
Company.
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 Eighty Thousand (80,000) shares (the "Option
Shares") of the Company's common stock, no par value (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 $5.00, which was the closing reported bid price on
September 12, 1996.
ARTICLE 3. DURATION OF OPTION AND TIME OF EXERCISE.
3.1 Period of Exercisability. The Option shall be exercisable with
respect to all of the Option Shares from the date hereof and until the Time of
Termination (as defined below).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 September 1, 2006 (the
"Time of Termination").
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 Edina, Minnesota (Attention: Chief Financial Officer), of a written
notice of exercise. Such notice shall be specify the number of Option Shares
with respect to which the Option is being exercised, and shall be signed by the
Optionee. In the event that the Option is being exercised by any person or
persons other than the Optionee (such as by the Optionee's heir(s) or legal
represenetative(s), in the event of death or disability of Optionee), the notice
shall be accompanied by appropriate proof of right of such person or persons to
exercise the Option. As soon as practicable after the effective exercise of the
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.
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 the Company shall 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 this Section 4.2.
"Broker Exercise Notice" means a written notice from the Optionee to the Company
at its principal executive office in Edina, Minnesota (Attention: Chief
Financial Officer), made on a form and in the manner as the Company may from
time to time determine, pursuant to which the Optionee irrevocably elects to
exercise all or any portion of the Option and irrevocably directs the Company to
deliver the Optionee's stock certificates to be issued to such Optionee upon
such Option exercise directly to a broker or dealer. A Broker Exercise Notice
must be accompanied by or contain irrevocable instructions to the broker or
dealer (i) to promptly sell a sufficient number of shares of such Common Stock
or to loan the Optionee a sufficient amount of money to pay the exercise price
for the Options and, if not otherwise satisfied by the Optionee, to fund any
related employment and withholding tax obligations due upon such exercise, and
(ii) to promptly remit such sums to the Company upon the broker's or dealer's
receipt of the stock certificates.
"Previously Acquired Shares" means shares of Common Stock that are already owned
by the Optionee and shares of Common Stock that are to be acquired by the
Optionee pursuant to the exercise of an Option. 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.
"Fair Market Value" means, with respect to the Common Stock, the following:
(a) If the Common Stock is listed or admitted to unlisted
trading privileges on any national securities exchange or is not so
listed or admitted but transactions in the Common Stock are reported on
the NASDAQ National Market System, the reported closing sale price of
the Common Stock on such exchange or by the NASDAQ National Market
System as of such date (or, if no shares were traded on such day, as of
the next preceding day on which there was such a trade).
(b) If the Common Stock is not so listed or admitted to
unlisted trading privileges or reported on the NASDAQ National Market
System, and bid and asked prices therefor in the over-the-counter
market are reported by the NASDAQ System or the National Quotation
Bureau, Inc. (or any comparable reporting service), the mean of the
closing bid and asked prices as of such date, as so reported by the
NASDAQ System, or, if not so reported thereon, as reported by the
National Quotation Bureau, Inc. (or such comparable reporting service).
(c) If the Common Stock is not so listed or admitted to
unlisted trading privileges, or reported on the NASDAQ National Market
System, and such bid and asked prices are not so reported, such price
as the Committee determines in good faith in the exercise of its
reasonable discretion.
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) 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.
ARTICLE 5. NONTRANSFERABILITY.
Other than pursuant to a qualified domestic relations order (as defined
by the Internal Revenue Code of 1986, as amended), no right or interest of the
Optionee in this Option prior to the exercise of such Option shall be assignable
or transferable, or subjected to any lien, during the lifetime of the Optionee,
either voluntarily or involuntarily, directly or indirectly, by operation of law
or otherwise, including execution, levy, garnishment, attachment, pledge,
divorce or bankruptcy. The Optionee shall, however, be entitled to designate a
beneficiary to receive the Option upon such Optionee's death. In the event of
the Optionee's death, such Optionee's rights and interest in the Option shall be
transferable by testamentary will or the laws of descent and distribution, and
exercise of the Option may be made by the Optionee's legal representatives,
heirs or legatees. Any attempt to transfer or encumber this Option other than in
accordance with this Agreement shall be null and void and shall void this
Option.
ARTICLE 6. WITHHOLDING TAXES.
The Company is entitled to (a) withhold and deduct from future fees
payable to 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 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 7. 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 8. MISCELLANEOUS.
8.1 Binding Effect. This Agreement shall be binding upon the heirs,
executors, administrators and successors of the parties hereto.
8.2 Governing Law. This Agreement and all rights and obligations
hereunder shall be construed in accordance with and governed by the laws of the
State of Minnesota.
8.3 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.
8.4 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 as of the day
and year first above written.
LIFERATE SYSTEMS, INC.
By: _________________________________
Its: ________________________________
_____________________________________
Donna J. Edmonds
12/23/96
SOFTWARE DEVELOPMENT AGREEMENT*
(FOR PROGRAMS BEING DEVELOPED)
* Confidential treatment has been requested with respect to designated
portions of this document. Such portions have been omitted and filed
separately with the Commission pursuant to Rule 24b-2 of the Securities
and Exchange Act of 1934, as amended.
National Jewish Center Colorado
Licensee's Name State of Incorporation
1400 Jackson Street
Street Address
Denver, CO 80206
City, State, Zip Code
303/398-1601 Gary Cott, M.D.
Area code/Phone No. Licensee's Representative
This Software Development Agreement (the "Development Agreement") is
made and entered into as of this 18th day of __December_______, 1996_, by and
between LifeRate Systems, Inc. (LRSI) a Minnesota Corporation, having its
principal offices 7210 Metro Blvd., Minneapolis, MN. 55439-2128 and _National
Jewish Center ________________(the "Licensee").
In consideration of the mutual covenants contained herein and other
valuable consideration, the adequacy and receipt of which is hereby mutually
acknowledged, the parties hereto agree as follows:
1. DEFINITION OF LRSI SOFTWARE. A general description of the LRSI Software to be
developed is attached hereto as Exhibit "A." The term "LRSI Software" means (a)
the object code for such software as hereafter developed by LRSI consistent with
such description, (b) related machine readable materials provided by LRSI to
Licensee in connection with such software, such as but not limited to , job
stream run statements, and (c) all errors corrections, new releases,
enhancements, and updates provided with respect thereto pursuant to the
Technical Support Agreement. The LRSI Software will not include source code
except as provided for in Exhibit B, Article (d) of this Agreement and Section 2
of the Technical Support Agreement. The term "Documentation" means all printed
or tangible materials delivered by LRSI to Licensee in connection with the LRSI
Software, such as but not limited to, procedure and training manuals, user
manuals, screens, etc.
The paragraph titled "environment" in Exhibit A provides an executive level
description of the technical environment that the LRSI Software will operate
within, including import and export formats.
2. DEVELOPMENT STEPS. Development of the LRSI Software will occur in three
consecutive steps, as follows:
[confidential treatment has been requested for information omitted]
LRSI agrees to proceed to complete consecutively the three development steps
identified above. LRSI estimates that Preliminary Design Document(s) will be
completed as indicated on the _schedule outlined in Exhibit C. At the time of
submission by LRSI to Licensee of materials at the completion of each of the
first two steps, LRSI will advise Licensee of the estimated date as of which the
next step (the second or third step, as the case may be) will be completed.
However, all of these dates are subject to extension in the event of presently
unanticipated development problems or in the event of causes of delay which are
beyond the reasonable control of LRSI. LRSI agrees to notify Licensee of
significant changes in the estimated dates for the completion of the three
steps.
Upon completion of each step, LRSI shall submit to Licensee, as may be
applicable: (i.) the Preliminary Design Document(s), (ii) the Detailed Design
Document, or (iii) the Programming (object code only), the results of the Beta
Site Testing, and the Documentation.
Licensee understands that the LRSI employees, consultants, and/or agents
identified in Exhibit "C" will have as their primary responsibility the work
effort associated with the development project defined in this Agreement. This
means that such assigned employees, consultants, and/or agents will only work on
other LRSI projects if it is reasonably anticipated that such other work will
not materially detract from the schedule completion date(s) set forth in Exhibit
C, unless otherwise agreed to in writing by Licensee.
3. INSPECTION BY LICENSEE. Licensee shall have 20 calendar days within which to
inspect the materials submitted to it at the completion of each of the three
steps. If Licensee determines that any of such materials are materially
inconsistent with the general description of the LRSI Software set forth in
Exhibit "A" or the materials previously submitted by LRSI to the Licensee at the
completion of any prior step, then Licensee shall so notify LRSI in writing
within the applicable 20 calendar days period, and LRSI shall take commercially
reasonable steps to correct such inconsistencies. Failure of Licensee to notify
LRSI in writing of inconsistencies within the applicable 20 calendar day period
shall constitute approval by Licensee.
In addition to providing materials to Licensee at the completion of each of the
three steps defined in Section 2 herein, LRSI may submit to Licensee a portion
of the Preliminary Design Document(s), the Detailed Document(s), or the
Programming, and Licensee agrees within a 20 calendar day period after receipt
thereof to notify LRSI in writing of any inconsistencies. If Licensee does not
so notify LRSI in writing, then Licensee may not later object to the materials
submitted to it at the completion of the step on the basis of inconsistencies
which existed in the portions of materials previously submitted to it unless
such inconsistencies relate to the design or functioning of the LRSI Software as
a whole.
4. ACCEPTANCE TESTING. In addition to the 20 calendar day period after the
completion of the third step within which Licensee will have the right to
inspect the materials submitted to it at the completion of such step to
determine whether there are any inconsistencies, Licensee shall have an
additional period of 60 calendar days (the "Acceptance Testing Period") within
which to test the Programming and the Documentation for errors. Such "Acceptance
Testing Period" shall not begin until LRSI and Licensee have created the test
data files and database required to conduct effective Beta Testing as previously
described in Section 2 above. If Licensee identifies any error within the
Acceptance Testing Period, it will promptly notify LRSI in writing together with
such supporting data as LRSI may reasonable request to enable LRSI to reproduce
and to take commercially reasonable steps to correct the error. Failure of
Licensee to notify LRSI in writing of errors within the Acceptance Testing
Period shall constitute acceptance by Licensee of the LRSI Software "as is."
5. DEFAULT BY LRSI. LRSI shall not be in default in the performance of its
obligations with respect to the development of the LRSI Software Programs unless
LRSI fails to correct such inconsistencies (Section 3) or error(s) (Section 4)
within a reasonable period of time after receipt of notification thereof from
Licensee in accordance with the provisions of Section 3 and 4 herein. If
Licensee does not notify LRSI in writing of any inconsistencies or errors within
the applicable time period, the materials submitted to Licensee by LRSI shall
automatically be deemed approved or accepted by Licensee.
LRSI shall be in default in the performance of its obligations with respect to
the development of the LRSI Software Programs if it does not complete Beta
Testing for each Phase I and Phase II deliverable within the calendar quarter
specified in Exhibit C, Section 10 (e). Should LRSI fail to meet any of the
projected calendar quarter dates, then LRSI may submit to Licensee written
documentation that specifically states the reasons for failure to complete the
Beta Test by such projected calendar quarter date and request approval for a
ninety (90) day extension, which approval shall not be unreasonably withheld.
Licensee has no obligation to consider a request for a second such extension of
the Beta Test for any particular Phase I or Phase II deliverable.
6. DEVELOPMENT SUPPORT BY LICENSEE. The initial license fee for the LRSI
Software, as set forth in Section 10, is based upon the assumption that Licensee
will provide significant development support to LRSI in the development of the
LRSI Software. Such support shall include, as reasonably requested from time to
time by LRSI, the following obligations of Licensee:
(a) Making available to LRSI for its inspection and review all
documents, forms, and records relating to the area of business and
practice which is the subject of the LRSI Software.
(b) Consulting with LRSI about such area of business and practice and
the procedures related thereto. Such consultation is generally expected
to require the time of executive and administrative personnel of
Licensee and will also require significant involvement of medical
staff.
(c) Responding to questionnaires and other inquiries about the
documents, forms, and records referred to in (a) above and about the
area of business and practice and the procedures referred to in (b)
above.
(d) Participation in the preliminary and detail design process, which
includes attendance at all meetings that are related to the design
and/or development of the LRSI software.
Licensee's responses to requests made by LRSI pursuant to this Section 6 shall
be prompt. The purpose of the support to be provided by Licensee is to assist
LRSI in acquiring the knowledge necessary to enable it to effectively develop
the LRSI Software. Licensee acknowledges that the development of the LRSI
Software is for customers of LRSI generally (THE MARKET) and that there may be
specialized aspects of Licensee's business and practice which require
enhancement of the LRSI Software for use by Licensee. To the extent that such
enhancement requests occur after the Detail Design Document has been inspected
and accepted, such enhancement requests that are considered unique to Licensee
shall be designed and programmed by LRSI for Licensee as an enhancement within
the terms and conditions of the Technical Support Agreement. Licensee shall be
reasonable in its request for such enhancements that are considered unique and
non-standard within the market, submitting detailed documentation that defines
the need and describes the benefit.
7. LICENSEE'S OPTION TO TERMINATE.
(a) Termination in Event of LRSI Default. In the event of any default
by LRSI in the performance of its obligations under this Agreement
prior to the Final Payment Date, which default is not cured by LRSI
within 60 calendar days after written notice thereof is given by
Licensee, Licensee shall have the right to terminate this Agreement by
giving prompt written notice to LRSI. Upon such termination, LRSI
agrees to refund to Licensee, within 45 calendar days, an amount equal
to the license fee payments previously made by Licensee, after receipt
by LRSI of the notice of termination pursuant to this part (a). The
remedy in this part (a) is the sole and exclusive remedy of Licensee in
the event of any default by LRSI prior to the Final Payment Date.
(b) Termination in Absence of LRSI Default. In the absence of a default
by LRSI, Licensee shall nevertheless have the right at any time during
the 20 calendar day inspection period following submission by LRSI to
Licensee of the Preliminary Design Document(s) or the Detailed Design
Document(s) to terminate this Agreement by giving written notice to
LRSI. Licensee shall not thereafter have the obligation to make any
additional license fee payments except for those due with respect to
the steps then completed by LRSI, including any due upon correction by
LRSI of any inconsistencies in materials previously submitted by LRSI
to Licensee. In the event of termination by Licensee pursuant to this
part (b), Licensee shall not be entitled to any refund of payments
previously made to LRSI.
(c) Other Consequences of Termination. Upon termination of this
Agreement pursuant to (a) or (b) above: (i.) Licensee shall no longer
have any license or right to a license of the LRSI Software or the
Documentation, (ii) Licensee shall promptly return to LRSI all copies
of the LRSI Software, the Documentation, and all other materials
previously submitted to Licensee by LRSI pursuant to Section 2 or
otherwise related to the LRSI Software, and (iii) all further
obligations of the parties under this Agreement shall terminate except
as otherwise specifically stated.
8. LICENSE. Subject to completion by LRSI of the development work, LRSI hereby
grants to Licensee a restrictive and nonexclusive License to use the LRSI
Software and the Documentation and the LRSI database as defined in Section 21 on
the Defined Computer at the "Defined Computer Site" - as identified in Exhibit E
attached. Licensee does have the right to access the LRSI Software Programs that
reside at the Defined Computer Site using remote terminal/PC type devices from
any location. Licensee will not permit any of the LRSI Software or the
Documentation to be used by any other person or on any other equipment or at any
other location, except as may be hereafter agreed to in writing by LRSI. The
License granted herein is not assignable or transferable by Licensee except to a
successor in interest of the business of Licensee and then only with the prior
written approval of LRSI, which approval shall not be unreasonably withheld.
Licensee may not grant any sublicenses or otherwise make the LRSI Software or
the Documentation available to any other person, entity, or business. Licensee
may use the LRSI Software and the Documentation only to process its own data,
the data of certain affiliated companies identified as "Affiliates" in Exhibit F
attached hereto and made a part hereof, and the data of collaborative
relationships as defined in Exhibit B, Paragraph (k), and may not use the LRSI
Software or the Documentation to perform data processing functions for any other
person, entity, or business by acting as a service bureau, processing center, or
otherwise. Licensee agrees that it will not reverse assemble, reverse compile,
or reverse engineer the LRSI Software in whole or in part and that it will not
modify or alter the LRSI Software.
9. ADDENDUM. Exhibit "B" Attached hereto and made a part hereof, describes
additional terms and conditions that the parties have agreed to.
10. INITIAL LICENSEE FEE. The initial license fee for the license to use the
LRSI Software granted Licensee in this Agreement is [confidential treatment has
been requested for omitted information] which shall be payable as outlined in
Exhibit C (Projected Schedule of Deliverables and Payments) attached hereto and
made a pert hereof. Such individual payment amounts, when aggregated, are
directly related to the following events:
[confidential treatment has been requested for omitted information]
The specific breakdown of payments by deliverable and the timing of those
payments for each of the above segments (b,c,d,e) is outlined in Exhibit C,
Sections 10(a) through 10(f).
In addition to the initial License Fee component there may be additional License
Fee components that will be paid by Licensee to LRSI. Such additional License
Fee components are defined in Exhibit F attached hereto and made a part hereof.
11. OWNERSHIP. Title to, ownership of, and all proprietary rights in the LRSI
Software, in the Documentation, and in any and all other Preliminary Design
Document(s), Detailed Design Documents, Programming, related written or machine
readable materials, and other development work related to the LRSI Software,
whether or not incorporated into the LRSI Software, is reserved to and shall
remain with LRSI. Licensee shall have no right or interest therein except
pursuant to the license granted pursuant to this Agreement, whether or not
Licensee or any of its employees or agents contributed to the conception or
development thereof or paid LRSI for its services in connection therewith.
Licensee shall, from time to time, take any further action and execute and
deliver to LRSI any further documents, including documents of assignment or
acknowledgment, which LRSI may reasonably request in establishing and perfecting
LRSI's ownership rights in the LRSI Software and the Documentation, and in any
such other materials and development work.
12. MARKETING SUPPORT BY LICENSEE. The initial license fee for the LRSI
Software, as set forth in Section 10, is also based upon the expectation that
Licensee will provide significant marketing support to LRSI for a period of five
(5) years after the Final Payment Date. Such support shall include, as
reasonably requested by LRSI during such period, the following obligations of
Licensee:
(a) Responding helpfully to inquiries from LRSI prospects about the
LRSI Software.
(b) Demonstrating and explaining the LRSI Software to LRSI prospects at
Licensee's principal location. Such demonstrations and explanations
shall be scheduled by LRSI at times which do not unduly interfere with
the normal functions of Licensee's daily operations and shall in no
event occur more frequently than once each month except as Licensee
agrees otherwise.
13. EXPENSES OF LICENSEE. Licensee shall pay, without any right of reimbursement
from LRSI or from LRSI prospects, all expenses incurred by it in performing its
obligations under Section 6 relating to development support and Section 12
relating to marketing support. Such expenses may include, without limitation,
travel expenses, long distance telephone calls, postage, and personnel expense.
14. REPRESENTATIVES. Each party agrees to designate, in writing, two qualified
persons to act as its representatives in coordinating all activities of such
party under this Agreement, including, in the case of Licensee, the inspections
by Licensee under Section 3 and the support obligations of Licensee under
Section 6 and 12. A party's representative may be changed from time to time by
written notice to the other party. All communications by and to a party's
representative shall be deemed communications by and to such party and shall be
binding upon such party.
Both parties shall designate a person to represent the administrative/technical
considerations and a person to represent the clinical considerations. Written
notice of changes in such representation shall be made in accordance with
Section 27 herein.
15. TECHNICAL SUPPORT AGREEMENT. LRSI and Licensee agree that the Technical
Support Agreement will apply to the LRSI Software developed hereunder, and the
Documentation, commencing at the end of the Acceptance Testing Period. For
purposes of interpreting the Technical Support Agreement as it will apply to the
LRSI Software and Documentation described herein, the parties agree as follows:
(a) References in the Technical Support Agreement to the "LRSI
Software" and "Documentation" shall mean the LRSI Software and
Documentation, respectively, including any error corrections, new
releases, enhancements, programs, or other materials provided by LRSI
to Licensee pursuant to the Technical Support Agreement.
(b) As it applies to the LRSI Software , the term of the Technical
Support Agreement under Section 3 thereof shall continue (including
automatic extensions) until the first to occur of the following: (i.)
the termination of the term under Section 3 or Section 5 of the
Technical Support Agreement without regard to the LRSI Software, or
(ii) the date, if any, on which the license of the LRSI Software is
terminated under this Agreement.
(c) The references in Sections 1,2,3,5,10 and 12 of the Technical
Support Agreement to the "Development Agreement" shall mean this
Agreement.
As a result of the application of the Technical Support Agreement to the LRSI
Software developed in addition to that specified in Exhibit A and C for Phase I
and Phase II, the Fee payable under Section 4 of the Technical Support Agreement
shall increase, commencing with the month in which the Acceptance Testing for
the additional Software ends, by an amount equal to the standard fee which LRSI
in good faith then decides to charge other customers of size comparable to
Licensee for technical support of the additional LRSI Software. Such increase
shall be in addition to any other increases permitted under Section 3 of the
Technical Support Agreement.
This Section 15 constitutes an amendment to the Technical Support Agreement.
16. LIMITED WARRANTY. LRSI represents and warrants that it has the power and
authority to enter into this Agreement and its staff is competent, possessing
the skills and experience necessary to complete the work effort as described in
Exhibits A and C of this Development Agreement. LRSI MAKES NO REPRESENTATIONS OR
WARRANTIES WITH RESPECT TO THE LRSI SOFTWARE OR THE DOCUMENTATION, EXPRESS OR
IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE. The remedies provided for in Section 7 are
in lieu of any representations or warranties relating to the LRSI Software or
the Documentation.
17. LIMITATION OF DAMAGES; EXCLUSIONS OF DAMAGES. THE TOTAL LIABILITY OF LRSI
FOR ANY AND ALL CLAIMS IN ANY WAY RELATED TO THIS AGREEMENT, AND ANY PERFORMANCE
OR NONPERFORMANCE BY LRSI HEREUNDER, REGARDLESS OF THE FORM OF ACTION, WHETHER
IN CONTRACT OR IN TORT, INCLUDING NEGLIGENCE, SHALL IN NO EVENT EXCEED TWO TIMES
THE FEES PAID BY LICENSEE TO LRSI PURSUANT TO THIS AGREEMENT; PROVIDED, HOWEVER,
THAT PRIOR TO THE FINAL PAYMENT DATE, THE TOTAL LIABILITY OF LRSI FOR BREACH OF
THIS AGREEMENT SHALL BE LIMITED TO THE AMOUNT SET FORTH IN SECTION 7. This is in
recognition of the actual license fees (direct costs) paid by Licensee to LRSI
as well as a portion of the indirect costs incurred by Licensee. The foregoing
sentence shall not limit any right of Licensee to indemnification under Section
20 herein.
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT SHALL
LRSI BE LIABLE TO LICENSEE OR TO ANY THIRD PARTY FOR ANY LOST PROFITS, LOST
SAVINGS, OR OTHER CONSEQUENTIAL DAMAGES, OR FOR ANY INCIDENTAL OR SPECIAL
DAMAGES, EVEN IF LRSI HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR FOR
ANY CLAIM BY LICENSEE BASED UPON ANY CLAIM BY ANY OTHER PARTY AGAINST LICENSEE,
EXCEPT AS PROVIDED IN SECTION 20 HEREIN ENTITLED "PATENT AND COPYRIGHT
INFRINGEMENT."
It is expressly understood and agreed that in the event any remedy under this
Agreement is determined to have failed of its essential purpose, all limitations
of liability and exclusions of damages set forth herein shall nevertheless
remain in effect.
18. TERMINATION OF LICENSE. The license of the LRSI Software and the
Documentation shall, at the election of LRSI, terminate upon the occurrence of
any of the following events:
(a) Material default by Licensee in performing any of its obligations
under this Agreement and failure of Licensee to correct such default
within 45 calendar days after receipt of written notice thereof from
LRSI.
(b) Insolvency of Licensee or the making by Licensee of a general
assignment for the benefit of its creditors, or the filing by Licensee
of a voluntary petition in any bankruptcy or insolvency proceeding, or
the commencement of an involuntary proceeding against Licensee under
any bankruptcy or insolvency law which proceeding is not terminated
within 60 calendar days after the commencement thereof.
(c) Discontinuance by Licensee of use of the LRSI Software for a period
exceeding six (6) months; provided however that Licensee may reinstate
this Agreement and the Technical Support Agreement at any time up to
one (1) year following termination of this Development Agreement
pursuant to this part (c) and termination of the Technical Support
Agreement pursuant to Section 5(a) thereof by paying to LRSI all fees
which would have been owed under the Development Agreement and the
Technical Support Agreement prior to the date of reinstatement as if
the previously stated Agreements had never been terminated.
Upon termination of the license, Licensee agrees promptly to return to LRSI the
LRSI Software and the Documentation, including, without limitation, all copies
of object code for the LRSI Software and copies of all other machine readable,
printed, and tangible materials related thereto. LRSI agrees, upon such
termination, to cooperate with the alternate vendor selected by Licensee in
providing record layouts, data file definitions, test tapes, and the electronic
conversion of all data files and the detail history database. Licensee agrees to
pay LRSI a reasonable fee for such services.
LRSI also agrees that should such termination occur, Licensee has the right to
make a copy of the LRSI Programs and use them at a location other than the
Defined Computer Site for the sole purpose of deconverting from LRSI and
converting to an alternate vendor. Such right of use at a location other than
the Defined Computer Site shall be granted for a maximum of ninety (90) days.
During such time, Licensee shall be obligated to abide by the terms and
conditions of this Development Agreement and the Technical Support Agreement.
19. PROTECTION OF PROPRIETARY RIGHTS. Licensee recognizes and agrees that the
LRSI Software and the Documentation: (a) are considered and will be considered
by LRSI to be trade secrets, (b) are and will be furnished to Licensee in
confidence, and (c) contain and will contain proprietary and confidential
information of LRSI. The placement of a copyright notice on any portion of the
LRSI Software or Documentation will not be construed to mean that such portion
has been published and will not derogate from any claim that such portion is a
trade secret or contains proprietary and confidential information. Licensee
agrees to hold the LRSI Software and Documentation in confidence and to take all
reasonable precautions to safeguard the confidentiality thereof. Licensee shall
not print, copy, or duplicate any portion of the LRSI Software or Documentation,
in whole or in part, except that Licensee may make a copy of any machine
readable portion of the LRSI Software for normal security backup purposes and
may make a reasonable number of copies of the Documentation for its own internal
use. Licensee shall keep all copyright notices and proprietary legends on the
LRSI Software and Documentation and all copies thereof.
Licensee will not provide or otherwise make available any portion of the LRSI
Software or Documentation in any form without LRSI's prior written consent
except to Licensee's employees or agents during the period they are at the
Defined Computer Site, and then only for the purposes specifically related to
Licensee's authorized use of the LRSI Software. Licensee will take appropriate
action by instruction and agreement with any persons permitted access to any
portion of the LRSI Software or Documentation to inform them of the trade
secret, proprietary, and confidential nature of the LRSI Software and
Documentation and to obtain their compliance with the terms of this Section.
Licensee will be liable for noncompliance by agents to the same extent as it
would be liable for noncompliance by its employees.
Licensee will insure, prior to disposing of any media, that any materials
relating to the LRSI Software or Documentation have been erased or otherwise
destroyed.
The provisions of this section shall survive any termination of this Agreement
or the license granted herein. Notwithstanding anything in this Section to the
contrary, Licensee shall have no obligation of confidentiality with respect to
any portion of the LRSI Software or the Documentation which is in or becomes
part of the public domain, and Licensee shall not be in breach of its
confidentiality obligations to the extent it is required to disclose any portion
of the LRSI Software or the Documentation pursuant to any final order of a court
of competent jurisdiction as long as Licensee has furnished LRSI notice of any
petition for such an order and of any such order prior to disclosure.
20. PATENT AND COPYRIGHT INFRINGEMENT. LRSI will, at its expense, defend
Licensee against any claim made against Licensee within two years after the
Final Payment Date, or within any longer period of time during which LRSI
provides monthly support services to Licensee pursuant to the Technical Support
Agreement between the parties, in which claim it is alleged that the LRSI
Software, as furnished to Licensee pursuant to this Agreement and as used within
the scope of the license granted hereunder, infringe a valid U.S. patent,
copyright, or trade secret belonging to any third party, and LRSI will pay all
costs, damages, and attorney's fees that a court finally awards against Licensee
as a result of such claim provided that:
(a) Licensee promptly notifies LRSI in writing of any such claim, and
(b) Licensee allows LRSI to control, and fully cooperates with LRSI in
the defense of any such claim and all related settlement negotiations.
If such a claim of infringement has occurred, or in LRSI's judgment is likely to
occur, Licensee agrees to allow LRSI, at LRSI's option and expense, to procure
the right for Licensee to continue using the LRSI Software or to replace or
modify it so that it becomes non-infringing. If none of the foregoing
alternatives are available on terms which are reasonable in LRSI's judgment,
then LRSI shall have the right to terminate the license of the potentially
infringing LRSI Software upon 90 calendar days prior written notice to Licensee,
in which event LRSI shall refund to Licensee two times the amount by which the
license fee set forth in Section 10 exceeds the product of one-sixtieth of such
license fee multiplied by the number of months between the Final Payment Date
and the date of termination of the license pursuant to this Section 20.
This Section states LRSI's entire obligation to Licensee regarding
infringement or the like.
21. LRSI DATABASE. For purposes of this Agreement, "Licensed Data" means the
medical data, patient data, financial data or other data or information of any
kind, that is related to respiratory health care, developed or owned or procured
by Licensee and is not in the public domain; and "LRSI Database" means the
database compiled by LRSI that includes the Licensed Data received from Licensee
and comparable data that LifeRate obtains from other customers.
(a) OWNERSHIP OF LICENSED DATA. LRSI hereby acknowledges that Licensee
owns, and, as between LRSI and Licensee, shall at all times continue to own
all Licensed Data and any copyrights or other intellectual property rights
associated with the Licensed Data, subject to the license granted pursuant
to Section 21(c). LRSI shall not sell, disclose, publish, reveal or use in
any way, directly or indirectly, the Licensed Data, except to the extent
permitted by the license granted to LRSI pursuant to Section 21(c).
(b) OWNERSHIP OF LRSI DATABASE. Licensee hereby acknowledges that LRSI owns
exclusively all rights, title and interest in and to the LRSI Database, and
that the rights and interests of Licensee are limited to those specifically
granted in Section 8.
(c) LICENSE. Licensee hereby grants to LRSI a fully paid, transferable,
non-exclusive, perpetual license to use the Licensed Data in connection
with the development, installation and operation of LRSI Software, as
provided in this Agreement, and to include the Licensed Data in the LRSI
Database and any database developed, maintained and used by LRSI in
compiling, analyzing and reporting aggregate patient data. Such Licensed
Data shall be processed by Licensee, prior to the data's being transferred
from Licensee's site, in a manner that prevents such data from being
tracked to identifiable patients or physician providers. Upon the request
of Licensee, the algorithm to be used by LRSI to strip the confidential
components shall be demonstrated to Licensee in advance of any data
transfer. LRSI shall have the right to grant to third parties licenses and
rights to subscribe to and participate in the LRSI Database. The perpetual
license granted pursuant to this Section 21(c) shall survive any
termination of this Agreement and shall continue perpetually after any
termination of this Agreement.
(d) LIMITATIONS ON USE OF LRSI DATABASE. Licensee shall not utilize the
LRSI Database for any direct or indirect commercial benefit of any person
or entity, or any health care provider in which Licensee participates or
with whom Licensee affiliates in the provision of health care services,
other than Licensee. Licensee shall not utilize or permit its affiliates,
and the utilization of the LRSI Database for the direct or indirect benefit
of any developer, manufacturer or marketer of medical devices other than
Medtronic, Inc.
(e) LRSI DATABASE EXCEPTION. Notwithstanding any other provision of this
Agreement, LRSI shall have the limited right to retain, assemble and
display data and summary utilization, patient outcome and cost data
included in any LRSI Database made available to LRSI by Licensee in
connection with any LRSI Database in accordance with Section 21(c). Such
use of data shall not constitute a breach of Section 26 of this Agreement.
22. CURRENT PROCEDURAL TERMINOLOGY. For purposes of this Agreement, "CPT" means
the Physicians' Current Procedural Terminology, Fourth Edition, as contained in
CPT-1996, Copyright 1995 American Medical Association (the "AMA"), a coding
system of nomenclature and five-digit codes for reporting physicians services,
licensed to LifeRate by the AMA.
(a) CPT is included in the LRSI Software pursuant to a license agreement
entered into between LRSI and the American Medical Association ("AMA"). The
provision of an updated version of the CPT in the LRSI Software is
dependent upon the continuation of such license agreement between LRSI and
the AMA.
(b) Licensee is granted hereunder no right to use and is prohibited from
using CPT or information therein in any public computer-based information
system or public electronic bulletin board, including the Internet.
Licensee is also prohibited from publishing, translating and transferring
possession of the LRSI Software or a copy or portion thereof. Further,
Licensee is prohibited from creating derivative works based upon CPT and
selling, leasing or licensing CPT or otherwise making the LRSI Software or
any portion thereof available to any unauthorized party.
(c) CPT is copyrighted by the AMA, and Licensee shall place on all
permitted backup or archival copies of the LRSI Software notices of the
proprietary rights and copyright of the AMA in and to the CPT. Licensee
shall ensure that anyone who is authorized access to the LRSI Software
complies with the terms and provisions of this Section 22.
(d) LRSI and the AMA disclaim any and all liability, including liability
for the sequence, accuracy and completeness of data, contained in CPT; and
disclaim responsibility for any consequences attributable to or related to
any use, non-use or interpretation of information contained in or not
contained in CPT.
(e) LRSI AND AMA PROVIDE NO WARRANTY THAT THE DATA CONTAINED IN CPT WILL
MEET LICENSEE'S REQUIREMENTS, OR THAT THE USE OF THE LRSI SOFTWARE WILL BE
UNINTERRUPTED OR WITHOUT ERROR.
(f) In no event shall LRSI or AMA be liable for any special, incidental,
indirect and/or any consequential damages, including lost profits arising
under this Section 22. Except as otherwise provided in Sections 7 and 17 of
this Agreement with respect to LRSI, the entire liability and warranty by
LRSI and AMA with respect to the LRSI Software and CPT shall be to use
reasonable efforts of LRSI to correct a defect or furnish a replacement of
the LRSI Software and CPT within a reasonable, agreed upon period of time.
(g) This product (i.e., the LRSI Software) includes CPT which is commercial
technical data and/or computer data bases and/or commercial computer
software and/or commercial computer software documentation, as applicable
which were developed exclusively at private expense by the American Medical
Association, 515 North State Street, Chicago, Illinois 60610. U.S.
Government rights to use, modify, reproduce, release, perform, display or
disclose these technical data and/or computer data bases and/or computer
software and/or computer software documentation are subject to the limited
rights restrictions of DFARS 252.227.7015(b)(2) (June 1995) and/or subject
to the restrictions of DFARS 227.7202-1(a) (June 1995) and DFARS
227.7202-3(a) (June 1995), as applicable for U.S. Department of Defense
procurements and the limited rights restrictions of FAR 52.227-14 (June
1987) and/or subject to the restricted rights provisions of FAR 52.227-14
(June 1987) and FAR 52.227-19 (June 1987), as applicable, and any
applicable agency FAR Supplements, for non-Department of Defense Federal
procurements.
23. TAXES. Licensee agrees to pay when due (or reimburse LRSI for) all Colorado
sales, use, transaction, and other taxes, including penalties and interest,
which LRSI is at any time obligated to pay to or to collect from the State of
Colorado in connection with this Agreement, including the license of the LRSI
Software and the other transactions contemplated by this Agreement, except any
taxes based on LRSI's net income. Any delay by LRSI in collecting any such tax
shall in no way release Licensee of its obligation to pay or reimburse LRSI
therefor.
24. THIRD PARTY CLAIMS. Licensee agrees to indemnify and hold LRSI harmless from
any and all claims, (including those arising from, or associated with the FDA)
losses, and damages Licensee, or any Affiliate, or any other person or entity
who may be affected by Licensee's use of the LRSI Software, except for claims in
which it is alleged that the LRSI Software or Documentation infringe a valid
U.S. patent, copyright, or trade secret belonging to any third party.
25. DELAY IN PERFORMANCE. LRSI shall not be responsible for any failure to
perform due to causes beyond LRSI's control, including, but not limited to,
labor disputes, strikes, acts of God, fire, storm, water, delays in
transportation, communication line failure, and governmental actions. Any delay
beyond LRSI's control shall be excused and the period of performance extended as
may be necessary to enable LRSI to perform after the cause of delay has been
removed.
26. CONFIDENTIAL INFORMATION OF LICENSEE. LRSI shall use the same standard of
care to preserve the confidentiality of all financial, patient, and other
clearly designated confidential information of Licensee as LRSI uses with
respect to its own materials of a confidential nature and with respect to the
confidential material of other licensees of its data processing programs.
27. NOTICES. All notices given under this Agreement shall be in writing and
shall be given by personal delivery, United States mail, or United States
Express Mail, or other established express delivery service (such as Federal
Express), postage or delivery charge prepaid, addressed to the parties as
follows:
LRSI:
LifeRate Systems, Inc.
7210 Metro Blvd.
Minneapolis, MN. 55439-2128
LICENSEE:
National Jewish Center for
Immunology and Respiratory
1400 Jackson Street
Denver, CO 80206
Notice shall be considered received on the date of actual receipt, in the event
of personal delivery, or on the date of first attempted delivery, in the event
of United States mail or United States Express Mail or other established express
delivery service. Either party, upon notice to the other, may change the address
for future notices, as long as the changed address is one to which notices may
be delivered in the manner contemplated by this Section.
28. GOVERNING LAW; LIMITATION ON ACTIONS. This Agreement is entered into in the
State of Minnesota and in all respects shall be construed, interpreted, and
governed by the laws of the State of Minnesota, without regard to conflicts of
law principles. No claim or action arising out of this Agreement may be asserted
by either party more than two years after the cause of action has arisen.
29. ENTIRE AGREEMENT; INTERPRETATION; MODIFICATION. This Agreement, the
Technical Support Agreement, and their Exhibits, which exhibits are part of this
Agreement, set forth the entire Agreement and understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements, written
or oral, between the parties. The provisions of this Agreement shall be
construed as a whole and not strictly for or against either party. The section
headings in this Agreement are included only for purposes of convenient
reference, and they shall not affect the interpretation of this Agreement. This
Agreement may not be amended or modified except by a written instrument signed
by both parties.
30. LATE PAYMENTS. If any payment owed by Licensee to LRSI is not paid when due,
LRSI, at its option, may charge Licensee interest on such past due amount at the
prime rate as published in the Wall Street Journal on the first of each month.
31. EFFECT OR INVALID OR UNENFORCEABLE PROVISION. This Agreement, to the extent
possible, shall be construed so as to give validity to all the provisions
hereof. Any provision of this Agreement found to be invalid or unenforceable
shall not affect the validity or enforceability of any other provision of this
Agreement, and each provision of this Agreement shall be enforced to the fullest
extent permitted by applicable law.
32. ACCEPTANCE BY LRSI. This Agreement shall not be effective until accepted by
LRSI and signed by one of its officers at its principal offices in Minneapolis,
Minnesota , and a copy of this Agreement so accepted has been delivered or
mailed by LRSI to Licensee.
33. ARBITRATION. If a dispute under this Agreement cannot be resolved by the
parties, such dispute shall be submitted to binding arbitration except that any
dispute under Sections 11, 19, and 24 need not be submitted to arbitration It is
the intent of the parties that the arbitration be structured in such a way as to
minimize costs and delay. The arbitration shall be conducted pursuant to the
rules of commercial arbitration of the American Arbitration Association (AAA),
with the following stipulations or exceptions.
(a) The arbitration hearing shall be held before a single arbitrator if
LRSI and Licensee agree upon a single arbitrator. If LRSI and Licensee
cannot agree upon a single arbitrator, then each shall select an
arbitrator, and those arbitrators shall select a third arbitrator. If
they are unable to agree upon a third arbitrator within 15 calendar
days, the third arbitrator shall be selected as provided in the AAA
rules. Each arbitrator shall have knowledge of healthcare electronic
data processing practices.
(b) The arbitration decision shall be rendered not later than thirty (30)
calendar days after the final day of the hearing and shall be
judicially enforceable, non-appealable and binding.
(c) Summaries of any expert testimony, along with copies of all documents
to be submitted as exhibits, shall be exchanged as least ten (10)
calendar days before arbitration under procedures set up by the
arbitrator(s).
(d) Except as otherwise specified herein, there shall be no discovery or
dispositive motion practice except as may be permitted by the
arbitrator(s), who may authorize only such discovery as is shown to be
necessary to insure a fair hearing.
(e) Arbitration costs, arbitrators' fees, and attorneys' fees and costs
shall be allocated between the parties by the arbitrator(s).
(f) The arbitration shall occur in Chicago, Illinois.
(g) In no event may the arbitrator(s) award punitive damages.
34. BINDING EFFECT. Subject to the other provisions of this Agreement, this
Agreement shall be binding upon and inure to the benefit of the parties, their
successors and assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement.
LifeRate Systems, Inc. (LRSI)
By: /s/ William W. Chorske
Its: President & CEO
LICENSEE:
National Jewish Center
By: /s/ Lynn Taussig
Its: President & CEO
12/31/96
12/23/96
EXHIBIT A
GENERAL OVERVIEW OF LIFERATE SYSTEMS, INC. DELIVERABLES
INTRODUCTION:
It is important that our development customers be involved with the entire
design process. They provide "ease of use" functionality, clinical data
elements, guidelines and application navigation insight during the design phase.
When a prototype is available, these same individuals are requested to
extensively exercise the software. This gives LRSI invaluable guidance and
validation that the designed and programmed applications perform those
features/functions as intended for the general marketplace.
The LRSI software design and development project methodology includes, but is
not limited to: Preliminary Design Documentation, Detail Design Documentation,
Prototyping, Programming, Clinical Validation, Release to development customers
and general release.
LRSI has divided the development work effort into several phases. The following
outlines the first two phases of what is to be developed.
PHASE I
This phase of the work effort between LRSI and National Jewish Center for
Immunology and Respiratory Medicine (NJC) is an integration of existing data
from current NJC applications and the creation of a master patient index (MPI).
Integration combines data from various NJC information sources into LRSI's
patient centric data repository. A provider centric view is also possible with
the LRSI data structure. Integration introduces additional structure to existing
patient data sources and enhances the value of that data by improving capacity
and the ability to access and manage that data.
Integration is a four step process of combining information from disparate NJC
electronic systems into a single data repository.
[confidential treatment has been requested for omitted information]
EXHIBIT C presents, in detail, the process LRSI will use to successfully
complete Phase I.
PHASE II
This phase encompasses the design and development of clinical screens for point
of care data capture and the associated database components to facilitate data
entry at the point of care for:
* Pulmonology
* Infectious Diseases
* Immunology
* Rheumatology
* Allergy and Asthma
LRSI will assign a Product Line Manager to work with the Clinicians appointed by
NJC as Clinical Advisors to develop a preliminary design document. The
preliminary design document will give general information concerning screen
formats, necessary data elements, design analysis and security for the point of
care data capture screens. A preliminary design document will be developed for
each medical specialty listed above. An example of an LRSI preliminary and
detail design document is attached for Licensee's reference
NJC will assign a clinical advisor for each specialty and a clinical
administrator to ensure consensus among advisors.
EXHIBIT C presents, in detail, the steps LRSI will follow to successfully
complete Phase II.
ENVIRONMENT
The LifeRate System operates in a Client-Server environment with the Client and
Server communicating via industry standard protocols, i.e; TCP/IP, IPX/SPX or
NetBeui over industry standard physical networks, i.e.; Ethernet, Token Ring or
industry standard WAN, i.e.; ISDN, T1, ATM. The minimum requirements for the
server are an Intel Pentium(C) 120 MHz microprocessor, 32 MB of RAM and 4 GB of
Hard Drive space. An appropriate tape backup system is recommended but is not
required for proper functionality of the LifeRate software. The server
environment is Microsoft Windows NT(C) 3.51 or better with Microsoft SQL
Server(C) 6.0 or better.
The client environment is an Intel Pentium(C) 100 MHz with 16 MB of RAM and
sufficient free space on the hard drive to install the LifeRate application
(currently ca. 15 MB). The client environment must be running one of Microsoft
Windows 3.11(C), Windows 95(C), or Windows NT 3.51 Workstation.
EXHIBIT B
ADDENDUM TO THE SOFTWARE DEVELOPMENT AGREEMENT
This addendum is made and entered into this 18th day of December , 1996, between
LifeRate Systems, Inc. (LRSI), a Minnesota Corporation, and National Jewish
Center for Immunology and Respiratory Medicine (The Licensee), in conjunction
with the execution of the Technical Support Agreement between the parties on
this same date.
a.) LRSI acknowledges that Licensee needs evidence of an agreement
between LRSI and National Asthma and Allergy System (NAAS)
confirming LRSI's sole ownership of all LRSI software source
code.
b.) [confidential treatment has been requested for omitted
information]
c.) LRSI and Licensee agree to designate and identify staff that
are qualified to perform the tasks associated with this
Development Agreement. Both parties understand the importance
of maintaining staffing continuity throughout the development
project lifecycle. Section 14 of this Development Agreement
specifies that each party shall designate two such
representatives, one each for the administrative/technical
considerations and another for the clinical considerations.
d.) The initial license fee due as defined in Section 10 of the
attached Development Agreement and the payment schedule as
shown on Exhibit "C" of the Development Agreement, is paid by
Licensee to LRSI for the development of LRSI Software
Programs. LRSI understands that such License Fees paid by
Licensee are to be used for such software development. It is
LRSI's intent to use all license fees paid by Licensee for the
sole purpose of supporting the software being developed.
e.) LRSI understands that Licensee expects LRSI to use the license
fees received from Licensee and any other source of funds
(i.e. cash reserves) required to support this development
project effort to successful completion. In the event LRSI is
in default under the terms of the Development Agreement and
the default remains uncured for more than six (6) months,
resulting in the development effort not being completed in
accordance with the preliminary and detail design documents,
then it will use its best efforts to assist Licensee as
follows:
* As requested by Licensee, LRSI will use its best
efforts to transfer the work product completed to
date (including all source code) to a Licensee
internal staff selected by Licensee or any other
organization or group of individuals selected by
Licensee, or
* Provide Licensee with all work effort completed to
date. This includes all design documents, work
materials, programming effort, screens, logic, source
code, documentation, and all other information
associated with this development project.
e.) With respect to the significant work effort associated with
this development project, both parties recognize and
understand the extensive amount of time required to achieve
the desired results. Each party understands the amount of time
(with travel and overnights) that is required to be at each
others main location. During the duration of the project both
parties agree to provide administrative/ clerical support and
office space to each others employees and representatives.
f.) LRSI agrees to have Mr. William W. Chorske, current LifeRate
CEO, remain active with this development project through
December 1998, or the projects completion, whichever first
occurs. Mr. Chorske's participation will be as CEO of LRSI or
as an active Board Member, attending and participating in the
quarterly executive level status meetings conducted by the
respective project team leaders. Any time after December 31,
1997, LRSI may nominate and request a replacement for Mr.
Chorske, which request shall require Licensee's approval, and
which approval shall not be unreasonably withheld.
g.) [confidential treatment has been requested for omitted
information]
h.) LRSI will use reasonable efforts to:
* Design and develop clinical data capture screens in a manner
that allows for a certain level of user definable formatting
of defined data fields and the addition of previously defined
data elements without LRSI programming intervention. Such
clinical data capture screens will facilitate the placement of
fixed and variable data elements.
* Design and develop the clinical data capture screens and
associated software navigation so a level of screen flow
(sequence) can be user definable.
* Research and identify, during the initial design process,
alternate methods of data capture (i.e. light pen, pen pad,
voice recognition) to minimize the time and effort required to
enter clinical, financial, and administrative data into the
LRSI Software Programs as used by Licensee.
i.) Within Section 8 of the Development Agreement, it is
understood that Licensee may need to relocate the initial
Defined Computer Site from time to time, provided, however,
that LRSI approves such relocation in writing, which approval
shall not be unreasonably withheld. In addition, LRSI grants
approval for Licensee to maintain one copy of the LRSI
Software Programs and Documentation at a Disaster Recovery
Site which is an alternate location to the Defined Computer
Site.
j.) For each of the Software deliverables identified in Exhibit C
and developed by LRSI, LRSI shall provide initial and
follow-up formal classroom training for Licensee users. Such
training shall be scheduled at times reasonably convenient to
both parties. The fee for this initial and follow-up training,
to be conducted at Licensee location, has been included in the
initial license fee as quoted in Section 10 of the Development
Agreement. Travel and other associated expenses incurred by
LRSI as result of such training time, shall be paid by
Licensee as outlined in Section 4, second paragraph of the
Technical Support Agreement. Initial and follow-up classroom
training that is included with the Section 10 license fee is
outlined below:
* Initial Training:
PHASE I INTERFACES AND MPI MODULE - Two sessions,
three days each, to provide Licensee users with
the necessary training associated with the
effective use of the various interfaces and the
MPI module as developed by LRSI.
PHASE II CLINICAL MODULES - Three sessions per
clinical module, three days each, to provide
Licensee users with the training necessary to
effectively use each of the clinical modules as
developed by LRSI.
* Follow-up Training - Follow-up training generally
occurs 2-4 months after the initial training and
will include:
PHASE I INTERFACES AND MPI MODULE - Two sessions,
two days each, to provide Licensee users an
opportunity to enhance their understanding of the
various interfaces, the MPI module, and to resolve
their questions/concerns.
PHASE II CLINICAL MODULES - Three sessions for
each clinical module, two days each, to give users
an enhanced understanding of the capabilities of
each clinical module as developed by LRSI for
Licensee.
k). LRSI and Licensee acknowledge that Licensee has and will
continue to become involved with collaborative relationships
on a local and national basis, that would benefit from having
access to the LRSI Software. Such collaborative relationships
will not qualify as Affiliates as defined in Exhibit E of this
Development Agreement, but will qualify as a formal
collaborative relationship if Licensee comprises five (5)
percent or more representation of the collaborative
relationship. Then Licensee, upon written approval from LRSI,
which approval will not be unreasonably withheld, can offer
use of the LRSI Software, from its defined computer site, to
provide those data processing capabilities defined in Exhibits
A and C of this Development Agreement. Such LRSI Software
capabilities shall be offered to the qualified collaborative
relationships within all the terms and conditions of this
Development Agreement. Active patients represented by the
collaborative relationships shall be calculated and charged by
LRSI to Licensee as defined in Exhibit F.
Any collaborative type relationship in which Licensee is an
active participant, but is not clearly understood to qualify
as an affiliate or a collaborative relationship as defined
herein, then Licensee shall submit to LRSI a detailed
description of such collaborative relationship, requesting
written approval to use the LRSI Software as defined in this
Agreement. Such requested approval, upon thorough review by
LRSI, shall not be unreasonably withheld. If the requested
approval by Licensee is denied by LRSI, then LRSI shall
provide Licensee a written response explaining the reasons for
such denial.
l.) Licensee acknowledges that it will desire to purchase certain
consulting services from LRSI to facilitate additional
training, retraining, and to generally review the manner in
which Licensee is utilizing the LRSI software.
Such consulting services shall be provided to Licensee by
LRSI, as reasonably requested, and on the terms and conditions
agreed to by both parties. LRSI shall charge Licensee its
current consulting fee, plus associated travel expenses, for
such consulting services.
EXHIBIT C
PROJECTED DELIVERABLES AND TIME TABLES
[confidential treatment has been requested for omitted information]
EXHIBIT D
AFFILIATES OF LICENSEE
Licensee has certain "affiliates" that are granted the right to use the license
for LRSI Software Programs as defined in this Development Agreement. For
purposes of this Agreement, an affiliate is defined as:
(a) any legal entity that Licensee has 51% or more ownership of, and
(b) any legal entity that Licensee has controlling interest other
than 51% or more ownership.
Based upon written documentation provided by Licensee to LRSI the following
legal entities qualify as Licensee affiliates.
1) Name: ________________________________________________________________
Address: _____________________________________________________________
_____________________________________________________________
Type of Controlling Interest: ________________________________________
Contact Person: ______________________________________________________
Estimated Active Patients: ___________________________________________
2) Name: ________________________________________________________________
Address: _____________________________________________________________
_____________________________________________________________
Type of Controlling Interest: ________________________________________
Contact Person: ______________________________________________________
Estimated Active Patients: ___________________________________________
3) Name: ________________________________________________________________
Address: _____________________________________________________________
_____________________________________________________________
Type of Controlling Interest: ________________________________________
Contact Person: ______________________________________________________
Estimated Active Patients: ___________________________________________
EXHIBIT E
DEFINED COMPUTER SITE
NATIONAL JEWISH CENTER
1400 Jackson Street
Denver, Colorado 80206
EXHIBIT F
INITIAL LICENSE FEE AND ADDITIONAL LICENSE FEE COMPONENTS
[confidential treatment has been requested for omitted information]
TECHNICAL SUPPORT AGREEMENT
National Jewish Center Denver
Licensee State of Incorporation
1400 Jackson Street
Address
Denver, Colorado 80206
City, State, Zip Code
303-398-1601 Jim Harbin
Area Code/Phone No. License Representative
This Agreement is made and entered into as of this 18th day of December, 1996,
by and between LifeRate Systems, Inc. (LRSI) a Minnesota Corporation, having
it's principal offices at 7210 Metro Blvd., Minneapolis, MN. 55439-2128 and the
Licensee identified above.
LRSI and Licensee have entered into a Development Agreement (the "Development
Agreement") on this date pursuant to which LRSI has granted to Licensee a
restrictive and nonexclusive license to use the LRSI Software as defined in the
Development Agreement. Licensee desires to obtain from LRSI certain technical
support services with respect to the LRSI Software and Licensee's use thereof.
The terms "LRSI Software, "Documentation," "Defined Computer," "Defined Computer
Site," and other capitalized terms have the same meaning in this Agreement as in
the Development Agreement, except that for purposes of this Agreement, the term
"LRSI Software" shall include any error corrections provided by LRSI pursuant to
Section 1(b) and any new releases, enhancements, or software provided by LRSI
pursuant to Sections 1(d), 1(e), and 1(f) of this Agreement, and the term
"Documentation" shall include any user documentation or other printed or
tangible materials delivered by LRSI to Licensee in connection with any of the
foregoing.
In consideration of the mutual covenants contained herein and other valuable
consideration, the adequacy and receipt of which is hereby mutually
acknowledged, the parties hereto agree as follows:
1. SUPPORT SERVICES. During the term of this Agreement, LRSI agrees to provide
the following technical support services to Licensee:
(a) LRSI agrees to assume primary responsibility for assisting Licensee
with reasonable promptness in determining the cause of any malfunction in
the LRSI Software. If the case of such malfunction is reasonably believed by
LRSI to be attributable to either the Licensee's computer hardware equipment
or the operating software used with such equipment. LRSI agrees to provide
such assistance to obtain and facilitate, at Licensee's expense, the
warranty or maintenance services to remedy the same. As a condition to the
obligations of LRSI under this Section 1(a), Licensee agrees to maintain
Licensee's computer hardware equipment and operating software maintenance
contracts in effect as reasonably recommended by the equipment vendor
(b) LRSI agrees to use prompt and commercially reasonable efforts to
correct verifiable and reproducible errors in the LRSI Software which are
reported to LRSI by Licensee in accordance with LRSI's standard reporting
procedures. For purposes of this Agreement, the term "error" means any failure
of the LRSI Software to function on the Defined Computer substantially as
provided in LRSI's then current Documentation for the LRSI Software. The
correction of errors shall involve either a software modification or addition
that, when made or added to the LRSI Software, makes them capable of functioning
on the Defined Computer substantially as provided in the Documentation, or a
procedure or routine that, when observed in the regular operation of the LRSI
Software, eliminates the practical adverse effect on Licensee of the error. LRSI
shall have no responsibility under this Agreement with respect to errors in any
version of the LRSI Software other than the most recent release thereof made
available by LRSI to Licensee pursuant to Sections 1(e) and 1(f) (or the release
of the LRSI Software delivered pursuant to the Development Agreement, if no
release has been made pursuant to Sections 1(e) or 1(f) of this Agreement),
provided that LRSI shall continue to support a prior release for a reasonable
period sufficient to allow Licensee to implement the most recent release, but
not to exceed 90 days.
LRSI's obligations under this Section 1(b) are conditioned upon proper us of
the LRSI Software and shall not apply if Licensee makes or permits any
modification or alteration therein, or deviates from the operating
procedures therefor which are suggested by LRSI, or if an error results in
whole or in part from any neglect, accident or misuse by Licensee or its
employees or agents, or from any Defined Computer or other equipment failure
or failure to maintain a proper operating environment , or from any error in
the operating software which are not part of the LRSI Software. If LRSI
performs services to correct an error and it is determined that the error
resulted in whole or in part form circumstances described in the preceding
sentence, LRSI shall have the option to charge License a reasonable fee for
such service in addition to the fee provided for in Section 4 herein, which
fee shall be based on LRSI's then standard rates for personnel, computer
usage, travel and other costs.
Should LRSI, or its successor as approved in writing by Licensee,
discontinue support of the LRSI Software as defined in the Development
Agreement and its attached Exhibits within five (5) years after the final
payment date, then Licensee shall have the right to receive the source code
of the current version of the LRSI Software. Licensee shall only have a
right to use such LRSI Software source code for its' benefit and that if
its' affiliates as defined in Exhibit D of the Development Agreement.
Licensee understands that it is obligated to abide by the terms and
conditions of Sections 8, 9, and 19 of the Development Agreement and Section
10 of this Agreement.
(c) LRSI shall be available to provide reasonable 24 hour a day telephone
assistance to Licensee in problem diagnosis and resolution with respect to
Licensee's use of the LRSI Software. LRSI shall, at its expense, maintain an
800 number for this purpose. On Sunday's and on Federal and State holidays,
LRSI's response may be slower to the extent it utilizes an answering service
or paging device. The telephone support service to be provided by LRSI shall
not be a substitute for proper training of Licensee's employees.
Except in emergency situations, all telephone communications by Licensee
shall be made by Licensee's representative designated by it from time to
time pursuant to Section 11 herein.
(d) LRSI intends, from time to time, to issue new releases of the LRSI
Software to its customers generally, containing error corrections and minor
enhancements. LRSI shall provide Licensee with a copy of any such releases.
Enhancements may be designated by LRSI as minor or major depending upon the
functions added to the prior releases of the LRSI Software.
(e) With respect to enhancements not covered in Section 1(d) or which LRSI
designates as major, and which LRSI makes generally available to its
customers for an additional charge, LRSI shall make releases containing such
enhancements available to Licensee: (I) for a charge designated by LRSI
which shall be in addition to the fee provided for in Section 4 herein, and
(ii) during the five (5) year period of marketing support by Licensee as
defined in Section 12 of the Development Agreement, LRSI shall grant
Licensee a 25% discount off LRSI's then current market price for software
developed for use in the area of respiratory disease, and (iii) pursuant to
the terms and conditions of a separate license agreement.
(f) With respect to new releases provided to Licensee pursuant to this
Agreement, LRSI shall provide object code and user documentation. Such
releases shall in no event include source code.
(g) LRSI shall maintain a trained staff capable of rendering the serviced
set forth in this Agreement.
2. ENHANCEMENTS. All error corrections, new releases, enhancements, and updates
provided by LRSI to Licensee pursuant to this Agreement shall be part of the
LRSI Software and Documentation for purposes of the License under the
Development Agreement, and Licensee shall have all of the obligations and be
subject to all of the limitations with respect thereto which are set forth in
the License Agreement and this Agreement.
Licensee may, from time to time, request that LRSI develop enhancements to the
LRSI Software for the commercial benefit and at the expense of Licensee. If
Licensee makes such a request, LRSI shall provide License an estimate of LRSI's
fees for developing such enhancement within a reasonable time after Licensee's
request. Licensee shall provide written documentation of the commercial benefit
to Licensee to be derived from the requested enhancement at the time of making
such request, and LRSI shall provide written support of the fees to be charged
to Licensee for such requested enhancement at the time of providing its estimate
of such fees. If Licensee is able to demonstrate through independent third
parties that LRSI's fees for the requested enhancement are commercially
unreasonable, and the parties are unable to agree on the fees for such
enhancement, Licensee shall be entitled to receive the Source Code for the LRSI
software module to which such enhancement request applies so Licensee can
program such enhancement itself. Licensee understands that upon receipt of such
source code, LRSI has no obligation of technical support services as defined
herein. If the parties are unable to resolve any dispute with respect to the
foregoing matter, such dispute shall be submitted to arbitration in accordance
with Section 25 of this Agreement.
Should Licensee receive a copy of the source code for the then current version
of the LRSI Software, Licensee understands that it is obligated to abide by the
terms and conditions of Sections 8, 9, and 19 of the Development Agreement and
Section 10 of this Agreement.
3. TERMS. The initial term of this Agreement shall commence at the end of the
Acceptance Testing period under the Development Agreement and shall continue
until the December 31 which immediately follows the end of the Acceptance
Testing Period. The initial term shall automatically be extended for successive
periods of one year each unless and until terminated pursuant to Section 5
herein. In no event, however, shall the term extend beyond any termination of
the license under the Development Agreement.
4. FEES. For the technical use and support services to be provided by LRSI under
this Agreement, Licensee agrees to pay to LRSI a monthly fee in the amount set
forth in Exhibit "A,". For each yearly extension of the term, LRSI may increase
the monthly fee, but License shall be notified of the increase at least 90 days
prior to the beginning of such extension (or at the commencement of the initial
term if the initial term is for a period of less than 90 days.)
In addition to the foregoing fee, Licensee shall pay the following expenses
reasonably incurred by any employees of LRSI who make an on site visit in
connection with the performance by LRSI of its services under this Agreement:
economy class, round trip air fare or its equivalent; first class, single
occupancy hotel or motel accommodations; reasonable out-of-pocket meal expenses;
and reasonable out-of-pocket local transportation expenses for taxi and/or
automobile rental service. License shall reimburse LRSI for any such expenses
within 30 days after receipt of an invoice therefor.
5. TERMINATION. This Agreement may be terminated as follows:
(a) This Agreement shall immediately terminate upon termination of the
Development Agreement.
(b) This Agreement may be terminated by either party effective at the
expiration of the then current term of this Agreement, provided that at
least 90 days prior written notice is given to the other party
(c) This Agreement may be terminated by either party upon material default
by the other party in the performance of its obligations and failure of such
other party to correct such default within 45 days after written notice
thereof(or if such default, other than a default in the payment of money
owed, cannot reasonably be corrected within such 45 days, then failure of
such other party to commence corrective steps within such 45 day period and
diligently to pursue such steps to completion).
6. ADDITIONAL SERVICE. Upon written request from Licensee from time to time, but
subject to specific agreement by LRSI in each instance, LRSI shall use
commercially reasonable efforts to perform additional technical support services
which Licensee may reasonably need in addition to those otherwise provided for
in this Agreement. Licensee agrees, within 30 days after receipt of an invoice,
to pay reasonable charges for such additional services, which shall be based on
LRSI's then standard rates for personnel, travel and other costs.
7. COOPERATION. Licensee agrees to cooperate with LRSI in the performance by
LRSI of its obligations under this Agreement.
8. EMPLOYEES ON OTHER PARTY'S PREMISES. The employees or authorized agents of
each party shall comply with the other party's work rules and security
regulations when at the other party's premises in connection with this
Agreement. Each party agrees to indemnify and hold harmless the other party from
any personal injury or damage to real or tangible personal property resulting
from the negligence or intentional misconduct of the first party's employees or
agents while they are at the premises of the second party.
9. OWNERSHIP. Title to and ownership of and all proprietary rights in the LRSI
Software and the Documentation are reserved to and will at all times remain with
LRSI, and Licensee acknowledges that it has and will have no right or interest
therein regardless of whether Licensee, its employees or agents may have
contributed to the conception or development there or paid LRSI for its services
in connection therewith. Licensee shall from time to time take any further
action and execute and deliver any further instruments, including documents of
assignment or acknowledgment, that LRSI may reasonably request in establishing
and perfecting its ownership rights in the LRSI Software and the Documentation.
10. PROTECTION OF PROPRIETARY RIGHTS. Licensee recognizes and agrees that the
LRSI Software and the Documentation: (a) are considered and will be considered
by LRSI to be trade secrets, (b) are and will be furnished to Licensee in
confidence and (c) contain and will contain proprietary and confidential
information of LRSI. The placement of a copyright notice on any portion of the
LRSI Software or Documentation will not be construed to mean that such portion
has been published and will not derogate from any claim that such portion is a
trade secret or contains proprietary and confidential information. Licensee
agrees to hold the LRSI Software and Documentation in confidence and to take all
reasonable precautions to safeguard the confidentiality thereof. Licensee shall
not print, copy or duplicate any portion of the LRSI Software or Documentation,
in whole or in part, except that Licensee may make a copy of any machine
readable portion of the LRSI Software for normal security backup purposes and
may make a reasonable number of copies of the user documentation for its own
internal use. Licensee shall keep all copyright notices and proprietary legends
on the LRSI Software and Documentation and all copies thereof.
Licensee will not provide or otherwise make available any portion of the LRSI
Software or Documentation in any form without LRSI's prior written consent
except to Licensee's employees or agents during the period they are at the
Defined Computer Site and then only for the purposes specifically related to
Licensee's authorized use of the LRSI Software. Licensee will take appropriate
action by instruction, agreement or otherwise, with any persons permitted access
to any portion of the LRSI Software or Documentation to inform them of the trade
secret proprietary and confidential nature of the LRSI Software and
Documentation and to obtain their compliance with the terms of this Section.
Licensee will be liable for noncompliance by agents to the same extent as it
would be liable for noncompliance by its employees.
Licensee will insure, prior to disposing of any media, that any materials
relating to the LRSI Software or Documentation have been erased or otherwise
destroyed.
The provisions of this Section shall survive any termination of this Agreement
or the license granted under the Development Agreement. Notwithstanding anything
in this Section to the contrary, Licensee shall have no obligation of
confidentiality with respect to any portion of an LRSI Program or the
Documentation which is in or becomes part of the public domain, and Licensee
shall not be in breach of its confidentiality obligations to the extent it is
required to disclose any portion of the LRSI Software or the Documentation
pursuant to any order of a court or competent jurisdiction as long as Licensee
has furnished LRSI notice of any petition for such an order and of any such
order prior to disclosure.
11. LICENSEE REPRESENTATIVE. Licensee agrees to designate a qualified person to
act as its representative in coordinating the activities of the parties under
this Agreement. The name of the initial representative is set forth at the
beginning of this Agreement. The representative may be changed from time to time
by written notice to LRSI. All communications by and to such representative
shall be deemed communications by and to Licensee and shall be binding upon
Licensee.
12. PATENT AND COPYRIGHT INDEMNITY. LRSI will, at its expense, defend Licensee
against any claim made against Licensee during the term of this Agreement in
which claim it is alleged that the LRSI Software as used within the scope of the
license granted to Licensee infringe a valid U.S. patent, copyright, or trade
secret belonging to any third party, and LRSI will pay all costs, damages, and
attorneys' fees that a court finally awards against Licensee as a result of such
claim provided that:
(a) Licensee promptly notifies LRSI in writing of any such claim, and
(b) Licensee allows LRSI to control, and fully cooperates with LRSI in, the
defense and all related settlement negotiations.
If such a claim of infringement has occurred, or in LRSI's judgment is likely to
occur, Licensee agrees to allow LRSI, at LRSI's option and expense, to procure
the right for Licensee to continue using the LRSI Software or to replace or
modify them so that they become non-infringing. If none of the foregoing
alternatives is available on terms which are reasonable in LRSI's judgment, then
LRSI shall have the right to terminate the license of each potentially
infringing LRSI Software program upon 90 days prior written notice to Licensee,
in which event LRSI shall refund to Licensee the amount by which the license fee
paid by Licensee under the Development Agreement exceeds the product of
one-sixtieth of such license fee multiplied by the number of months between the
date when the LRSI Software to which it applies was first installed on the
Defined Computer and the date of termination,
This section state LRSI's entire obligation to Licensee regarding infringement
or the like.
13. TAXES. Licensee agrees to pay when due (or reimburse LRSI for) all Colorado
sales, use and other taxes, including penalties and interest, which LRSI is at
any time obligated to pay or collect from the State of Colorado in connection
with the services (including new releases, enhancement, and software provided as
part of those services) provided pursuant to this Agreement and otherwise in
connection with this Agreement, except any taxes based on LRSI's net income. Any
delay by LRSI in collecting any such tax shall in no way release Licensee of its
obligation to pay or reimburse LRSI.
14. DISCLAIMER OF WARRANTIES. LRSI MAKES NO REPRESENTATIONS OR WARRANTIES UNDER
THIS AGREEMENT WITH RESPECT TO THE LRSI SOFTWARE OR THE DOCUMENTATION, EXCEPT AS
SET FORTH HEREIN, WITH RESPECT TO THE SERVICES TO BE RENDERED BY LRSI HEREUNDER,
WHETHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
15. LIMITATION OF DAMAGES; EXCLUSIONS OF DAMAGES. THE TOTAL LIABILITY OF LRSI
FOR ANY AND ALL CLAIMS IN ANY WAY RELATED TO THIS AGREEMENT AND ANY PERFORMANCE
OR NONPERFORMANCE BY LRSI HEREUNDER, REGARDLESS OF THE FORM OF ACTION, WHETHER
IN CONTRACT OR IN TORT, INCLUDING NEGLIGENCE, SHALL IN NO EVENT EXCEED THE TOTAL
TECHNICAL SUPPORT FEES AND CHARGES PAID TO LRSI BY LICENSEE WITHIN THE SIX MONTH
PERIOD PRIOR TO THE ASSERTION OF ANY SUCH CLAIM. THIS LIMITATION OF LIABILITY
WILL NOT APPLY TO CLAIMS UNDER SECTION 8 HEREIN FOR PERSONAL INJURY OR DAMAGE TO
REAL OR TANGIBLE PERSONAL PROPERTY CAUSED BY THE NEGLIGENCE OR WILLFUL
MISCONDUCT OF LRSI'S EMPLOYEES OR AGENTS WHILE AT THE PREMISES OF LICENSEE OR TO
CLAIMS UNDER SECTION 12 HEREIN RELATED TO PATENT AND COPYRIGHT INDEMNITY.
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY IN NO EVENT SHALL
LRSI BE LIABLE TO LICENSEE OR TO ANY THIRD PARTY FOR ANY LOST PROFITS, LOST
SAVINGS OR OTHER CONSEQUENTIAL DAMAGES, OR FOR ANY INCIDENTAL OR SPECIAL
DAMAGES, EVEN IF LRSI HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, OR
FOR ANY CLAIM BY LICENSEE BASED UPON ANY CLAIM BY ANY OTHER PARTY AGAINST
LICENSEE.
16. THIRD PARTY CLAIMS. Licensee agrees to indemnify and hold LRSI harmless from
any and all claims, losses and damages asserted against LRSI by any patient,
employee or agent of Licensee, or any Affiliate, or any other person or entity
who may be affected by Licensee's use of the LRSI Software, except for claims in
which it is alleged that the LRSI Software or Documentation infringe a U.S.
patent, copyright or trade secret belonging to any third party.
17. DELAY IN PERFORMANCE. LRSI shall not be responsible for any failure to
perform due to causes beyond LRSI's control, including, but not limited to,
labor disputes, strikes, acts of God, fire, storm, water, delays in
transportation, power failure, communication line failure and governmental
actions. Any delay beyond LRSI's control shall be excused and the period of
performance extended as may be necessary to enable LRSI to perform after the
case of delay has been removed.
18. CONFIDENTIAL INFORMATION OF LICENSEE. LRSI shall use the same standard of
care to preserve the confidentiality of all financial, patient and other clearly
designated confidential information of Licensee as LRSI uses with respect to its
own materials of a confidential nature and with respect to the confidential
materials of other licensees of its data processing software.
19. NOTICES. All notices given under this Agreement shall be in writing and
shall be given by personal delivery, United States nail or United States express
mail, or other established express delivery service (such as Federal Express),
postage or delivery charge prepaid, addressed to the parties as follows:
LRSI LifeRate Systems, Inc.
7210 Metro Blvd.
Minneapolis, MN. 55439-2128
LICENSEE: The address set forth at the
beginning of this Agreement.
Notice shall be considered received on the date of actual receipt, in the event
of personal delivery, or on the date of first attempted delivery in the event of
United States mail or United States express mail or other established express
delivery service. Either party, upon notice to the other, may change the address
for future notices as long as the changed address is one to which notices may be
delivered in the manner contemplated by this section.
20. GOVERNING LAW; LIMITATION ON ACTIONS. This Agreement is entered into in the
State of Minnesota and in all respects shall be construed, interpreted, and
governed by the laws of the State of Minnesota, without regard to conflicts of
law principles. No claim or action arising out of this Agreement may be asserted
by either party more than two years after the cause of action has arisen.
21. ENTIRE AGREEMENT; INTERPRETATION; MODIFICATION. This Agreement and the
Development Agreement and their Exhibits, set for the entire agreement and
understanding of the parties with respect to subject matter hereof, and
supersedes all prior agreements, written or oral, between the parties. The
provisions of this Agreement shall be construed as a whole and not strictly for
or against either party. The section headings in this Agreement are included
only for purposes of convenient reference, and they shall not affect the
interpretation of this Agreement. This Agreement may not be amended or modified
except by a written instrument signed by both parties.
22. LATE PAYMENTS. If any payment owed by Licensee to LRSI is not paid when due,
LRSI, at its option, may charge Licensee interest on such past due amount at the
prime rate as published in the WALL STREET JOURNAL on the first of each month.
23. EFFECT OF INVALID OR UNENFORCEABLE PROVISIONS. This Agreement, to the extent
possible, shall be construed so as to give validity to all the provisions
hereof. any provision of this Agreement found to be invalid or unenforceable
shall not affect the validity or enforceability of any other provision of this
Agreement and each provision of this Agreement shall be enforced to the fullest
extent permitted by applicable law.
24. ACCEPTANCE BY LRSI. This Agreement shall not be effective until accepted by
LRSI and signed by one of its officers at its principal office in Minneapolis,
Minnesota, and a copy of this Agreement so accepted has been delivered or mailed
by LRSI to Licensee.
25. ARBITRATION. If a dispute under this Agreement cannot be resolved by the
parties such dispute shall be submitted to binding arbitration except that any
dispute under Sections 11, 19, and 24 need not be submitted to arbitration. It
is the intent of the parties that the arbitration be structured in such a way as
to minimize costs and delay. The arbitration shall be conducted pursuant to the
rules of commercial arbitration of the American Arbitration Association (AAA),
with the following stipulations or exceptions.
(a) The arbitration hearing shall be held before a single arbitrator if LRSI
and Licensee agree upon a single arbitrator. If LRSI and Licensee cannot
agree upon a single arbitrator, then each shall select an arbitrator, and
those arbitrators shall select a third arbitrator If they are unable to
agree upon a third arbitrator within 15 days, the third arbitrator shall be
selected as provided in the AAA rules. Each arbitrator shall have knowledge
of healthcare electronic data processing practices.
(b) The arbitration decision shall be rendered not later than thirty (30)
days after the final day of the hearing and shall be judicially enforceable,
non-appealable and binding.
(c) Summaries of any expert testimony, along with copies of all documents to
be submitted as exhibits, shall be exchanged at least (10) business days
before arbitration under procedures set up by the arbitrator(s).
(d) Except as otherwise specified herein, there shall be no discovery or
dispositive motion practice except as may be permitted by the arbitrator(s),
who may authorize only such discovery as is shown to be necessary to insure
a fair hearing. No discovery or motions permitted by the arbitrators shall
in any way alter the time limits specified herein.
(e) Arbitration costs, arbitrators' fees, and attorneys' fees and costs
shall be allocated between the parties by the arbitrator(s).
(f) The arbitration shall occur in Chicago, Illinois.
(g) In no event may the arbitrator(s) award punitive damages.
26. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the parties, their successors and assigns. This Agreement and any of
its attachments are not assignable or transferable by Licensee except to a
successor in interest of the business of Licensee and then only with the prior
written approval of LRSI, which approval may require additional license fees and
which approval shall not be unreasonable withheld.
IN WITNESS WHEREOF, the parties have executed this Agreement.
LIFERATE SYSTEMS, INC.
By: /s/ William W. Chorske
Authorized Signature
Title: President & CEO
LICENSEE: National Jewish Center
By: /s/ Lynn Taussig
Authorized Signature
Title: President & CEO
12/31/96
AGREEMENT
This Agreement is entered into as of this 28th day of March, 1997, by
and between LifeRate Systems, Inc., a corporation organized under the laws of
the State of Minnesota (the "Company") and The Atlanta Cardiology Group, P.C., a
professional corporation organized under the laws of the State of Georgia
("ACG").
RECITALS:
The Company and ACG are parties to a certain Letter of Agreement (the
"Letter Agreement") dated September 28, 1994 relating to the development,
production and implementation of certain practice guidelines and clinical
outcomes systems for cardiology (all such guidelines, products and systems
developed or being developed under the Letter Agreement being herein called
"Letter Agreement Products and Systems").
The Company and ACG desire to terminate the Letter Agreement in its
entirety and replace it with a new agreement as provided herein.
In connection with the termination of the Letter Agreement, the Company
has agreed to issue, and ACG have agreed to acquire, on the terms and conditions
set forth herein, a Convertible Subordinated Note in the principal amount of
$2,250,000 U.S., in the form attached as Exhibit A (the "Note"), which Note also
provides, among other things, that $2,000,000 of the principal amount thereof is
convertible into shares of the Company's Common Stock, in which event the
remaining $250,000, together with accrued interest, shall be payable at
maturity.
AGREEMENT:
For good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the Company and ACG agree as follows:
1. Agreement To Issue And Acquire Note; Termination Of Letter Agreement;
Mutual Release.
1.1. Issuance of Note. Subject to the terms and conditions hereof,
at the Closing (as defined below), and in consideration for
the termination of the Letter Agreement and the execution of
the Mutual Release (referred to below), the Company hereby
agrees to issue to ACG, and ACG agrees to acquire from the
Company, the Note.
1.2. Termination of Letter Agreement. Subject to the terms and
conditions hereof, at the Closing, the Letter Agreement shall
terminate in all respects and neither ACG nor the Company
shall have any responsibility, liability or obligation to each
other in respect of the Letter Agreement.
1.3. Mutual Release. Subject to the terms and conditions hereof, at
the Closing, the parties hereto will each execute the Mutual
Release in the form attached as Exhibit B.
2. Closing.
2.1. Closing Dates. The closing of the matters provided for in this
Agreement shall take place at the offices of Oppenheimer Wolff
& Donnelly, 45 South Seventh Street, Suite 3400, Minneapolis,
Minnesota 55402, at 11 a.m., Minneapolis time, on or about
March 26, 1997, or as soon as practical thereafter (the
"Closing") or at such other place or different time or day as
may be mutually acceptable to ACG and the Company, provided
that all other conditions to the Closing as provided in this
Agreement have been met to the reasonable satisfaction of, or
waived by, ACG or the Company, as the case may be. The date
and time on which the Closing occurs is referred to as the
"Closing Date."
2.2. Delivery of Note. At the Closing, the Company will deliver the
Note to ACG. The Note shall be dated and shall accrue interest
on the original principal amount commencing on the Closing
Date.
3. Representations And Warranties By The Company.
The Company hereby represents and warrants to ACG the following as of
the Closing Date, except as disclosed in the Schedules attached hereto
in reasonable detail:
3.1. Organization, Standing, Etc. The Company is a corporation duly
organized, validly existing and in good standing under the
laws of the State of Minnesota and has the requisite power and
authority to own or lease its properties and to carry on its
business as it is now being conducted. The Company has the
requisite power and authority to execute this Agreement and to
issue the Note and the shares issuable on conversion of the
Note (the "Conversion Shares") and to perform its obligations
under this Agreement and the Note.
3.2. Governing Instruments. The copies of the charter documents of
the Company, and all amendments thereto (collectively, the
"Charter Documents"), delivered to legal counsel for ACG prior
to the execution of this Agreement, are true and complete
copies of the duly and legally adopted Charter Documents in
effect.
3.3. Valid Issuance. The Note, when issued pursuant to the terms of
this Agreement, will be duly authorized, validly issued and
enforceable in accordance with its terms and the terms of this
Agreement, except as such enforceability may be limited by
bankruptcy, insolvency, moratorium, reorganization or other
similar laws affecting the enforcement of creditors' rights
generally and to judicial limitations on the enforcement of
the remedy of specific performance and other equitable
remedies. The Conversion Shares have been reserved for
issuance and, when issued upon the conversion of the Note,
will be duly authorized, validly issued and outstanding, fully
paid, nonassessable and free and clear of all pledges, liens
and encumbrances.
3.4. Securities Laws. Based in part upon the representations of ACG
in Section 4, no consent, authorization, approval, permit or
order of or filing with any governmental or regulatory
authority is required under current laws and regulations in
connection with the execution and delivery of this Agreement
or the offer, issuance, sale or delivery of the Note, other
than the filing of a Form D pursuant to Regulation D under the
Securities Act of 1933, as amended (the "Securities Act"), and
the qualification thereof, if required, under applicable state
securities laws which qualification has been or will be
effected as a condition of this sale. Under the circumstances
contemplated by this Agreement, the offer, issuance, sale and
delivery of the Note will not, under current laws and
regulations, require compliance with the prospectus delivery
or registration requirements of the Securities Act.
3.5. Capital Stock.
(a) The authorized capital stock of the Company as of the
date hereof is contained in the Company's Annual
Report on Form 10-KSB, for the year-ended December
31, 1996 ("Form 10-KSB"). All of the outstanding
shares of the Company were duly authorized and
validly issued and are fully paid and nonassessable.
(b) There are no outstanding subscriptions, options,
warrants, calls, contracts, demands, commitments,
convertible securities or other agreements or
arrangements of any character or nature whatever,
other than this Agreement, under which the Company is
obligated to issue any securities of any kind
representing an ownership interest in the Company,
except as set forth in the Form 10-KSB. The issuance
of the Note and the Conversion Shares do not
constitute an event, under any anti-dilution
provisions of any securities issued (or issuable
pursuant to outstanding rights, warrants or options)
by the Company or any agreements with respect to the
issuance of securities by the Company, which will
either increase the number of shares issuable
pursuant to such provisions or decrease the
consideration per share to be received by the Company
pursuant to such provisions.
(c) Except as set forth on the Form 10-KSB, no holder of
any securities of the Company is entitled to any
preemptive or similar rights to purchase any
securities of the Company from the Company.
3.6. Corporate Acts and Proceedings. This Agreement has been duly
authorized by all necessary corporate action on behalf of the
Company, has been duly executed and delivered by authorized
officers of the Company, is a valid and binding agreement on
the part of the Company and is enforceable against the Company
in accordance with its terms, except as such enforceability
may be limited by bankruptcy, insolvency, moratorium,
reorganization or other similar laws affecting the enforcement
of creditors' rights generally and to judicial limitations on
the enforcement of the remedy of specific performance and
other equitable remedies. All corporate actions necessary to
the authorization, creation, issuance and delivery of the Note
and the Conversion Shares and reservation of the Conversion
Shares contemplated hereunder has been taken by the Company,
or will be taken by the Company on or prior to the Closing.
4. Representations and Agreements of ACG.
ACG hereby severally represents, warrants to, and agrees with, the
Company that:
4.1. Investment Intent. ACG is purchasing the Note for investment
for such its own account and not with the view to, or for
resale in connection with, any distribution or public offering
thereof. ACG has no current plan or intention to engage in a
sale, exchange, transfer, distribution, redemption, reduction
in any way of ACG's risk of ownership by short sale or
otherwise, or other disposition, directly or indirectly of the
Note pursuant to this Agreement.
4.2. Knowledge and Experience. ACG has substantial experience in
evaluating and investing in private placement transactions of
securities in companies similar to the Company and has the
knowledge and experience in financial and business matters
such that ACG is capable of evaluating the merits and risks of
his investment in the Company and has the capacity to protect
his own interests.
4.3. Location of Principal Office, Qualification as an Accredited
Investor, Etc. The state of domicile of ACG is the state set
forth in ACG's address in Sections 12.2. ACG, by execution of
this Agreement, hereby represents that it qualifies as an
"accredited investor" for purposes of Regulation D promulgated
under the Securities Act. ACG can bear the loss of the entire
investment in the Note without any material adverse effect on
its assets, net worth, business, operations or prospects.
4.4. Acts and Proceedings. This Agreement has been duly authorized
by all necessary action on the part of ACG, has been duly
executed and delivered by ACG, and is a valid and binding
agreement of ACG and enforceable against ACG in accordance
with its terms, except as enforceability may be limited by
bankruptcy, insolvency, moratorium, reorganization or other
similar laws affecting the enforcement of creditor's rights
generally and to judicial limitations on the remedy of
specific enforcement and other equitable remedies.
4.5. Disclosure of Information. ACG acknowledges that the Company
has made available to ACG at a reasonable time prior to the
execution of this Agreement the opportunity to ask questions
and receive answers concerning the terms and conditions of the
offering of the Note and to obtain any additional information
(which the Company possesses or can acquire without
unreasonable effort or expense) as may be necessary to verify
the accuracy of information furnished to ACG. The foregoing,
however, does not limit or modify the representations and
warranties of the Company in this Agreement or the right of
ACG to rely thereon. ACG acknowledges that in making the
decision to invest in the Company, ACG is not relying on any
person, firm or company, other than the Company and its
officers, employees and/or directors.
4.6. Restrictions on Resale; Rule 144. ACG understands that (i)
neither the Note nor the Conversion Shares have been
registered under the Securities Act or any state securities
laws because they are being issued in transactions exempt from
such registration requirements, pursuant to Section 4(2) of
the Securities Act and applicable state securities laws, and
(ii) the reliance of the Company and others upon these
exemptions is predicated in part upon this representation by
ACG. ACG acknowledges that the Shares must be held
indefinitely unless subsequently registered under the
Securities Act and any applicable state securities act or
unless exemptions from such registration are available. ACG
understands that neither the Note nor the Conversion Shares
may be transferred or resold without (i) registration under
the Securities Act and any applicable state securities laws,
or (ii) an exemption from the requirements of the Securities
Act and applicable state securities laws. ACG understands that
an exemption from such registration is not presently available
pursuant to Rule 144 promulgated under the Securities Act by
the Securities and Exchange Commission (the "Commission") and
that ACG may not sell any securities acquired hereunder
pursuant to Rule 144 prior to the expiration of a two-year
period (or shorter period, if applicable) after ACG has
acquired such securities and in full compliance with all other
provisions of Rule 144.
4.7. Legend; Stop Transfer. The Note shall bear the following
legend:
"THIS NOTE AND THE UNDERLYING SECURITIES HAVE NOT BEEN
REGISTERED UNDER EITHER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR APPLICABLE BLUE SKY LAWS, AND IS SUBJECT TO
CERTAIN INVESTMENT REPRESENTATIONS. THIS NOTE MAY NOT BE SOLD,
OFFERED FOR SALE OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION UNDER THE ACT, AND THE APPLICABLE BLUE SKY LAWS
OR AN EXEMPTION THEREFROM."
The Conversion Shares, if and when issued shall bear a similar
legend. In addition, the Company shall make a notation
regarding the restrictions on transfer of the Note and
Conversion Shares in its books and the Note and Conversion
Shares shall be transferred on the books of the Company only
if transferred or sold pursuant to an effective registration
statement under the Securities Act covering the Note and
Conversion Shares or an opinion of counsel satisfactory to the
company that such registration is not required.
4.8. No Intellectual Property Rights. ACG confirms, acknowledges
and agrees that ACG does not own, or claim any ownership or
other any right, title or interest in, any intellectual
property rights related to the Letter Agreement Products and
Systems, or any other intellectual property of the Company,
including, but not limited to, any inventions, patents,
copyrights, trade secrets, trademarks or confidential
information embodied in source code or object code.
5. Conditions of ACG's Obligations.
The obligation of ACG to acquire the Note at the Closing is subject to
the fulfillment or written waiver by ACG prior to or on the Closing
Date of the conditions set forth in this Section 5.
5.1. Representations and Warranties. The representations and
warranties of the Company under this Agreement shall be true
in all material respects as of the Closing Date with the same
effect as though made on and as of such date.
5.2. Compliance with Agreement. The Company shall have performed
and complied with all agreements or conditions required by
this Agreement to be performed and complied with by it prior
to or as of the Closing Date.
5.3. Certificate of Officers. The Company shall have delivered to
ACG a certificate, dated as of each Closing Date, executed by
the President and Chief Financial Officer of the Company,
certifying to the satisfaction of the conditions specified in
Sections 5.1 and 5.2.
5.4. Supporting Documents. Legal counsel for ACG shall have
received the following:
(a) a copy of resolutions of the Board of Directors
authorizing and approving the Note and authorizing
and approving the execution, delivery and performance
of this Agreement, all such resolutions to be
certified by an officer of the Company;
(b) a Certificate of Incumbency executed by an officer of
the Company certifying the names, titles and
signatures of the officers authorized to execute this
Agreement and further certifying that the Charter
Documents of the Company delivered to legal counsel
for ACG at the time of the execution of this
Agreement have been validly adopted and have not been
amended or modified; and
(c) such additional supporting documentation and other
information with respect to the transactions
contemplated hereby as legal counsel for ACG may
reasonably request.
5.5. Qualification under State Securities Laws. All registrations,
qualifications, permits and approvals required under
applicable state securities laws for the lawful execution and
delivery of this Agreement and the offer, sale, issuance and
delivery of the securities to ACG at the closing shall have
been obtained or will be obtained in compliance with such
laws.
6. Conditions of the Company's Obligations.
The obligations of the Company to ACG under this Agreement are subject
to the fulfillment on or before the Closing of each of the following
conditions, the waiver of which shall not be effective unless consented
to in writing by the Company:
6.1. Representations and Warranties. The representations and
warranties of ACG contained in Section 4 shall be true and
correct on and as of the Closing with the same force and
effect as if such representations and warranties had been made
on and as of the Closing.
6.2. Qualification under State Securities Laws. All registrations,
qualifications, permits and approvals required under
applicable state securities laws for the lawful execution and
delivery of this Agreement and the offer, sale, issuance and
delivery of the securities to ACG at the Closing shall have
been obtained or will be obtained in compliance with such
laws.
7. Affirmative Covenants of the Company.
While the Note remains outstanding, the Company covenants and agrees as
follows:
7.1. Note Covenants. The Company shall comply with the Affirmative
Covenants of the Company as set forth in Section 7 of the
Note.
7.2. Conversion of Note. The Note shall be convertible, at the
option of ACG, at the rate and on the other terms and
conditions set forth in the Note. All of the Conversion Shares
that may be issued, upon issuance, will be fully paid and
nonassessable and free from all taxes, liens and charges
(except for taxes, if any, upon the income of the holder and
applicable transfer taxes) with respect to the issue thereof.
The Company further covenants and agrees that the Company will
at all times have authorized and reserved a sufficient number
of its shares of Common Stock for the purpose of issuance upon
the exercise of such conversion privileges.
7.3. Designee to Attend Board Meetings. ACG will have the right to
appoint a designee to attend all meetings of the Board of
Directors of the Company, which designee shall also receive
copies of all materials distributed to the Board.
7.4. License. The Company will grant ACG a perpetual, royalty-free
license to use the LifeRate system, including upgrades, as well
provide ACG with access to the LifeRate's complete database,
upon mutually agreeable terms to be negotiated within the next
30 days.
8. Negative Covenants.
The Company agrees that while the Note remains outstanding the Company
will comply with the negative covenant set forth in Section 8 of the
Note.
9. Registration Rights.
9.1. Required Registration. If, at any time after ACG shall have
given notice of conversion to the Company indicating the
intent to convert the Note into shares of Common Stock, the
Company shall receive a written request from ACG, the Company
shall prepare and file a registration statement under the
Securities Act as promptly as reasonable possible, covering
the number of Conversion Shares which are the subject of such
requests and shall use its best efforts to cause such
registration statement to become effective. In the event that
ACG determines for any reason not to proceed with a
registration at any time before the registration statement has
been declared effective by the Commission, and such
registration statement is withdrawn with respect to the
Conversion Shares covered thereby, and ACG agrees to bear its
own expenses incurred in connection therewith and to reimburse
the Company for the expenses incurred by it attributable to
the registration of such Conversion Shares, then ACG shall not
be deemed to have exercised a right to require the Company to
register Conversion Shares pursuant to this Section at the
expense of the Company. If a registration statement filed by
the Company at the request of ACG pursuant to this Section is
withdrawn at the initiative of the Company, then ACG shall not
be deemed to have exercised a right to require the Company to
register Conversion Shares pursuant to this Section.
The managing underwriter of an offering registered pursuant to
this Section shall be selected by ACG and shall be reasonably
acceptable to the Company. Without the written consent of ACG,
neither the Company nor any other holder of securities of the
Company may include securities in such registration if, in the
good faith judgment of the managing underwriter of such public
offering, the inclusion of such securities would interfere
with the successful marketing of the Conversion Shares or
require the exclusion of any portion of the Conversion Shares
to be registered. Shares to be excluded from an underwritten
public offering shall be selected in the manner provided in
Section 9.2.
The obligation of the Company under this Section 9.1 shall be
limited to one registration statement. The Company shall pay
the expenses described in Section 9.5 for such registration
statement.
For purposes of this Section 9, Conversion Shares shall be
deemed to include the Common Stock or other securities of the
Company issued and outstanding in a stock split or
reclassification of or a stock dividend or other distribution
on or in substitution or exchange for, or in a merger or
consolidation involving the Company or a sale of all or
substantially all of the Company's assets in exchange for or
otherwise in connection with, the Conversion Shares.
9.2. Incidental Registration. Each time the Company shall determine
to proceed with the actual preparation and filing of a
registration statement under the Securities Act in connection
with the proposed offer and sale for money of any of its
securities by it or any of its security holders (other than a
registration statement on Form S-4, S-8 or other limited
purpose form), the Company will give written notice of its
determination to ACG. Upon the written request of ACG given
within 30 days after receipt of any such notice from the
Company, the Company will, except as herein provided, cause
all Conversion Shares so requested to be included in such
registration statement, all to the extent requisite to permit
the sale or other disposition by the prospective seller or
sellers of the Conversion Shares to be so registered;
provided, however, that nothing herein shall prevent the
Company from, at any time, abandoning or delaying any
registration. If any registration pursuant to this Section
shall be underwritten in whole or in part, the Company may
require that the Conversion Shares requested for inclusion
pursuant to this Section be included in the underwriting on
the same terms and conditions as the securities otherwise
being sold through the underwriters. If in the good faith
judgment of the managing underwriter of such public offering
the inclusion of all of the Conversion Shares originally
covered by a request for registration would reduce the number
of shares to be offered by the Company or interfere with the
successful marketing of the shares of stock offered by the
Company, the number of Conversion Shares to be included in the
underwritten public offering shall be reduced; first, pro rata
among the holders thereof requesting inclusion in such
registration who do not have written registration rights, and
thereafter, pro rata among those holders who have written
registration rights. Those Conversion Shares which are thus
excluded from the underwritten public offering shall be
withheld from the market by the holders thereof for a period,
not to exceed 90 days, which the managing underwriter
reasonably determines is necessary in order to effect the
underwritten public offering.
9.3. Registration Procedures. If and whenever the Company is
required by the provisions of Section 9.1 to effect the
registration of Conversion Shares under the Securities Act,
the Company will:
(a) prepare and file with the Commission a registration
statement with respect to such securities, and use
its best efforts to cause such registration statement
to become and remain effective for such period as may
be reasonably necessary to effect the sale of such
securities, not to exceed nine months;
(b) prepare and file with the Commission such amendments
to such registration statement and supplements to the
prospectus contained therein as may be necessary to
keep such registration statement effective for such
period as may be reasonably necessary to effect the
sale of such securities, not to exceed nine months;
(c) furnish to the security holders participating in such
registration and to the underwriters of the
securities being registered such reasonable number of
copies of the registration statement, preliminary
prospectus, final prospectus and such other documents
as such underwriters may reasonably request in order
to facilitate the public offering of such securities;
(d) use its best efforts to register or qualify the
securities covered by such registration statement
under such state securities or blue sky laws of such
jurisdictions as such participating holders may
reasonably request within 20 days following the
original filing of such registration statement,
except that the Company shall not for any purpose be
required to execute a general consent to service of
process or to qualify to do business as a foreign
corporation in any jurisdiction wherein it is not so
qualified;
(e) notify the security holders participating in such
registration, promptly after it shall receive notice
thereof, of the time when such registration statement
has become effective or a supplement to any
prospectus forming a part of such registration
statement has been filed;
(f) notify such holders promptly of any request by the
Commission for the amending or supplementing of such
registration statement or prospectus or for
additional information;
(g) prepare and file with the Commission, promptly upon
the request of any such holders, any amendments or
supplements to such registration statement or
prospectus which, in the opinion of counsel for such
holders (and concurred in by counsel for the
Company), is required under the Securities Act or the
rules and regulations thereunder in connection with
the distribution of the conversion shares by such
holder;
(h) prepare and promptly file with the Commission and
promptly notify such holders of the filing of such
amendment or supplement to such registration
statement or prospectus as may be necessary to
correct any statements or omissions if, at the time
when a prospectus relating to such securities is
required to be delivered under the Securities Act,
any event shall have occurred as the result of which
any such prospectus or any other prospectus as then
in effect would include an untrue statement of a
material fact or omit to state any material fact
necessary to make the statements therein, in the
light of the circumstances in which they were made,
not misleading;
(i) advise such holders, promptly after it shall receive
notice or obtain knowledge thereof, if the issuance
of any stop order by the Commission suspending the
effectiveness of such registration statement or the
initiation or threatening of any proceeding for that
purpose and promptly use its best efforts to prevent
the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued; and
(j) not file any amendment or supplement to such
registration statement or prospectus to which a
majority in interest of such holders shall have
reasonably objected on the grounds that such
amendment or supplement does not comply in all
material respects with the requirements of the
Securities Act or the rules and regulations
thereunder, after having been furnished with a copy
thereof at least two business days prior to the
filing thereof, unless in the opinion of counsel for
the Company the filing of such amendment or
supplement is reasonably necessary to protect the
Company form any liabilities under any applicable
federal or state law and such filing will not violate
applicable law.
9.4. Expenses. With respect to a registration statement pursuant to
Section 9.1, with the exception of such expenses incurred
after the decision by the Company not to proceed, the Company
shall bear the following fees, costs and expenses: all
registration, filing and NASD fees, printing expenses, fees
and disbursements of counsel and accountants for the Company
and all legal fees and disbursements and other expenses of
complying with state securities or blue sky laws of any
jurisdictions in which the securities to be offered are to be
registered or qualified. Fees and disbursements of counsel and
accountants for the selling security holders, underwriting
discounts and commissions and transfer taxes for selling
security holders and any other expenses incurred by the
selling security holders not expressly included above shall be
borne by the selling security holders.
9.5. Indemnification.
(a) The Company will indemnify and hold harmless ACG and
any underwriter (as defined in the Securities Act)
for such holder and each person, if any, who controls
such holder or such underwriter within the meaning of
the Securities Act, from and against any and all
loss, damage, liability, cost and expense to which
such holder or any such underwriter or controlling
person may become subject under the Securities Act or
otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any
untrue statement or alleged untrue statement of any
material fact contained in such registration
statement, any prospectus contained therein or any
amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein,
in light of the circumstances in which they were
made, not misleading; provided, however, that the
Company will not be liable in any such case to the
extent that any such loss, damage, liability, cost or
expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or
alleged omission so made in conformity with written
information furnished by such holder or such
controlling person in writing specifically for use in
the preparation thereof.
(b) ACG will indemnity and hold harmless the Company, any
controlling person and any underwriter from and
against any and all loss, damage, liability, cost or
expense to which the Company or any controlling
person and/or any underwriter may become subject
under the Securities Act or otherwise, insofar as
such losses, damages, liabilities, costs or expenses
are caused by any untrue or alleged untrue statement
of any material fact contained in such registration
statement, any prospectus contained therein or any
amendment or supplement thereto, or arise out of or
are based upon the omission or the alleged omission
to state therein a material fact required to be
stated therein or necessary to make the statements
therein, in light of the circumstances in which they
were made, not misleading, in each case to the
extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or
alleged omission was so made in reliance upon and in
strict conformity with written information furnished
by ACG specifically for use in the preparation
thereof.
(c) Promptly after receipt by an indemnified party
pursuant to the provisions of paragraph (a) or (b) of
this Section 9.5 of notice of the commencement of any
action involving the subject matter of the foregoing
indemnity provisions, such indemnified party will, if
a claim thereof is to be made against the
indemnifying party pursuant to the provisions of said
paragraph (a) or (b), promptly notify the
indemnifying party of the commencement thereof; but
the omission to so notify the indemnifying party will
not relieve it from any liability which it may have
to any indemnified party otherwise than hereunder. In
case such action is brought against any indemnified
party and it notifies the indemnifying party of the
commencement thereof, the indemnifying party shall
have the right to participate in, and, to the extent
that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense
thereof, with counsel satisfactory to such
indemnified party; provided, however, if the
defendants in any action include both the indemnified
party and the indemnifying party and there is a
conflict of interest which would prevent counsel for
the indemnifying party from also representing the
indemnified party, the indemnified party or parties
shall have the right to select separate counsel to
participate in the defense of such action on behalf
of such indemnified party or parties. After notice
from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the
indemnifying party will not be liable to such
indemnified party pursuant to the provisions of said
paragraph (a) or (b) for any legal or other expense
subsequently incurred by such indemnified party in
connection with the defense thereof other than
reasonable costs of investigation, unless (i) the
indemnified party shall have employed counsel in
accordance with the proviso of the preceding
sentence, (ii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified
party to represent the indemnified party within a
reasonable time after the notice of the commencement
of the action, or (iii) the indemnifying party has
authorized the employment of counsel for the
indemnified party at the expense of the indemnifying
party.
10. Events of Default; Acceleration.
An "Event of Default" shall occur upon the occurrence of any of the
following events:
10.1. Representation and Warranties. Any representation or warranty
made by the Company herein shall prove to have been incorrect
in any material respect on or as of the date made and remains
unremedied for a period of thirty (30) days after ACG provides
the Company with written notice thereof; or
10.2. Covenants. The Company shall default in the observance or
performance of any material covenant or agreement contained in
this Agreement and such default shall continue unremedied for
a period of the earlier of thirty (30) days from the date an
executive officer of the Company has actual knowledge of such
default or thirty (30) days after ACG has provided the Company
with written notice of such breach; or
10.3. Note Terms. An Event of Default shall occur under the Note;
then, and in any such event, so long as any Event of Default shall be
continuing, ACG by notice of default to the Company, declare the Note
owned by ACG (with accrued interest thereon) and all other amounts
owing under this Agreement to be due and payable forthwith, whereupon
the same shall immediately become due and payable.
11. Remedies Upon an Event of Default.
Upon the occurrence of an Event of Default, unless such Event of
Default shall have been waived or cured prior to the exercise of the
remedies set forth in this Section, ACG shall have all other remedies
at law or in equity, afforded to holders of debt or otherwise provided
for by this Agreement.
12. Miscellaneous.
12.1. Changes, Waivers, Etc. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or
terminated orally, but only by a statement in writing signed
by the party against which enforcement of the change, waiver,
discharge or termination is sought.
12.2. Notices. All notices, requests, consents and other
communications required or permitted hereunder shall be in
writing and shall be delivered, or mailed first-class postage
prepaid, registered or certified mail, as follows:
(a) if to ACG, to the addresses listed on Schedule 1; and
The Atlanta Cardiology Group, P.C.
5665 Peachtree
Dunwoody Road N.E.
Atlanta, GA 30342
Attention: President
(b) if to the Company, to:
LifeRate Systems, Inc.
7210 Metro Boulevard
Edina, MN 55439
Attention: Chief Executive Officer
and such notices and other communications shall for all
purposes of this Agreement be treated as being effective or
having been given if delivered personally, or, if sent by
mail, when received. Any party may change its address for such
communications by giving notice thereof to the other parties
in conformity with this Section.
12.3. Survival of Representations, Warranties, Agreements, Etc. All
representations, warranties, covenants and agreements
contained herein or in any certificate delivered pursuant to
this Agreement shall survive the execution and delivery of
this Agreement or such certificate, as the case may be, any
investigation at any time made by ACG or on its behalf, and
the closing of the transactions contemplated by this
Agreement. All statements contained in any certificate,
instrument or other writing prepared by or on behalf of the
Company and delivered by the Company pursuant to this
Agreement or in connection with or in contemplation of the
transactions herein contemplated shall constitute
representations and warranties by the Company hereunder.
12.4. Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon
and be enforceable by the successors and assigns of the
parties hereto, including the holder or holders from time to
time of any of the Note or Conversion Shares; provided,
however, that ACG may assign all or a portion of this Note to
no more than one additional person or entity upon the prior
written consent of the Company, which shall not be
unreasonably withheld.
12.5. Entire Agreement. This Agreement, the schedules hereto, the
documents referenced herein and the exhibits thereto,
constitute the entire understanding and agreement of the
parties hereto with respect to the subject matter hereof and
thereof and supersede all prior and contemporaneous agreements
or understandings, inducements or conditions, express or
implied, written or oral, between the parties with respect
hereto and thereto. The express terms hereof control and
supersede any course of performance or usage of the trade
inconsistent with any of the terms hereof.
12.6. Other Remedies. Any and all remedies herein expressly
conferred upon a party shall be deemed cumulative with, and
not exclusive of, any other remedy conferred hereby or by law
on such party, and the exercise of any one remedy shall not
preclude the exercise of any other.
12.7. Delays or Omissions. Except as expressly provided herein, no
delay or omission to exercise any right, power or remedy
accruing to any party under this Agreement shall impair any
such right, power or remedy of such party nor shall it be
construed to be a waiver of any such breach or default, or an
acquiescence thereto, or of a similar breach or default
thereafter occurring; nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring. Any waiver,
permit, consent or approval of any kind or character on the
part of any party hereto of any breach of default under the
Agreement, or any waiver on the part of any party of any
provisions or conditions of this Agreement, must be in writing
and shall be effective only to the extent specifically set
forth in such writing.
12.8. Construction of Agreement. This Agreement has been negotiated
by the respective parties hereto and their attorneys and the
language hereof shall not be construed for or against any
party. A reference in this Agreement to any section shall
include a reference to every section the number of which
begins with the number of the section to which reference is
specifically made. The titles and headings herein are for
reference purposes only and shall not in any manner limit the
construction of this Agreement which shall be considered as a
whole. A reference to a section means a section of this
Agreement, unless the context expressly otherwise requires.
12.9. Governing Law. This Agreement shall be governed by and
construed under the laws of the State of Minnesota.
12.10. Counterparts. This Agreement may be executed concurrently in
two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and
the same instrument.
12.11. Severability. Should any one or more of the provisions of this
Agreement or of any agreement entered into pursuant to this
Agreement be determined to be illegal or unenforceable, all
other provisions of this Agreement and of each other agreement
entered into pursuant to this Agreement, shall be given effect
separately from the provision or provisions determined to be
illegal or unenforceable and shall not be affected thereby.
12.12. Expenses. The Company will reimburse ACG for up to an
aggregate of $10,000 of professional fees and expenses
incurred in connection with the negotiation and execution of
this Agreement and the Note, upon submission of reasonable
documentation.
IN WITNESS WHEREOF, each of the Company and ACG has caused this
Agreement to be executed by its duly authorized representatives in counterpart.
COMPANY: LIFERATE SYSTEMS, INC.
By:______________________________________
Its: ____________________________________
ACG: ATLANTA CARDIOLOGY GROUP, P.C.
By:______________________________________
Its: ____________________________________
EXHIBIT A
THIS NOTE AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER EITHER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE BLUE SKY LAWS,
AND IS SUBJECT TO CERTAIN INVESTMENT REPRESENTATIONS. THIS NOTE MAY NOT BE SOLD,
OFFERED FOR SALE OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
UNDER THE ACT, AND THE APPLICABLE BLUE SKY LAWS OR AN EXEMPTION THEREFROM.
LIFERATE SYSTEMS, INC.
CONVERTIBLE SUBORDINATED NOTE
$2,250,000 MARCH 28, 1997
(PRINCIPAL AMOUNT) (DATE OF ISSUE)
FOR VALUE RECEIVED, LifeRate Systems, Inc., a corporation organized
under the laws of the State of Minnesota (the "COMPANY"), promises to pay to The
Atlanta Cardiology Group, P.C., a professional corporation organized under the
laws of the State of Georgia (the "HOLDER"), the principal amount of Two Million
Two Hundred Fifty Thousand U.S. Dollars ($2,250,000) on April 1, 2002, except to
the extent any portion of the principal amount of this Note is earlier converted
into Common Stock, no par value, of the Company ("COMMON STOCK") as provided in
Section 2, upon presentation and surrender of this Note. Interest shall accrue
on the outstanding principal amount of this Note from the date hereof at the
rate of 10% per annum, and shall be payable (i) at the rate of 5% per annum, on
such unpaid or unconverted principal amount, on each July 1, October 1, January
1 and April 1 hereafter, and (ii) the remaining accrued portion of interest
shall be payable on April 1, 2002; provided, however, that upon the conversion
of any portion of the principal amount hereof into Common Stock, all accrued
interest on such converted principal amount shall also be converted into Common
Stock. Interest shall be computed on the basis of a 365-day year commencing as
of the date of issue. This Note is the Note referred to in the Agreement, of
even date herewith, between the Company and the Holder (the "AGREEMENT"). This
Note may be prepaid at any time, in whole, without penalty, upon 90 days written
notice to the Holder; provided, however, that, in the event the Company gives
notice to the Holder of a proposed prepayment and the Holder thereafter
exercises its right to demand registration of the Conversion Shares (as defined
below) under the terms of Section 9.1 of the Agreement, then such prepayment
shall be delayed for up to an additional 120 days after the Company receives the
demand for registration under Section 9.1 of the Agreement in order to permit
such registration statement to become effective.
1. SUBORDINATION.
(a) SENIOR DEBT. This Note is unsecured in all respects. The Company
covenants and agrees, and the Holder by acceptance agrees, that this
Note is hereby expressly subordinated, to the extent and in the manner
hereinafter set forth, to the prior payment of all amounts due and
payable pursuant to indebtedness of the Company outstanding on the date
hereof or hereafter created, incurred, assumed or guaranteed by the
Company in connection with any working capital line from a bank
incurred in the ordinary course of business (collectively, "SENIOR
DEBT"), unless the instrument under which such debt is created,
incurred, assumed or guaranteed expressly provides that such debt is
not senior or superior in right of payment to this Note. No payment
shall be made on this Note unless all amounts then due and payable on
all Senior Debt have been paid in full or, if at the time of such
payment, there shall have occurred and be continuing any event of
default with respect to any Senior Debt permitting the holders thereof
to accelerate the maturity of such indebtedness. However, even if no
payment may be made hereunder because there exists an event of default
with respect to Senior Debt, an Event of Default hereunder shall still
be deemed to have occurred for purpose of any other remedies which the
Holder may have. The Company shall be obligated to pay the amounts due
pursuant to this Note when due, provided that the Company has paid all
amounts then due and payable with respect to all Senior Debt and there
is no continuing default with respect to any Senior Debt. Upon the
maturity of such Senior Debt, including by acceleration or otherwise,
or any distribution of the assets of the Company upon dissolution,
winding up, liquidation or reorganization of the Company, the holders
of such Senior Debt shall be entitled to receive payment in full before
the Holder is entitled to receive any payment. In the event of any
payment is made to the Holder in violation of this Section 1(a), the
payment made to the Holder shall be immediately paid over to the
holders of such Senior Debt.
(b) RIGHT OF SUBROGATION. Following the final and indefeasible payment
in full in cash of all obligations under, relating to or in respect of
Senior Debt, the Holder shall be subrogated to the rights of the
holders of Senior Debt to receive payments or distributions of assets
made on such Senior Debt until the Note shall be paid in full; and for
the purposes of such subrogation, (i) no payments or distributions to
the holders of such Senior Debt of any cash, property or securities to
which the Holder would be entitled except for the provisions of this
Section 1(b), and no payment over pursuant to the provisions of this
Section 1(b) to the holders of such Senior Debt by the Holder, shall,
as among the Company, its creditors other than the holders of such
Senior Debt and the Holder, be deemed to be a payment by the Company to
or on account of such Senior Debt, and (ii) the Holder shall, in
addition to all rights with respect to the unpaid portion of the Note,
succeed to the rights of the holders of Senior Debt to the extent of
such payments and distributions, it being understood that the
provisions of this Section 1(b) are solely for the purpose of defining
the relative rights of the holders of such Senior Debt, on the one
hand, and the Holder, on the other hand.
(c) NO IMPAIRMENT OF RIGHTS AND OBLIGATIONS. Nothing contained in this
Section 1 (i) is intended to or shall impair, as between the Company
and the Holder, the obligations of the Company, which are absolute and
unconditional, to pay to the Holder all obligations under, relating to
or in respect of this Note as and when the same shall become due and
payable in accordance with its terms, or (ii) is intended to or shall
affect the relative rights of the Holder, on the one hand, and the
creditors of the Company other than the holders of Senior Debt, on the
other hand.
2. CONVERSION RIGHT. At the option of the Holder, a maximum of $2,000,000 of the
principal amount of this Note, together with all accrued interest on such amount
to the date of conversion, shall be convertible, at the office of the Company
(or at such other office or offices, if any, as the Board of Directors may
designate), into fully paid and nonassessable shares (calculated as to each
conversion to the nearest 1/100th of a share) of Common Stock of the Company, at
the Conversion Price (as defined below). The price at which shares of Common
Stock shall be delivered upon conversion of this Note (the "CONVERSION PRICE")
shall be $3.60 per share; provided, however, that such initial Conversion Price
shall be subject to adjustment from time to time in certain instances as
hereinafter provided in this Section 2. The following provisions shall govern
such right of conversion:
(a) CONVERSION MECHANICS. In order to convert this Note into shares of
Common Stock of the Company, the Holder shall surrender at the
Company's offices the certificate or certificates therefor, duly
endorsed to the Company or in blank, and give written notice to the
Company at such office that the Holder elects to convert this Note. The
principal amount of this Note, together with all accrued interest
hereon, shall be deemed to have been converted immediately prior to the
close of business on the day of the surrender of this Note for
conversion as herein provided, and the Holder shall be treated for all
purposes as the record holder of such shares of Common Stock at such
time. As promptly as practicable on or after the conversion date, but
no later than ten (10) business days after the conversion date, the
Company shall issue and deliver or cause to be issued and delivered to
the Holder a certificate or certificates for the number of shares of
Common Stock of the Company issuable upon such conversion.
(b) ANTI-DILUTION PROVISIONS; ADJUSTMENT OF CONVERSION PRICE.
(i) Except as provided in this Section 2, if and whenever the
Company shall issue or sell any shares of its Common Stock for
a consideration per share less than the Conversion Price then,
forthwith upon such issue or sale, the Conversion Price shall
be reduced to the price (calculated to the nearest cent)
determined by dividing (x) an amount equal to the sum of (1)
the number of shares of Common Stock outstanding immediately
prior to such issue or sale multiplied by the then existing
Conversion Price and (2) the consideration, if any, received
by the Company upon such issue or sale, by (y) an amount equal
to the sum of (1) the number of shares of Common Stock
outstanding immediately prior to such issue or sale and (2)
the number of shares of Common Stock thus issued or sold.
Solely for purposes of (x)(1) and (y)(1) above, the term
"Common Stock outstanding" shall include those shares of
Common Stock issuable upon conversion of this Note.
(ii) Notwithstanding any other provisions of this Section 2,
the Conversion Price shall not be adjusted in the case of
issuance by the Company of (A) shares of Common Stock issued
upon exercise of any warrants or options to purchase Common
Stock outstanding on the date hereof as listed on Schedule 1
hereto, (B) options to purchase shares of Common Stock of the
Company (including shares of Common Stock issued upon the
exercise thereof) granted or to be granted pursuant to the
Company's 1993 Stock Option Plan, as such plan is in effect on
the date hereof or as may be amended by the Board of
Directors, (C) shares of Common Stock issued upon conversion
of this Note, (D) shares of Common Stock issued in the
Company's private placement which is contemplated to be
commenced within 60 days hereafter and is expected to raise
approximately $5,000,000 or (E) up to 555,000 shares issuable
to Anthony P. Furnary, M.D. (or APF, LLC) under a certain
warrant to be issued by the Company on or about the date
hereof.
(iii) No adjustment of the Conversion Price, however, shall be
made in an amount less than 1% of the Conversion Price in
effect on the date of such adjustment, but any such lesser
adjustment shall be carried forward and shall be made at the
time and together with the next subsequent adjustment which,
together with any such adjustment so carried forward, shall be
an amount equal to or greater than 1% of the Conversion Price
then in effect.
(iv) For the purposes of this Section 2, the following
provisions (1) to (4), inclusive, shall also be applicable:
(1) In case at any time the Company shall grant
(whether directly or by assumption in a merger or
otherwise) any rights to subscribe for or to
purchase, or any options for the purchase of, (a)
Common Stock or (b) any obligations or any shares of
stock or other securities of the Company which are
convertible into, or exchangeable for, Common Stock
(any of such obligations or shares of stock or other
securities being hereinafter called "Convertible
Securities") whether or not such rights or options or
the right to convert or exchange any such Convertible
Securities are immediately exercisable, and the price
per share for which Common Stock is issuable upon the
exercise of such rights or options or upon conversion
or exchange of such Convertible Securities
(determined by dividing (x) the total amount, if any,
received or receivable by the Company as
consideration for the granting of such rights or
options, plus the minimum aggregate amount of
additional consideration payable to the Company upon
the exercise of such rights or options, plus, in the
case of such Convertible Securities, the minimum
aggregate amount of additional consideration, if any,
payable upon the issue of such Convertible Securities
and upon the conversion or exchange thereof, by (y)
the total maximum number of shares of Common Stock
issuable upon the exercise of such rights or options
or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of
such rights or options) shall be less than the
Anti-dilution Trigger Price, then the total maximum
number of shares of Common Stock issuable upon the
exercise of such rights or options or upon conversion
or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of
such rights or options shall (as of the date of
granting of such rights or options) be deemed to have
been issued for such price per share. Except as
provided in Section 2(e) below, no further
adjustments of the Conversion Price shall be made
upon the actual issue of such Common Stock or of such
Convertible Securities upon exercise of such rights
or options or upon the actual issue of such Common
Stock upon conversion or exchange of such Convertible
Securities.
(2) In case the Company shall issue or sell (whether
directly or by assumption in a merger or otherwise)
any Convertible Securities, whether or not the rights
to exchange or convert thereunder are immediately
exercisable, and the price per share for which Common
Stock is issuable upon such conversion or exchange
(determined by dividing (x) the total amount received
or receivable by the Company as consideration for the
issue or sale of such Convertible Securities, plus
the minimum aggregate amount of additional
consideration, if any, payable to the Company upon
the conversion or exchange thereof, by (y) the total
maximum number of shares of Common Stock issuable
upon the conversion or exchange of all such
Convertible Securities) shall be less than the
Anti-dilution Trigger Price, then the total maximum
number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible
Securities shall (as of the date of the issue or sale
of such Convertible Securities) be deemed to be
outstanding and to have been issued for such price
per share, provided that (a) except as provided in
Section 2(e) below, no further adjustments of the
Conversion Price shall be made upon the actual issue
of such Common Stock upon conversion or exchange of
such Convertible Securities, and (b) if any such
issue or sale of such Convertible Securities is made
upon exercise of any rights to subscribe for or to
purchase or any option to purchase any such
Convertible Securities for which adjustments of the
Conversion Price have been or are to be made pursuant
to other provisions of this Section 2(b), no further
adjustment of the Conversion Price shall be made by
reason of such issue or sale.
(3) In case any shares of Common Stock or Convertible
Securities or any rights or options to purchase any
such Common Stock or Convertible Securities shall be
issued or sold for cash, the consideration received
therefor shall be deemed to be the amount received by
the Company therefor, without deducting therefrom any
expenses incurred or any underwriting commissions or
concessions paid or allowed by the Company in
connection therewith. In case any shares of Common
Stock or Convertible Securities or any rights or
options to purchase any such Common Stock or
Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the
consideration other than cash received by the Company
shall be deemed to be the fair value of such
consideration as determined by the Board of Directors
of the Company, without deducting therefrom any
expenses incurred or any underwriting commissions or
concessions paid or allowed by the Company in
connection therewith. In case any shares of Common
Stock or Convertible Securities or any rights or
options to purchase such Common Stock or Convertible
Securities shall be issued in connection with any
merger or consolidation in which the Company is the
surviving corporation, the amount of consideration
therefor shall be deemed to be the fair value as
determined by the Board of Directors of the Company
of such portion of the assets and business of the
non-surviving corporation or corporations as such
Board shall determine to be attributable to such
Common Stock, Convertible Securities, rights or
options, as the case may be. In the event of any
consolidation or merger of the Company in which the
Company is not the surviving corporation or in the
event of any sale of all or substantially all of the
assets of the Company for stock or other securities
of any other corporation, the Company shall be deemed
to have issued a number of shares of its Common Stock
for stock or securities of the other corporation
computed on the basis of the actual exchange ratio on
which the transaction was predicated and for a
consideration equal to the fair market value on the
date of such transaction of such stock or securities
of the other corporation, and if any such calculation
results in adjustment of the Conversion Price, the
determination of the number of shares of Common Stock
issuable upon conversion immediately prior to such
merger, conversion or sale, for purposes of Section
2(f) below, shall be made after giving effect to such
adjustment of the Conversion Price.
(4) In case the Company shall take a record of the
holders of its Common Stock for the purpose of
entitling them (a) to receive a dividend or other
distribution payable in Common Stock or in
Convertible Securities, or in any rights or options
to purchase any Common Stock or Convertible
Securities, or (b) to subscribe for or purchase
Common Stock or Convertible Securities, then the date
of such record shall be deemed to be the date of the
issue or sale of the shares of Common Stock deemed to
have been issued or sold upon the declaration of such
dividend or the making of such other distribution or
the date of the granting of such rights of
subscription or purchase, as the case may be.
(c) In case the Company shall (i) declare a dividend upon the Common
Stock payable in Common Stock (other than a dividend declared to effect
a subdivision of the outstanding shares of Common Stock, as described
in Section 2(d) below) or Convertible Securities, or in any rights or
options to purchase any Common Stock or Convertible Securities, or (ii)
declare any other dividend or make any other distribution upon the
Common Stock payable otherwise than out of earnings or earned surplus,
then thereafter the Holder upon the conversion hereof will be entitled
to receive the number of shares of Common Stock into which this Note
would have been converted, and, in addition and without payment
therefor, each dividend described in clause (i) above and each dividend
or distribution described in clause (ii) above which such holder would
have received by way of dividends or distributions if continuously
since the Holder became the record holder of this Note the Holder (x)
had been the record holder of the number of shares of Common Stock then
received, and (y) had retained all dividends or distributions in stock
or securities (including Common Stock or Convertible Securities, or in
any rights or options to purchase any Common Stock or Convertible
Securities) payable in respect of such Common Stock or in respect of
any stock or securities paid as dividends or distributions and
originating directly or indirectly from such Common Stock. For the
purposes of the foregoing a dividend or distribution other than in cash
shall be considered payable out of earnings or earned surplus only to
the extent that such earnings or surplus are charged an amount equal to
the fair value of such dividend or distribution as determined by the
Board of Directors of the Company.
(d) In case the Company shall at any time subdivide its outstanding
shares of Common Stock into a greater number of shares, the Conversion
Price in effect immediately prior to such subdivision shall be
proportionately reduced, and conversely, in case the outstanding shares
of Common Stock of the Company shall be combined into a smaller number
of shares, the Conversion Price in effect immediately prior to such
combination shall be proportionately increased.
(e) If (i) the purchase price provided for in any right or option
referred to in clause (1) of Section 2(b)(iv), or (ii) the additional
consideration, if any, payable upon the conversion or exchange of
Convertible Securities referred to in clause (1) or clause (2) of
Section 2(b)(iv), or (iii) the rate at which any Convertible Securities
referred to in clause (1) or clause (2) of Section 2(b)(iv) are
convertible into or exchangeable for Common Stock, shall change at any
time (other than under or by reason of provisions designed to protect
against dilution), the Conversion Price then in effect hereunder shall
forthwith be increased or decreased to such Conversion Price as would
have obtained had the adjustments made upon the issuance of such
rights, options or Convertible Securities been made upon the basis of
(a) the issuance of the number of shares of Common Stock theretofore
actually delivered upon the exercise of such options or rights or upon
the conversion or exchange of such Convertible Securities, and the
total consideration received therefor, and (b) the issuance at the time
of such change of any such options, rights, or Convertible Securities
then still outstanding for the consideration, if any, received by the
Company therefor and to be received on the basis of such changed price;
and on the expiration of any such option or right or the termination of
any such right to convert or exchange such Convertible Securities, the
Conversion Price then in effect hereunder shall forthwith be increased
to such Conversion Price as would have obtained had the adjustments
made upon the issuance of such rights or options or Convertible
Securities been made upon the basis of the issuance of the shares of
Common Stock theretofore actually delivered (and the total
consideration received therefor) upon the exercise of such rights or
options or upon the conversion or exchange of such Convertible
Securities. If the purchase price provided for in any right or option
referred to in clause (1) of Section 2(b)(iv), or the rate at which any
Convertible Securities referred to in clause (1) or clause (2) of
Section 2(b)(iv) are convertible into or exchangeable for Common Stock,
shall decrease at any time under or by reason of provisions with
respect thereto designed to protect against dilution, then in case of
the delivery of Common Stock upon the exercise of any such right or
option or upon conversion or exchange of any such Convertible Security,
the Conversion Price then in effect hereunder shall forthwith be
decreased to such Conversion Price as would have obtained had the
adjustments made upon the issuance of such right, option or Convertible
Security been made upon the basis of the issuance of (and the total
consideration received for) the shares of Common Stock delivered as
aforesaid.
(f) If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its
assets to another corporation shall be effected in such a way that
holders of Common Stock shall be entitled to receive stock, securities
or assets with respect to or in exchange for Common Stock, then, as a
condition of such reorganization, reclassification, consolidation,
merger or sale, lawful and adequate provision shall be made whereby the
Holder of this Note shall thereafter have the right to receive upon the
basis and upon the terms and conditions specified herein and in lieu of
the shares of the Common Stock of the Company immediately theretofore
receivable upon the conversion of this Note, such shares of stock,
securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal
to the number of shares of such stock immediately theretofore
receivable upon the conversion of this Note had such reorganization,
reclassification, consolidation, merger or sale not taken place, plus
all dividends unpaid and accumulated or accrued thereon to the date of
such reorganization, reclassification, consolidation, merger or sale,
and in any such case appropriate provision shall be made with respect
to the rights and interests of the Holder of this Note to the end that
the provisions hereof (including without limitation provisions for
adjustments of the Conversion Price and of the number of shares
receivable upon the conversion of the this Note) shall thereafter be
applicable, as nearly as may be in relation to any shares of stock,
securities or assets thereafter receivable upon the conversion of this
Note. The Company shall not effect any such consolidation, merger or
sale, unless prior to the consummation thereof the successor
corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets shall
assume by written instrument executed and mailed to the Holder of this
Note, at the last addresses of such holders appearing on the books of
the Company, the obligation to deliver to the Holder such shares of
stock, securities or assets as, in accordance with the foregoing
provisions, the Holder may be entitled to receive.
(g) Upon any adjustment of the Conversion Price, then and in each case
the Company shall give written notice thereof, by first-class mail,
postage prepaid, addressed to the Holder of this Note, which shall
state the Conversion Price resulting from such adjustment and the
increase or decrease, if any, in the number of shares receivable at
such price upon the conversion of this Note, setting forth in
reasonable detail the method of calculation and the facts upon which
such calculation is based, and which notice shall be certified by a
nationally recognized firm of independent auditors (which may be the
Company's independent auditors).
(h) In case at any time:
(i) the Company shall declare any cash dividend on its Common
Stock;
(ii) the Company shall pay any dividend payable in stock upon
its Common Stock or make any distribution (other than regular
cash dividends) to the holders of its Common Stock;
(iii) the Company shall offer for subscription pro rata to
the holders of its Common Stock any additional shares of stock
of any class or other rights;
(iv) there shall be any capital reorganization, or
reclassification of the capital stock of the Company, or
consolidation or merger of the Company with, or sales of all
or substantially all of its assets to, another corporation; or
(v) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give
written notice, by first-class mail, postage prepaid, addressed to the
Holder at the addresses of such holders as shown on the books of the
Company, of the date on which (a) the books of the Company shall close
or a record shall be taken for such dividend, distribution or
subscription rights, or (b) such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up
shall take place, as the case may be. Such notice shall also specify
the date as of which the holders of Common Stock of record shall
participate in such dividend, distribution or subscription rights, or
shall be entitled to exchange their Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, or winding up,
as the case may be. Such written notice shall be given at least twenty
(20) days prior to the action in question and not less than twenty (20)
days prior to the record date or the date on which the Company's
transfer books are closed in respect thereto.
(i) If any event occurs as to which in the opinion of the Board of
Directors of the Company the other provisions of this Section 2(i) are
not strictly applicable or if strictly applicable would not fairly
protect the rights of the Holder in accordance with the essential
intent and principles of such provisions, then the Board of Directors
shall make an adjustment in the application of such provisions, in
accordance with such essential intent and principles, so as to protect
such rights as aforesaid.
(j) As used in this Section 2 the term "Common Stock" shall mean and
include the Company's presently authorized Common Stock and shall also
include any capital stock of any class of the Company hereafter
authorized which shall not be limited to a fixed sum or percentage in
respect of the rights of the holders thereof to participate in
dividends or in the distribution of assets upon the voluntary or
involuntary liquidation, dissolution or winding up of the Company;
provided that the shares receivable pursuant to conversion of this Note
shall include shares designated as Common Stock of the Company as of
the date of issuance of this Note, or, in case of any reclassification
of the outstanding shares thereof, the stock, securities or assets
provided for in Section 2(f) above.
(k) No fractional shares of Common Stock shall be issued upon
conversion pursuant to this Section 2, but, instead of any fraction of
a share which would otherwise be issuable, the Company shall pay a cash
adjustment in respect of such fraction in an amount equal to the same
fraction of the market price per share of Common Stock as of the close
of business on the day of conversion. "Market price" shall mean if the
Common Stock is traded on a securities exchange or the NASDAQ National
Market, the closing price of the Common Stock on such exchange or the
NASDAQ National Market, or, if the Common Stock is otherwise traded in
the over-the-counter market, the closing bid price, in each case
averaged over a period of twenty (20) consecutive business days prior
to the date as of which "market price" is being determined. If at any
time the Common Stock is not traded on an exchange or the NASDAQ
National Market, or otherwise traded in the over-the-counter market,
the "market price" shall be deemed to be the higher of (i) the book
value thereof as determined by any firm of independent public
accountants of recognized standing selected by the Board of Directors
of the Company as of the last day of any month ending within sixty (60)
days preceding the date as of which the determination is to be made, or
(ii) the fair value thereof determined in good faith by the Board of
Directors of the Company as of a date which is within fifteen (15) days
of the date as of which the determination is to be made.
3. RESTRICTIONS ON TRANSFERABILITY. This Note shall be a "restricted security"
as defined in the rules under the Securities Act of 1933, as amended (the
"ACT"). This Note may be transferred only in accordance with (i) applicable law,
and only on the same basis as a restricted security would be transferable
thereunder, (ii) any transfer restrictions applicable to shares of the Company's
capital stock generally, and (iii) the conditions set forth in this Section. The
Holder, by acceptance hereof, agrees to give written notice to the Company at
least ten (10) days before transferring this Note, of such Holder's intent to do
so, describing briefly the manner of the proposed transfer. Promptly upon
receiving such written notice, the Company shall present copies thereof to
counsel for the Company. If, in the opinion of counsel for the Company, the
proposed transfer or conversion may be effected without violation of the
applicable federal and state securities laws, such holder shall be entitled to
transfer this Note in the manner contemplated in the above-referenced notice to
the Company; provided, that an appropriate legend may be endorsed on this Note
respecting restrictions on transfer thereof necessary or advisable in the
opinion of counsel and satisfactory in form and substance to the Company to
prevent further transfers that would be in violation of the securities laws or
adversely affect the exemptions relied upon by the Company. To such effect, the
Company may request that the intended transferee execute an investment and
representation letter satisfactory in form and substance to the Company. Upon
transfer of this Note, the transferee, by acceptance of this Note, agrees to be
bound by the provisions, terms, conditions and limitations of this Note and the
investment and representation letter, if any, required by the Company. If (i) no
opinion of counsel referred to in this Section 3 has been provided to the
Company, or (ii) in the opinion of such counsel the proposed transfer,
conversion or disposition of this Note described in the holder's written notice
given pursuant to this Section 3 may not be effected without registration or
without adversely affecting the exemptions relied upon by the Company or without
violating the terms of this Section 3, the Holder will restrict transfer,
conversion or disposition of this Note accordingly.
4. REPLACEMENT OF NOTE. Upon receipt of evidence satisfactory to the Company of
the loss, theft, destruction or mutilation of this Note and in the case of any
such loss, theft or destruction, upon delivery of a bond of indemnity
satisfactory to the Company if requested by the Company, or in the case of any
such mutilation, upon surrender and cancellation of such Note, the Company shall
issue a new Note identical in form to the lost, stolen, destroyed or mutilated
Note.
5. EVENTS OF DEFAULT. Each of the following events shall be an Event of Default
("EVENT OF DEFAULT") for purposes of this Note:
(a) PAYMENT OF INTEREST DEFAULT. The Company fails to pay when due any
installment of interest on this Note within thirty (30) days of the due
date;
(b) PAYMENT OF PRINCIPAL DEFAULT. The Company fails to pay any
principal within five (5) days of when due;
(c) NOTE TERMS. The Company defaults in the due and punctual
performance or observance of any material terms contained in this Note
(other than payment defaults which are covered by subparagraphs (a) and
(b) above), and such default continues for a period of thirty (30) days
after receipt of the notice to the Company from the Holder specifying
in reasonable detail the default to be cured, except that any such
default by the Company will not result in an Event of Default hereunder
if waived by the Holder;
(d) REPRESENTATIONS. If any representation or warranty made by or on
behalf of the Company in this Note or in any certificate, report or
other instrument delivered under or pursuant to any term hereof or
thereof shall prove to have been untrue or incorrect in any material
respect as of the date of this Note or if any report, certificate,
financial statement or financial schedule or other instrument prepared
or purported to be prepared by the Company or any executive officer of
the Company furnished or delivered under or pursuant to this Note after
the date hereof shall prove to be untrue or incorrect in any material
respect as of the date it was made, furnished or delivered, and in any
such case the untrue statement remains unremedied for a period of
thirty (30) days after written notice is given to the Company by ACG;
(e) INSOLVENCY MATTERS. The Company makes an assignment for the benefit
of creditors, or admits in writing its inability to pay its debts as
they become due, or files a voluntary petition in bankruptcy, or is
adjudicated a bankrupt or insolvent, or files any petition or answer
seeking for itself an reorganization arrangement composition
readjustment, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, or files any answer
admitting the material allegations of a petition filed against the
Company for any such relief, or seeks or consents to or acquiesces in
the appointment of any trustee, receiver or liquidator of the Company
or all or any substantial part of the properties of the Company; or
(f) DEFAULT ON CONVERSION. The Company shall fail to deliver the
appropriate number of shares of Common Stock upon conversion of this
Note by the Holder.
6. REMEDIES ON DEFAULT. Upon the occurrence of an Event of Default, the Holder
shall have the option to declare the principal amount hereof and all accrued but
unpaid interest thereon, to be immediately due and payable upon written notice
to the Company.
7. AFFIRMATIVE COVENANTS. The Company agrees that until this Note is paid in
full, or converted, the Company will:
(a) CORPORATE EXISTENCE. Preserve and keep in full force and effect its
corporate existence, rights (charter and statutory) and franchises;
(b) FINANCIAL STATEMENTS. Deliver to the Holder hereof:
(i) as soon as practicable, but in any event within fifty (50)
days after the close of each fiscal quarter, unaudited balance
sheets of the Company of the end of such fiscal quarter,
together with the related statements of operations and cash
flow for such fiscal quarter, and in comparative form figures
for the corresponding fiscal quarter of the previous fiscal
year, subject to year-end adjustments;
(ii) as soon as practicable, but in any event within ninety
five (95) days after the end of each fiscal year, an audited
balance sheet of the Company, as of the end of such fiscal
year, together with the related statements of operations,
stockholders' equity and cash flow for such fiscal year,
setting forth in comparative form figures for the previous
fiscal year; and
(iii) promptly upon transmission thereof, copies of all
publicly available reports, proxy statements, registration
statements and notifications filed by it with the Securities
and Exchange Commission or furnished to stockholders of the
Company or to any securities exchange.
8. NEGATIVE COVENANT. The Company agrees that until this Note is paid in full,
or converted, the Company will not create or assume, or permit to exist, any
mortgage, lien or encumbrance on, pledge of, or other security interest
("Liens") in any intellectual property (including, without limitation, patents,
trademarks, copyrights, trade secrets, proprietary information and rights,
technology and know-how) of the Company; provided, however, that the provisions
of this Section 8 shall not prevent or restrict the creation, assumption or
existence of any of the following:
(i) Liens for taxes not yet due or which are being actively
contested in good faith by appropriate proceedings and for
which adequate reserves have been established;
(ii) Liens existing on such property at the time of its
acquisition, provided that (1) no such Lien shall extend to or
cover any other property of the Company, and (2) the principal
amount of the indebtedness secured by any such Lien shall not
exceed the lesser of the fair market value or the cost of the
property so held or acquired at the time of acquisition; and
(iii) other Liens incidental to the conduct of the Company's
business or the ownership of its intellectual property which
were not incurred in connection with the borrowing of money or
the obtaining of advances or credit, and which do not in the
aggregate materially detract from the value of its
intellectual property or materially impair the use thereof in
the operation of its business.
9. GENERAL.
(a) MODIFICATION AND WAIVER. No purported amendment, modification or
waiver of any provision hereof shall be binding unless set forth in a
written document signed by the Company and the Holder (in the case of
amendments or modifications) or by the party to be charged thereby (in
the case of waivers). Any waiver shall be limited to the provision
hereof in the circumstances or events specifically made subject
thereto, and shall not be deemed a waiver of any other term hereof or
of the same circumstance or event upon any reoccurrence thereof.
(b) NOTICES. All notices, requests, consents and other communications
required or permitted hereunder shall be in writing and shall be deemed
to have been given, when received, if personally delivered or delivered
by telex, telegram or telecopy, or five (5) days after depositing in
the U.S. Mail for delivery by first class mail, postage prepaid and
addressed as provided below:
If to the Holder: The Atlanta Cardiology Group, P.C.
5665 Peachtree
Dunwoody Road N.E.
Atlanta, GA 30342
Attention: President
or at such other address as Holder may
specify by written notice to the Company,
or
If to the Company: LifeRate Systems, Inc.
7210 Metro Boulevard
Edina, MN 55439
Attention: President
or at such other address as the Company may
specify by written notice to the Holder.
(c) SUCCESSORS AND ASSIGNS. All the terms and provisions of this Note
shall be binding upon and inure to the benefit of and be enforceable by
the respective successors and assigns of the Company and the Holder;
provided, however, that the Holder may assign all, but not less than
all, of its interest in this Note upon the prior written consent of the
Company, which consent shall not be unreasonably withheld; provided
further that, subject to compliance with the provisions of Section 3,
the Holder may assign all of its rights in the Note to a newly created
entity the majority of whose shareholders or equity holders are current
shareholders of the Holder.
(d) APPLICABLE LAW. The laws of the State of Minnesota shall govern the
validity of this Note, the construction of its terms and the
interpretation of the rights and duties of the Company and the Holder
(e) WAIVER OF DEMAND PRESENTMENT AND NOTICE OF DISHONOR. The
undersigned hereby waives demand, presentment, protest, notice of
protest and notice of dishonor.
(f) PAYMENT. Upon payment in full or conversion of this Note, or
conversion, together with payment (or conversion) of any accrued but
yet unpaid interest hereon, this Note will terminate and be of no
further force or effect.
IN WITNESS WHEREOF, the Company has caused this Note to be signed by
its duly authorized officer as of the Date of Issue.
LIFERATE SYSTEMS, INC.
By:____________________________________
Its: Chief Executive Officer
EXHIBIT B
MUTUAL RELEASE
Each of LifeRate Systems, Inc., a Minnesota corporation (the "Company")
and The Atlanta Cardiology Group, P.C., a professional corporation organized
under the laws of the State of Georgia ("ACG"), for and in consideration of (i)
the mutual releases contained herein, (ii) the representations and agreements
made by the Company and ACG set forth in the Agreement dated the date hereof
(the "Agreement") between the Company and ACG, and (iii) other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
does hereby remise, release and forever discharge the other party hereto of and
from all manner of actions, causes of action, debts, dues, sums of money,
accounts, reckonings, damages, judgments, expenses, executions, claims and
demands of whatever kind, in law or in equity, which it ever had, now has, or
which its successors or assigns hereafter can, shall or may have against the
other party hereto for, upon or by reason of (1) that certain Letter of
Agreement dated September 28, 1994 between such parties, (2) any transactions,
dealings, contracts, agreements, actions, failures to act, conversations,
representations, statements and all other matters and things whatsoever having
occurred at any time prior to the date of this Mutual Release; provided,
however, that this Mutual Release shall not extend to any matters arising under
the Agreement or the Note referred to therein.
IN WITNESS WHEREOF, the Company and ACG have each caused this Mutual
Release to be duly executed as of the date indicated below.
Dated: March____, 1997 LIFERATE SYSTEMS, INC.
By:___________________________________
Title:
Dated: March____, 1997 THE ATLANTA CARDIOLOGY GROUP, P.C.
By:___________________________________
Title:
MASTER AGREEMENT
This Agreement is entered into as of this 25th day of March, 1997 (the
"Agreement"), by and between LifeRate Systems, Inc., a corporation organized
under the laws of the State of Minnesota (the "Company"), Anthony P. Furnary,
M.D., a resident of the State of Oregon ("Furnary") and APF, LLC, an Oregon
limited liability company ("APF, LLC" and together with Furnary collectively
called "APF").
RECITALS:
The Company and APF are parties to a certain "CORIS" Computer Software
Purchase Agreement dated July 2, 1995 (the "Purchase Agreement") relating to,
among other things, the sale by APF to the Company of certain computer software
developed by APF ("CORIS"), the payment of certain royalties to APF and the
provision of certain assistance to the Company by APF in the development and
implementation of CORIS with the Company's products.
The Company and APF desire to amend the Purchase Agreement in certain
respects as provided herein.
In addition, the Company and APF have agreed to enter into a certain
consulting agreement and certain other arrangements as provided herein.
AGREEMENT:
For good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the Company and APF agree as follows:
1. Agreement to Amend Purchase Agreement; Consulting Agreement; Option.
1.1. Amendment of Purchase Agreement. Subject to the terms and
conditions hereof, at the Closing, the Company and APF shall
enter into the Modification Agreement in the form attached
hereto as Exhibit A, pursuant to which the Purchase Agreement
shall be amended as provided therein (the " Amendment").
1.2. Consulting Agreement. Subject to the terms and conditions
hereof, at the Closing, the Company and APF shall enter into
the Consulting Agreement in the form attached as Exhibit B
(the "Consulting Agreement").
1.3. Option. Subject to the terms and conditions hereof, at the
Closing, the Company shall issue to APF, in consideration of
services rendered to date to the Company by APF, an Option in
the form of Exhibit C (the "Option").
2. Closing.
2.1. The closing of the matters provided for in this Agreement
shall take place at the offices of Oppenheimer Wolff &
Donnelly, 45 South Seventh Street, Suite 3400, Minneapolis,
Minnesota 55402, at 11:00 a.m., Minneapolis time, on or about
March 24th, 1997, or as soon as practical thereafter (the
"Closing") or at such other place or different time or day as
may be mutually acceptable to APF and the Company, provided
that all other conditions to the Closing as provided in this
Agreement have been met to the reasonable satisfaction of, or
waived by, APF or the Company, as the case may be. The date
and time on which the Closing occurs is referred to as the
"Closing Date."
3. Representations and Warranties by the Company.
Except as disclosed in the Disclosure Schedule attached hereto as
Exhibit D, the Company hereby represents and warrants to APF as
follows:
3.1. Organization, Standing, Etc. The Company is a corporation duly
organized, validly existing and in good standing under the
laws of the State of Minnesota and has the requisite corporate
power and authority to own or lease its properties and to
carry on its business as it is now being conducted. The
Company has the requisite corporate power and authority to
execute this Agreement, the Amendment, the Consulting
Agreement and the Option (collectively called the "Major
Agreements") and to issue the shares issuable upon exercise of
the Option (the "Option Shares") and to perform its
obligations under the Major Agreements.
3.2. Governing Instruments. The copies of the charter documents of
the Company, and all amendments thereto (collectively, the
"Charter Documents"), delivered to legal counsel for APF prior
to the execution of this Agreement, are true and complete
copies of the duly and legally adopted Charter Documents
currently in effect.
3.3. Capital Stock.
(a) The authorized and outstanding capital stock of the
Company as of the date hereof is set forth in the
Company's Annual Report on Form 10-KSB, for the year
ended December 31, 1996 ("Form 10-KSB"). All of the
outstanding shares of the Company were duly
authorized and validly issued and are fully paid and
nonassessable.
(b) There are no outstanding subscriptions, options,
warrants, calls, contracts, demands, commitments,
convertible securities or other agreements or
arrangements of any character or nature whatever,
other than this Agreement, under which the Company is
obligated to issue any securities of any kind
representing an ownership interest in the Company,
except as set forth in the Form 10-KSB. The issuance
of the Option does not constitute an event, under any
anti-dilution provisions of any securities issued (or
issuable pursuant to outstanding rights, warrants or
options) by the Company or any agreements with
respect to the issuance of securities by the Company,
which will either increase the number of shares
issuable pursuant to such provisions or decrease the
consideration per share to be received by the Company
pursuant to such provisions.
(c) Except as set forth on the Form 10-KSB, no holder of
any securities of the Company is entitled to any
preemptive or similar rights to purchase any
securities of the Company from the Company.
3.4. Corporate Acts and Proceedings. Each of the Major Agreements
has been duly authorized by all necessary corporate action on
behalf of the Company, and, when delivered at the Closing,
will be duly executed and delivered by authorized officers of
the Company, and will be the valid and binding agreement on
the part of the Company and enforceable against the Company in
accordance with its respective terms, except as such
enforceability may be limited by bankruptcy, insolvency,
moratorium, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and to judicial
limitations on the enforcement of the remedy of specific
performance and other equitable remedies. The Option Shares,
when issued upon the exercise of the Option, will be duly
authorized, validly issued and outstanding, fully paid,
nonassessable and free and clear of all pledges, liens and
encumbrances.
4. Representations and Agreements of APF.
APF hereby represents and warrants to the Company as follows:
4.1. Acts and Proceedings. Each of the Major Agreements has been
duly authorized by all necessary action on the part of APF,
has been duly executed and delivered by APF, and is a valid
and binding agreement of APF and enforceable against APF in
accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, moratorium, reorganization
or other similar laws affecting the enforcement of creditor's
rights generally and to judicial limitations on the remedy of
specific enforcement and other equitable remedies.
4.2. No Intellectual Property Rights. APF confirms, acknowledges
and agrees that APF does not own, or claim any ownership or
other any right, title or interest in, any intellectual
property rights related to the Purchase Agreement, except for
the license provided in Section 4.2 of the Purchase Agreement,
or any other intellectual property of the Company, including,
but not limited to, any inventions, patents, copyrights, trade
secrets, trademarks or confidential information embodied in
source code or object code.
5. Conditions of APF's Obligations.
The obligation of APF to enter into the transactions contemplated
hereby at the Closing is subject to the fulfillment by the Company or
waiver by APF prior to or on the Closing Date of the conditions set
forth in this Section 5.
5.1. Representations and Warranties. The representations and
warranties of the Company under this Agreement shall be true
in all material respects as of the Closing Date with the same
effect as though made on and as of such date.
5.2. Compliance with Agreement. The Company shall have performed
and complied with all agreements or conditions required by
this Agreement to be performed and complied with by it prior
to or as of the Closing Date.
5.3. Certificate of Officers. The Company shall have delivered to
APF a certificate, dated as of each Closing Date, executed by
the President certifying to the satisfaction of the conditions
specified in Sections 5.1 and 5.2.
5.4. Supporting Documents. Legal counsel for APF shall have
received the following:
(a) a copy of resolutions of the Board of Directors
authorizing and approving the execution, delivery and
performance of the Major Agreements, all such
resolutions to be certified by an officer of the
Company;
(b) a Certificate of Incumbency executed by an officer of
the Company certifying the names, titles and
signatures of the officers authorized to execute the
Major Agreements and further certifying that the
Charter Documents of the Company delivered to legal
counsel for APF at the time of the execution of this
Agreement have been validly adopted and have not been
amended or modified; and
(c) such additional supporting documentation and other
information with respect to the transactions
contemplated hereby as legal counsel for APF may
reasonably request.
6. Conditions of the Company's Obligations.
The obligation of the Company to enter into the transactions
contemplated hereby at the Closing is subject to the fulfillment or
waiver by the Company prior to or on the Closing Date of the conditions
set forth in this Section 6.
6.1. Representations and Warranties. The representations and
warranties of APF contained in Section 4 shall be true and
correct on and as of the Closing with the same force and
effect as if such representations and warranties had been made
on and as of the Closing.
7. Covenants of the Company.
7.1. Professional Fees. The Company agrees to reimburse APF for the
reasonable out-of-pocket expenses of APF, upon receipt of
reasonable documentation, incurred during 1996 and 1997 and
through the date of Closing in connection with the
renegotiation of the Purchase Agreement and the other matters
covered by the Major Agreements. Within 30 days of Closing,
APF shall submit to the Company a final statement of the
out-of-pocket expenses incurred by Furnary through the Closing
and the Company shall reimburse Furnary such expenses within
ten days of the receipt of such statement.
7.2. Transfers of Business.
(a) The Company agrees that, simultaneously upon entering
into any agreement to (i) sell substantially all of
its assets to another party, or (ii) effect any
merger, reorganization or business combination
involving a change in control of, or business
combination involving, the Company, the other party
to such transaction shall assume the unperformed
obligations of the Company to APF under the Major
Agreements, and such assumption agreement shall be
subject to the approval of APF, which consent shall
not be unreasonably withheld; it being understood
that APF's approval of such assumption agreement
shall be limited to obtaining reasonable assurance
that such assumption agreement obligates such other
party to the same extent as the Company is then
obligated under the Major Agreements.
(b) The Company agrees that, simultaneously upon entering
into any agreement to sell or transfer a material
portion of its business to another party which
includes one or more "Products" (as such term is
defined in the Purchase Agreement), including without
limitation the exclusive assignment of intellectual
property relating to, or the exclusive grant of
manufacturing or marketing rights regarding, a
Product, then the other party to such transaction
shall assume, to the extent appropriate given the
nature of such sale or transfer, the unperformed
royalty obligations of the Company to APF under the
Purchase Agreement (as amended by the Amendment)
relating to such transferred Product, and such
assumption agreement shall be subject to the approval
of APF, which consent shall not be unreasonably
withheld; it being understood that (i) APF's approval
of such assumption agreement shall be limited to
obtaining reasonable assurance that such assumption
agreement appropriately obligates such other party to
pay royalties to APF regarding such transferred
Product consistent with the terms of the Purchase
Agreement (as amended by the Amendment) and (ii) no
approval is required under this Action 7.2 (b) for
the granting of any sublicenses or non-exclusive
licenses of, or any non-exclusive marketing or
manufacturing rights regarding, any Products.
7.3. Term Insurance. Within 90 days after the Closing Date, the
Company agrees to consider in good faith the possibility of
purchasing term insurance on the life of Furnary with the
proceeds to be used either to buyout the remaining term of the
royalties payable to Furnary under the Purchase Agreement, as
amended, or to fund future royalties. The Company reserves the
sole discretion to make this determination. The Company will
promptly inform APF of its decision.
7.4. Board of Directors.
(a) The Company agrees that, beginning upon the Closing
Date and continuing for so long as the Company has an
obligation to pay APF a royalty on the Products or
APF owns (or has the right to acquire) at least 1% of
the Company's outstanding shares of common stock (the
"Board Period"), the Company will use its best
efforts to have Furnary elected to the Board of
Directors, including: (i) the Company shall nominate
Furnary for election to the Company's board of
directors (the "Board") at each meeting of
shareholders of the Company at which directors are to
be elected and (ii) subject to the exercise of its
fiduciary duties, the Board shall recommend the
election of Furnary as a director. The Company agrees
to use it best efforts to have Furnary elected to the
Board within 90 days after the Closing Date.
(b) In the event that Furnary is not serving as a
director during any portion of the Board Period,
Furnary shall be granted "observer" status by the
Board, which shall include the right to receive
notice of all Board meetings, to receive all
materials distributed to the Board, to attend all
Board meetings and to participate in discussions at
such meetings, provided that in no event shall
observer status be construed to grant Furnary the
right to vote in any action taken by the Board.
7.5. Reimbursement. The Company agrees to reimburse APF for the
following expenses, upon receipt by the Company of reasonable
documentation:
(a) as set forth in Section 5.2 of the Purchase
Agreement, the expenses incurred by Furnary in
connection with his attendance at certain industry
meetings;
(b) beginning on January 1, 1999 and continuing so long
the Consulting Agreement remains in effect, the
reasonable cost of one secretary, for up to eight
hours per business day;
(c) beginning on January 1, 1999 and continuing so long
the Consulting Agreement remains in effect,
reasonable travel expenses of Furnary's spouse (coach
class air fare), accommodations and meals, when
accompanying Furnary on up to four industry meeting
trips to American Heart Association, Society of
Thoracic Surgeons, American College of Cardiology and
American Association of Thoracic Surgeons; and
(d) personal computer costs up to $5,000 per year so long
as the Consulting Agreement remains in effect.
7.6. Role Recognition. The Company agrees to take reasonable and
appropriate measures to recognize the role of Furnary in the
development of the Company's products and systems, including,
but not limited to, references to Furnary as the "architect
and co-inventor" of the Company's products and systems.
7.7. Reexamination of "CORIS". Within 90 days after the Closing
Date, the Company will reexamine the CORIS trademark dispute
with the Cordis Corporation, which is currently in the
disclosure phase at the U.S. Patent and Trademark Office, and
will consider aggressively pursuing legal action to retain the
rights to the CORIS trademark.
7.8. Donation of System. In addition to the rights granted to APF
pursuant ot Section 4.2 of the Purchase Agreement, the Company
will make available to APF one complete LifeRate system which
shall be donated in the name of APF to a hospital system or
practice designated by APF (the "Hospital").
(a) The LifeRate system shall include all components and
applications of the LifeRate system identified on
Exhibit E, and all upgrades listed on such exhibit
(collectively, the "System"). APF may designate up to
three different hospital systems or practices to
receive different components of the System.
(b) During the period of five years after installation,
the Hospital shall not pay any license fees for the
System, but shall be responsible for payment of the
installation, interface and maintenance costs
identified in Exhibit E.
7.9. No Security Interests. So long as the Company has an
obligation to pay APF a royalty under the Purchase Agreement,
the Company agrees not to pledge or grant a security interest
in the Company's intellectual property.
7.10. Repricing Existing Options. The Company agrees to amend all of
Furnary's outstanding options, including the 26,000 granted
under the Purchase Agreement and the 10,333 independently
granted to Furnary, to have an exercise price of $2 5/8, which
was the closing price on March 4, 1997.
8. Miscellaneous.
8.1. Definitions. Any capitalized term defined in one of the other
Major Agreements and not otherwise defined herein shall have
the meaning ascribed to it in such other Major Agreement.
8.2. Changes, Waivers, Etc. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or
terminated orally, but only by a statement in writing signed
by the party against which enforcement of the change, waiver,
discharge or termination is sought.
8.3. Notices. All notices, requests, consents and other
communications required or permitted hereunder shall be in
writing and shall be mailed by certified mail with return
receipt as follows:
(a) if to APF, to:
APF, LLC
c/o Anthony P. Furnary, M.D.
7266 S.W. Eaton Court
Portland, OR 97225-6045
Facsimile: 503-291-2488
with a copy to:
Ropes & Gray
One International Place
Boston, MA 02110
Attn: Peter Dodson
Eric Jaeger
(b) if to the Company, to:
LifeRate Systems, Inc.
7210 Metro Boulevard
Edina, MN 55439
Attention: Chief Executive Officer
Facsimile: 612-844-0797
and such notices and other communications shall for all
purposes of this Agreement be treated as being effective or
having been given if delivered personally, or, if sent by
mail, when received. Any party may change its address for such
communications by giving notice thereof to the other parties
in conformity with this Section.
8.4. Survival of Representations, Warranties, Agreements, Etc. All
representations, warranties, covenants and agreements
contained herein or in any certificate delivered pursuant to
this Agreement shall survive the execution and delivery of
this Agreement or such certificate, as the case may be, any
investigation at any time made by APF or on its behalf, and
the closing of the transactions contemplated by this
Agreement. All statements contained in any certificate,
instrument or other writing prepared by or on behalf of the
Company and delivered by the Company pursuant to this
Agreement or in connection with or in contemplation of the
transactions herein contemplated shall constitute
representations and warranties by the Company hereunder.
8.5. Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon
and be enforceable by the successors and permitted assigns of
the parties hereto; provided, however, that APF may not assign
all or a portion his or its rights and obligations hereunder,
except by operation of law, without the prior written consent
of the Company, which shall not be unreasonably withheld.
8.6. Entire Agreement. This Agreement, the schedules hereto, the
documents referenced herein and the exhibits thereto,
constitute the entire understanding and agreement of the
parties hereto with respect to the subject matter hereof and
thereof and supersede all prior and contemporaneous agreements
or understandings, inducements or conditions, express or
implied, written or oral, between the parties with respect
hereto and thereto. The express terms hereof control and
supersede any course of performance or usage of the trade
inconsistent with any of the terms hereof.
8.7. Other Remedies. Any and all remedies herein expressly
conferred upon a party shall be deemed cumulative with, and
not exclusive of, any other remedy conferred hereby or by law
on such party, and the exercise of any one remedy shall not
preclude the exercise of any other.
8.8. Delays or Omissions. Except as expressly provided herein, no
delay or omission to exercise any right, power or remedy
accruing to any party under this Agreement shall impair any
such right, power or remedy of such party nor shall it be
construed to be a waiver of any such breach or default, or an
acquiescence thereto, or of a similar breach or default
thereafter occurring; nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring. Any waiver,
permit, consent or approval of any kind or character on the
part of any party hereto of any breach of default under the
Agreement, or any waiver on the part of any party of any
provisions or conditions of this Agreement, must be in writing
and shall be effective only to the extent specifically set
forth in such writing.
8.9. Construction of Agreement. This Agreement has been negotiated
by the respective parties hereto and their attorneys and the
language hereof shall not be construed for or against any
party. A reference in this Agreement to any section shall
include a reference to every section the number of which
begins with the number of the section to which reference is
specifically made. The titles and headings herein are for
reference purposes only and shall not in any manner limit the
construction of this Agreement which shall be considered as a
whole. A reference to a section means a section of this
Agreement, unless the context expressly otherwise requires.
8.10. Governing Law. This Agreement shall be governed by and
construed under the laws of the State of Minnesota.
8.11. Counterparts. This Agreement may be executed concurrently in
two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and
the same instrument.
8.12. Injunctive Relief. The parties acknowledge that it will be
impossible to measure the damages that would be suffered upon
any breach of Section 7 of this Agreement and that in the
event of any such failure, there shall not exist an adequate
remedy at law. Either party shall, therefore, be entitled to
obtain specific performance of the other party's obligations
under Section 7 and to obtain immediate injunctive relief.
Such other party shall not urge, as a defense to any
proceeding for such specific performance or injunctive relief,
that there exists an adequate remedy at law.
IN WITNESS WHEREOF, each of the Company and APF has caused this
Agreement to be executed by its duly authorized representatives in counterpart.
COMPANY: LIFERATE SYSTEMS, INC.
By:_____________________________________
Its:____________________________________
APF: APF, LLC
By:_____________________________________
Its: Manager
________________________________________
Anthony P. Furnary, M.D.
MODIFICATION AGREEMENT
This Modification Agreement ("Agreement") is made and entered into
effective as of March 25, 1997, by and among LifeRate Systems, Inc., a Minnesota
corporation ("LifeRate"), Anthony Furnary, M.D., a resident of Portland, Oregon
("Furnary"), and APF, LLC an Oregon limited liability company ("APF").
RECITALS
A. LifeRate, Furnary and APF entered into the "CORIS" Computer Software
Purchase Agreement, dated July 2, 1995 (the "Prior Agreement").
B. The parties desire to amend the Prior Agreement as set forth herein and
to provide for the continuing services of Furnary to LifeRate.
ACCORDINGLY, the parties hereby agree as follows:
1. Article I. Article I is hereby amended as follows:
(a) Section 1.3 is amended in its entirety to read as follows:
1.3 "Gross Billings" means the gross revenues of LifeRate, its
licensees or any successor or assign related to the Products. Gross
Billings shall include, without limitation, all revenue derived from
the Products or any services related to the Products, including all
revenue derived from the licensing, leasing, renting, or sale of the
Products or the provision of installation, consulting, maintenance,
support, customization or development services related to the Products.
In the case of fees for development services which exceed $500,000 for
a particular product or group of related products, the parties agree to
discuss the appropriateness of whether the royalties payable under
Section 6.1 hereof should apply to less than all of such development
fees. As of the date of the Modification Agreement, Gross Billings to
date constitutes the entire gross revenues of the Company (defined as
"Net Revenues" in the Company's Annual Report on Form 10-KSB). In the
event LifeRate chooses to sublicense the Products or to distribute the
Products through independent distributors rather than directly, Gross
Billings will be the fees paid by the sublicensee or distributor to the
Company, provided that, for any transactions over a 12-month period
where the aggregate price to be paid is in excess of $500,000 (a
"Material Transaction"), the price paid by such sublicensees or
distributors represents no more than a 40 percent discount from the
Company's published or standard list price. In the event that with
respect to any Material Transaction, the actual discount granted is
greater than 40 percent, Gross Billings shall be calculated as though
the discount were 40 percent.
(b) A new Section 1.4 is added as follows:
1.4 "LifeRate System" shall mean the LifeRate system, including all
current components of the LifeRate system (identified on Exhibit A
hereto), all extensions of the current system (or the use of specific
methodologies embodied in the current system) into other medical
practice areas which extensions or methodologies are developed during
the term of this Agreement and all upgrades and modifications thereto.
2. Article III of Prior Agreement. Article III of the Prior Agreement is hereby
deleted in its entirety, and none of the parties shall have any further
obligations thereunder.
3. Article IV of Prior Agreement. Since the Effective Date, LifeRate
acknowledges that Furnary has functioned as a primary system architect and has
directed the clinical design of the LifeRate system, including co-design of the
database structure, co-invention of the inventions claimed in the patent
application entitled "System for Multistate Display Representation of
Conditions" and in the patent application currently being prepared concerning
"flexidate technology," and other data entry software tools incorporated in the
Products. Accordingly, Article IV of the Prior Agreement is hereby amended by
adding Section 4.3 at the end thereof:
4.3 Other Intellectual Property Rights. Furnary and APF acknowledge and
agree, that except as expressly set forth in this Agreement, neither
Furnary nor APF has any right, title or interest in any intellectual
property rights related to the Products or the LifeRate System,
including, but not limited to, any inventions, copyrights, trade
secrets, trademarks or confidential information embodied in source code
or object code, regardless of whether or not Furnary or APF or any of
its employees or agents, conceived, developed or reduced to practice
any such intellectual property rights ("Intellectual Property Rights").
Furnary and APF hereby assign all of their right, title and interest in
and to any Intellectual Property Rights to LifeRate. To the extent that
any Intellectual Property Rights qualify as "work made for hire" as
defined in 17 U.S.C. Section 101 (1976), as amended, such any
Intellectual Property Rights shall constitute "work made for hire" and,
as such, shall be the exclusive property of LifeRate.
4. Article VI of Prior Agreement. Article VI of the Prior Agreement is hereby
amended in its entirety as follows:
6.1 Royalties.
(a) Royalty Payments to APF. In consideration of the sale of CORIS to
LifeRate, LifeRate shall pay to APF, its successors or assigns, a
royalty equal to: (i) Seven and Five/Tenths Percent (7.5%) of Gross
Billings from the date of the first licensing or sale of any of the
Products (which the parties acknowledge to be the licensing of the
Products to Atlanta Cardiology Group in January 1995) through March 31,
1997, after which date no royalties shall become owing to APF under
this Prior Agreement or under this Modification Agreement until the
following clauses become applicable; (ii) Three Percent (3.0%) of Gross
Billings received after the earlier of (a) January 1, 1999 or (b) the
date LifeRate achieves Cumulative Revenues (as defined below) of Twenty
Million Dollars ($20,000,000), and such royalty rate shall continue
until LifeRate achieves Cumulative Revenues of One Hundred Million
Dollars ($100,000,000); and (iii) Three and Six/Tenths Percent (3.6%)
of Gross Billings in excess of One Hundred Million Dollars
($100,000,000).
(b) LifeRate shall pay the royalties due to APF for the preceding
calendar quarter, within thirty (30) days after the last day of each
calendar quarter.
(c) "Cumulative Revenues" means the gross revenues of LifeRate
calculated on a cumulative basis since its inception as a company, as
reported on LifeRate's publicly available financial statements
(identified therein as "net revenues"). For the year ended December 31,
1996, the Company's gross revenues, as reported in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1996, were
$615,585, Cumulative Revenues through December 31, 1996 were
$1,190,300.
(d) Foreign Currencies. The royalty on sales in currencies other than
U.S. Dollars shall be calculated using the appropriate foreign exchange
rate for such currency quoted by the Bank of America (San Francisco)
foreign exchange desk, on the close of business on the last banking day
of each calendar quarter. Royalty payments to APF shall be in U.S.
Dollars. All non-U.S. taxes related to royalty payments shall be paid
by LifeRate and are not deductible from the payments due APF.
(e) Revenue in Kind. Gross Billings include consideration or value of
any kind whatsoever. If revenue is paid in a form other than cash, the
non-cash consideration shall be accounted for at fair value.
6.2 Milestone Royalty Payments. In consideration of the sale of CORIS
to LifeRate, LifeRate shall pay APF milestone royalties as follows: (i)
One Hundred Thousand Dollars ($100,000) within five (5) business days
of the completion by LifeRate of its next round of financing involving
the sale of its equity securities raising gross proceeds to LifeRate of
at least Five Million Dollars ($5,000,000), provided that if LifeRate
does not successfully complete such financing by June 30, 1997, the
parties shall mutually agree upon a method to provide to APF the net
present value of One Hundred Thousand Dollars ($100,000); (ii) One
Hundred Fifty Thousand Dollars ($150,000) within forty-five (45) days
of the end of the calendar quarter in which LifeRate first achieves
cumulative Gross Billings of more than Twenty Million Dollars
($20,000,000); and (ii) Two Hundred Thousand Dollars ($200,000) within
forty-five (45) days of the end of the calendar quarter in which
LifeRate first achieves cumulative Gross Billings of more than Fifty
Million Dollars ($50,000,000). If LifeRate does not achieve the
cumulative Gross Billings as set forth in clauses (ii) and (iii) of the
foregoing sentence, LifeRate shall have no obligation to make such
milestone royalty payments.
6.3 Records. LifeRate shall maintain accurate records of all billings
and sales related to the Products. LifeRate shall submit to APF, within
45 days after the end of each calendar quarter, a clearly itemized
statement setting forth: the identity of each end-user customer from
which Gross Billings were received during each quarter, the amount of
Gross Billings received from such customer during such quarter, and the
royalty due on the aggregate gross billings for such quarter, and the
calculations upon which such royalty was based. A statement setting
forth such information for such quarter through December 31, 1996 is
attached as Schedule 2. LifeRate shall permit APF and its agents, upon
reasonable advance notice, to inspect, audit and analyze all of
LifeRate's records related to the Products or to Gross Billings.
6.4 Duration of Royalty. The parties acknowledge and agree that APF
shall continue to receive royalty payments as set forth herein,
notwithstanding: (i) the Products become public information; (ii) any
of the Products are sold, assigned or otherwise transferred by LifeRate
to a third party; or (iii) the death of Furnary.
6.5 Right of First Refusal. Upon receipt by LifeRate of a bona fide
offer to purchase any of the CORIS(TM) and CORIS(TM) Related Items,
LifeRate shall provide written notice to APF of the receipt and terms
of such offer. For a period of thirty (30) days after receipt of such
notice, APF shall have the option to purchase the products identified
in the notice on the terms stated in the offer. Such option must be
exercised in writing. In the event of a timely exercise of APF's option
rights hereunder, the purchase of the Product(s) by APF shall be closed
within sixty (60) days after the date the option is exercised. If APF
fails to exercise its option as to any bona fide offer, LifeRate may
proceed to sell the Product(s) identified in the offer to the offeror
on the terms specified in the original offer. APF's failure to exercise
its option rights as to any bona fide offer will not effect its option
rights as to any Products not sold pursuant to the provisions of this
paragraph.
6.7 Prior Stock Option. On the Effective Date, LifeRate granted to APF
the non-qualified right and option to purchase (the "Option") up to
Twenty-Six Thousand (26,000) common shares of LifeRate, subject and
pursuant ot the terms and provisions of the Stock Option Agreement,
attached hereto as Exhibit B and incorporated in this Agreement by
reference. LifeRate agrees to amend the Option and the Stock Option
Agreement to provide that the exercise price of such options shall be
$2 5/8 per share. Except as set forth herein, such prior option shall
remain in effect in accordance with its terms.
6.8 Buy-Out of Royalties. LifeRate may notify APF at any time during
the term of the Consulting Agreement of LifeRate's interest in
converting a portion or all royalties and milestone payments payable
under this Agreement to a fully paid-up status by making a lump-sum
payment to APF. Within a reasonable period of time thereafter, LifeRate
and APF agree to enter into discussions concerning the amount of such
lump-sum payment and the nature of the consideration such payment might
take, including LifeRate stock or rights to acquire stock. If LifeRate
and APF are able to reach a mutual agreement on all aspects of such
lump-sum payment, then all royalties and other payments payable to APF
hereunder shall terminate on the payment of such lump-sum. LifeRate
agrees to pay all out-of-pocket expenses, including all professional
fees, of APF incurred in connection with any such discussions,
regardless of whether the parties reach mutual agreement concerning a
buy-out. Nothing in this Section 6.8 shall be construed to imply that
either party shall have a duty or obligation to modify the terms of
this Agreement, and each party expressly reserves the sole discretion
to determine whether any such modification is acceptable to such party
and the failure of the parties to reach mutual agreement shall be not
deemed a breach of this Agreement. Until any such mutual agreement is
reached, if ever, this Agreement shall remain in full force and effect.
5. Section 10.1 of Prior Agreement. Section 10.1 of the Prior Agreement is
hereby amended by adding the following at the end of the section:
Notwithstanding the foregoing, the parties acknowledge that it will be
impossible to measure the damages that would be suffered upon any
breach of Article 4 and Section 6.5 of this Agreement and that in the
event of any such failure, there shall not exist an adequate remedy at
law. Either party shall, therefore, be entitled to obtain specific
performance of the other party's obligations under Article 4 and
Section 6.5 and to obtain immediate injunctive relief. Such other party
shall not urge, as a defense to any proceeding for such specific
performance or injunctive relief, that there exists an adequate remedy
at law.
6. Definitions. All terms used in this Agreement in initial letters which are
not otherwise defined herein shall have the meanings set forth in the Prior
Agreement.
7. Effective Date. The amendments to the Prior Agreement as set forth herein
shall be effective as of the effective date of this Agreement.
8. No Other Amendment. Except as specifically set forth herein, the Prior
Agreement shall remain in full force and effect in accordance with its terms.
9. Counterparts. This Agreement may be executed in one or more counterparts each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
10. Governing Law. This Agreement shall be governed by the laws of the state of
Minnesota.
11. Entire Agreement. This Agreement, the Consulting Agreement and the Warrant
and the Prior Agreement, as amended hereby, including the exhibits thereto
constitute the entire agreement among the parties with respect to the matters
contemplated by such agreements, and supersede any and all other written or oral
promises or representations regarding such subject matter.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
LIFERATE SYSTEMS, INC.
By___________________________________
Its__________________________________
_____________________________________
ANTHONY FURNARY, M.D.
APF, LLC
By___________________________________
Its__________________________________
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT, dated as of March 25, 1997 by and between
LifeRate Systems, Inc., a Minnesota corporation (the "COMPANY") and Anthony P.
Furnary, M.D., the manager and principal member of APF, LLC, an individual
presently residing in the State of Oregon ("Consultant").
A. The Company and Consultant desire to establish a consulting
arrangement under which Consultant would serve as consultant and senior advisor
to the Company.
B. The Company desires reasonable protection of its confidential
business and technical information that has been acquired and is being developed
by the Company at substantial expense.
C. Consultant has functioned as the co-inventor and system architect
for the Company for the past two years and wishes to continue to work with the
Company in this regard.
D. The Company wishes to obtain reasonable protection against unfair
competition from Consultant following termination of engagement and to further
protect against unfair use of its confidential business and technical
information and Consultant is willing to grant the Company the benefits of a
covenant-not-to-compete for these purposes.
In consideration of the foregoing and of the respective covenants and
agreements of the parties herein contained, the receipt and sufficiency of which
consideration are hereby acknowledged, the parties hereto agree as follows:
1. Consultancy and Senior Advisor.
(a) The Company agrees to retain Consultant as a consultant and senior
advisor, and Consultant agrees to serve the Company, on the terms and conditions
set forth herein. The retention of Consultant by the Company as a consultant and
senior advisor shall be for the period commencing on April 1, 1997 and expiring
April 1, 2002 (the "Expiration Date"), unless such consultancy shall have been
sooner terminated as hereinafter set forth in Section 4.
(b) This Agreement shall be renewable for subsequent two (2) year
periods upon mutual agreement of the parties.
2. Title and Responsibilities.
(a) Consultant shall have the titles of Senior Adviser and System
Architect.
(b) In Consultant's role hereunder as System Architect, Consultant
shall report to the Company's Vice President--Development and will be
responsible for providing expert level understanding of application of
information systems in the clinic and clinical administration. In such role,
Consultant shall have the responsibilities outlined on Exhibit A hereto, and
shall perform such other duties as the Vice President--Development and the
Consultant shall mutually determine.
(c) In Consultant's role hereunder as Senior Advisor, Consultant shall
perform such duties as the Chief Executive Officer and the Consultant shall
mutually determine from time to time, including, but not limited to, identifying
business opportunities, assistance in translating technology and health care
changes into business opportunities and promotion of the Company's products and
services.
(d) In order to permit Consultant to perform his duties as Senior
Advisor and System Architect, the Company, through the Vice President -
Development, shall inform Consultant of operations committee discussions (at
present through summaries of operating committee discussions currently produced
by the Vice President Development), including all major customer contracts,
development agreements, production scheduling, and marketing, strategic and
business plans. Vice President - Development shall provide any comments
expressed by the Consultant consistent with his role as Senior Advisor and
System Architect to the operations committee. Notwithstanding anything to the
contrary herein, the Company and its senior officers, and not Consultant, shall
have ultimate control over all such matters.
(e) The Company and Consultant anticipate that Consultant's duties will
change over time, in particular as development of the LifeRate system matures.
(f) While the time commitment required by Consultant to fulfill his
duties hereunder will vary and subject to the last sentence of Section 4(b), it
is understood that such duties assigned hereunder are generally expected to
constitute a minimum of [10] hours and not more than 20 hours per month.
Consultant agrees to make himself reasonably available to perform the duties and
responsibilities hereunder. The Company acknowledges that Consultant is a
full-time practicing surgeon and the Company agrees that the performance of
Consultant's duties under this Agreement shall at all times be subject and
subordinate to the demands and responsibilities of Consultant's duties as a
surgeon.
3. Compensation Consultant shall receive a consulting fee of One Hundred
Thousand Dollars ($100,000) per year. The consulting fee shall be payable to
APF, LLC in monthly installments of $8,333.33. If Consultant is requested to
travel to render services hereunder, the Company shall reimburse Consultant for
all necessary and reasonable expenses incurred by Consultant in accordance with
and as permitted by the expense reimbursement policies applicable to senior
management adopted by the Company, except that air travel shall be governed by
Section 5.2 of the Purchase Agreement.
4. Termination
(a) Death. Consultant's consultancy hereunder shall terminate upon his
death.
(b) Cause. The Company may terminate Consultant's consultancy hereunder
for Cause. For the purposes of this Agreement, the Company shall have "Cause" to
terminate Consultant's consultancy hereunder upon Consultant's (i) willful,
continuing, material and bad faith failure to perform and discharge his duties
and responsibilities hereunder, or (ii) gross misconduct that is materially and
demonstratively injurious to the Company, or (iii) conviction of a felony
(unless such conviction is reversed in any final appeal thereof); provided that,
in the case of termination under clauses (i) or (ii)of this Section 4(b), (a)
Consultant shall have first received written notice of proposed termination at
least 30 days prior thereto, specifying the grounds for such termination and
Consultant shall have failed to cure such matters and (b) such termination shall
have been approved by a committee of the Company's Board of Directors comprised
solely of outside directors. "Cause" shall not include the nonperformance of
services by Consultant during any period of time during which the Company fails
to identify services consistent with Consultant's role as Senior Advisor and
System Architect to be performed.
(c) Date of Termination. "Date of Termination" shall mean the earlier
of (i) the Expiration Date or (ii) if Consultant's engagement is terminated by
his death, then the date of his death, or if pursuant to Section 4(b), then the
date specified in the notice of termination.
5. Competitive Activities
Consultant agrees that during the Noncompetition Period:
(a) He will not alone, or in any capacity with another entity:
(i) directly or indirectly engage in any commercial activity
that competes with the Company's business, as the Company has conducted it
during the 12-month period before the Consultant's consultancy with the Company
ends;
(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.
(b) The Noncompetition Period shall be the term of this Agreement,
provided that the Company may extend the Noncompetition Period for up to one
year by paying Consultant a noncompetition fee of $50,000 per year, payable
bi-weekly. During the Noncompetition Period:
(i) He will, prior to accepting employment with any new
employer in the software industry, inform that employer of this Agreement and
provide that employer with a copy of this Agreement.
(ii) Consultant may seek the advice of the Company from time
to time on whether prospective employment he proposes would, in the Company's
opinion, violate the provisions of this Section 5, by submitting in writing to
the Company appropriate information.
6. Confidential Information
(a) Confidential Information. For purposes of this Agreement, the term
"Confidential Information" means information that is not generally known and
that is proprietary to the Company, including (i) trade secret information about
the Company and its products and services; (ii) information relating to the
business of the Company as conducted at any time or anticipated to be conducted
by the Company, and to any of its past, current or anticipated products and
services, including without limitation, information about the Company's
research, development, design, manufacturing, purchasing, accounting,
engineering, marketing, selling, leasing or servicing; and (iii) any Invention,
as defined below. All information that Consultant has a reasonable basis to
consider Confidential Information or which is treated by the Company as being
Confidential Information shall be presumed to be Confidential Information,
whether originated by Consultant or by others, and without regard to the manner
in which Consultant obtains access to such information. Notwithstanding the
foregoing, information shall cease to be Confidential Information for purposes
of this Section 6 when (i) it is required by law or legal process to be
disclosed in the public domain or (ii) it has become public information as a
direct or indirect result of disclosure by any person other than by Consultant
in breach of this Agreement. In the event Consultant receives any notice of any
action to require disclosure of any Confidential Information, as required by law
or legal process, Consultant immediately shall notify the Company of the notice
and any action to require disclosure of Confidential Information to permit the
Company to challenge the required disclosure and seek a protective order.
(b) Restricted Use and Nondisclosure. Consultant shall not, either
during the term of this Agreement or at any time following expiration or
termination of this Agreement, (i) use any Confidential Information for any
purpose other than the performance of his duties and responsibilities under this
Agreement for the benefit of the Company or (ii) disclose any Confidential
Information to any person not employed by the Company, without the prior
authorization of the Company. Consultant shall exercise prudence and the highest
degree of care to safeguard and protect, and to prevent the unauthorized
disclosure of, all such Confidential Information.
(c) Return of Information at Termination. Upon termination of the
consultancy, Consultant shall deliver to the Company all tangible evidence of
Confidential Information or Inventions, including but not limited to product
formulations, customer lists, business plans, business strategies, instruction
sheets, drawings, manuals, letters, notes, notebooks, books, reports and copies
thereof, computer records, audiotapes and videotapes or other media that include
Confidential Information. Consultant shall not retain any copies or
reproductions of any tangible evidence of Confidential Information or
Inventions, including, but not limited to, product formulations, customer lists,
business plans, business strategies, instruction sheets, drawings, manuals,
letters, notes, notebooks, books, reports and copies thereof, computer records,
audiotapes, videotapes or other materials of the Company that came into
Consultant's possession at any time during the term of this Agreement, provided,
however, that Consultant may retain an archival copy of the foregoing which copy
shall be used for reference purposes only in the event that any issues arise
between the parties hereto after the termination of this agreement, it being
understood that such copies shall continue to constitute Confidential
Information under the terms of this Agreement and shall be subject to the terms
hereof.
7. Inventions.
(a) Definition. For purposes of this Agreement, "Invention" means any
invention, enhancement, alteration, modification, improvement, discovery, new
idea, formula, process, design, trade secret, or other useful technical
information or know-how made, generated, discovered, developed, conceived, or
first reduced to practice by Consultant during the term of this Agreement,
whether or not shown or described in writing or whether or not copyrightable or
patentable, relating to the Company's existing products, products under
development and all other products developed during the term of this Agreement.
(b) Disclosure and Assignment. During the term of this Agreement,
Consultant agrees to continue to disclose to the Company, in a manner
substantially similar to the methods and procedures used by Consultant in his
consultancy work with the Company during the months immediately prior to the
date hereof, all Inventions and Confidential Information made, generated,
discovered, developed, conceived, perfected or first reduced to practice by
Consultant alone or in conjunction with others at the Company.
To the extent that any Invention or Confidential information qualifies as "work
made for hire" as defined in 17 U.S.C. Section 101 (1976), as amended, such
Inventions and Confidential Information shall constitute "work made for hire"
and, as such, shall be the exclusive property of the Company. Consultant hereby
assigns to the Company all of Consultants right, title and interest in all
Inventions and Confidential Information.
(c) Limitation of Section 7(b). The provisions of Section 7(b) above
shall not apply to any Invention meeting all of the following conditions:
(i) Such Invention was developed entirely on Consultant's own
time; and
(ii) Such Invention was made without the use of any of the
Company's trade secret information; and
(iii) Such Invention does not relate (A) directly to the
business of the Company or (B) to the Company's actual or demonstrably
anticipated research and development; and
(iv) Such Invention does not result from any work performed by
Consultant for the Company.
(d) Assistance of Consultant. Consultant agrees, at the Company's
expense, to give the Company all assistance it reasonably requires to perfect,
protect, and use its rights to Inventions and Confidential Information. In
particular, but without limitation, Consultant agrees to sign all documents, and
supply all information that the Company may deem necessary or desirable to (i)
transfer or record the transfer of Consultant's entire right, title, and
interest in Inventions and Confidential Information; and (ii) enable the Company
to obtain patent, copyright, or trademark protection for Inventions anywhere in
the world.
(e) Continuing Obligation after Termination of Agreement. The
obligations of this Section 7 shall continue beyond the termination of this
Agreement with respect to Inventions conceived or made by Consultant during the
term hereof and shall be binding upon Consultant's assigns, executors,
administrators, and other legal representatives. In the event Consultant is
called upon to render assistance to the Company pursuant to Section 7(d) after
termination of this Agreement, the Company shall pay Consultant reasonable
mutually agreeable hourly compensation and shall call upon Consultant for
assistance at such reasonable times so as not to interfere with Consultant's
employment or business. For purposes of this Agreement, any Invention upon which
Consultant files a patent application during the Noncompetition Period shall be
presumed to have been made during the term of this Agreement, subject to proof
to the contrary by good faith, written and duly corroborated records
establishing that such Invention or discovery was conceived and made by
Consultant following termination of this Agreement.
(f) Records. Consultant shall keep records of the type that the
Consultant has kept in connection with the services that Consultant has provided
to the Company in the past, provided that the Company shall keep such other
records as the Consultant and the Company mutually agree would be beneficial to
the Company. Such accounts, notes, data, and records shall be the property of
the Company, and upon its request, subject to the last sentence of Section 6(c),
Consultant shall promptly surrender the same to the Company.
8. Injunctive Relief
Consultant and the Company acknowledge that a breach by the other of
any of the terms of Sections 5, 6 or 7 of this Agreement will render irreparable
harm to the other and that the Company or Consultant (as the case may be) shall
therefore be entitled to any and all equitable relief, including but not limited
to injunctive relief, and to any other remedy that may be available under any
applicable law or agreement between the parties.
9. Representations of Consultant.
Consultant represents and warrants that his execution and delivery of
this Agreement and performance by Consultant of his obligations under this
Agreement shall in no way violate the terms and conditions of any other
agreement, written or oral, or any other instrument or arrangement to which
Consultant is a party or by which Consultant is bound.
10. Miscellaneous.
(a) Waiver. No waiver of any term, condition or covenant of this
Agreement shall be deemed to be a waiver of subsequent breaches of the same or
other terms, covenants or conditions hereof.
(b) Amendment. This Agreement may not be amended, altered or modified
except by a written agreement between the parties hereto.
(c) Assignability.
(i) Consultant Assignability. Consultant shall not assign this
Agreement to any third party for whatever purpose without the express, prior
written consent of the Company.
(ii) Company Assignability. The Company shall have the right
to assign this contract to its successors or permitted assigns, (but not to
other persons,) and all covenants or agreements hereunder shall inure to the
benefit of and be enforceable by or against its successors or assigns.
(iii) Definitions. The terms "successor" and "permitted
assigns" shall include any person, individual or entity that buys all or
substantially all the Company's assets, or a controlling portion of its stock,
or with which it merges or consolidates.
(d) Invalidity and Severability. In the event part or any portion of
this Agreement is determined to be invalid or unenforceable by any court of
competent jurisdiction, the parties agree that this Agreement as so construed
shall remain in force and effect between them and shall be applied as if the
offending part or portion did not comprise an element hereof.
(e) Notices. Any notice required to be given hereunder shall be duly
and properly given if hand delivered, mailed by certified mail with return
receipt postage prepaid to either party at the addresses set forth below,
effective as of the date of mailing:
If to Consultant: APF, LLC
c/o Anthony Furnary, M.D.
7266 S.W. Eton Court
Portland, OR 97225
With a copy to: Ropes & Gray
One International Place
Boston, MA 02110
Attn: Peter Dodson
Eric Jaeger
If to the Company: LifeRate Systems, Inc.
7210 Metro Boulevard
Minneapolis, MN 55439-2128
Attention: Chief Executive Officer
With a copy to: Michel A. LaFond, Esq.
Oppenheimer Wolff & Donnelly
45 South Seventh Street
Suite 3400
Minneapolis, MN 55402
Either party may change its address by giving ten days' prior written
notice to the other party of the new address.
(f) Definitions. For purposes of this Agreement, the following words
shall have the meanings indicated:
(i) Technology. The term "technology" means all know-how,
trade secrets, processes, inventions, specifications, equipment, computer
software, trademarks, trade names, service marks, patents, patent applications,
proprietary information, copyrights and other intellectual property related to
the Company's existing products, products under development and all other
products developed during the term of this Agreement.
(ii) Trade Secret. The term "trade secret" means any
information or compilation of information possessed by the Company that derives
independent economic value, actual or potential, from not being generally known
to, and not being readily ascertainable by proper means by other persons who can
obtain economic value from its disclosure or use. For purposes of this
Agreement, the term "trade secret" includes both information disclosed to
Consultant by the Company and information developed by Consultant in the course
of his employment.
(g) Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Minnesota.
IN WITNESS WHEREOF, the parties have duly executed, or caused to be
executed by a duly authorized representative, this Agreement as of the date
first set forth above.
LIFERATE SYSTEMS, INC.
By _______________________________________
CONSULTANT
__________________________________________
APF, LLC
By________________________________________
Anthony P. Furnary
Its Manager
EXHIBIT A
CONSULTANT'S RESPONSIBILITIES
* providing design input to overall system design and direction
* input on development of general clinical database structure and
front end interface for the systems
* input into product features and functions that ensure the product
will be relevant in a variety of clinical settings
* assist in the definition of data elements and reporting formats
* interaction with Company's development project/team manager
NON-STATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT is entered into and effective as of March 4, 1997, by
and between LifeRate Systems, Inc., a Minnesota corporation. (the "Company") and
APF, LLC, an Oregon limited liability company (the "Holder").
A. The Company, the Holder and Anthony Furnary, M.D. have entered into
an agreement, dated the date hereof, pursuant to which, among other things such
parties have agreed to certain modifications to the "CORIS" Computer Software
Purchase Agreement, dated July 2, 1995, among such parties.
B. The Company has agreed to grant the option set forth herein in
consideration for services that Furnary has provided to the Company since July
2, 1995.
Accordingly, the parties hereby agree as follows:
1. Grant of Option. The Company hereby grants to the Holder the right,
privilege, and option (the "Option") to purchase from the Company, at any time
on or before March 25, 2007, Five Hundred Fifty Thousand (550,000) fully paid
and nonassessable shares of the Company's Common Stock, no par value (such class
of stock being hereinafter referred to as the "Common Stock" and such shares of
Common Stock as may be acquired upon exercise hereof being hereinafter referred
to as the "Option Shares") at an exercise price equal to $2.625 per share,
subject to adjustment as provided in Section 4 ("Option Exercise Price"). The
Option is not intended to be an "incentive stock option," as that term is used
in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
2. Exercise. The rights represented by this Option may be exercised by
the Holder, in whole or in part (but not as to a fractional share of Common
Stock), by written notice of exercise delivered to the Company at the principal
office of the Company in Minneapolis, Minnesota (Attention: Chief Executive
Officer), and upon payment to it, by cash, certified check or bank draft, of the
Option Exercise Price for such shares. In addition, the Holder may elect to pay
the full purchase price, in whole or in part, by delivery of a Broker Exercise
Notice. For purposes of this Agreement, a "Broker Exercise Notice" shall mean a
written notice from the Holder to the Company at its principal executive office
in Minneapolis, Minnesota (Attention: Chief Executive Officer), pursuant to
which the Holder irrevocably elects to exercise all or any portion of this
Option and irrevocably directs the Company to deliver the Holder's stock
certificates to be issued to the Holder upon such Option exercise directly to a
broker or dealer. A Broker Exercise Notice must be accompanied by or contain
irrevocable instructions to the broker or dealer (i) to promptly sell a
sufficient number of shares of such Common Stock or to loan the Holder a
sufficient amount of money to pay the aggregate Option Exercise Price and, if
not otherwise satisfied by the Holder, to fund any related employment and
withholding tax obligations due upon such exercise, and (ii) to promptly remit
such sums to the Company upon the broker's or dealer's receipt of the stock
certificates. Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificates for the Option Shares, except in accordance
with the provisions and subject to the limitations of Section 6 below.
3. Covenants of the Company. The Company covenants and agrees that all
Option Shares that may be issued upon the exercise of this Option will, upon
issuance, be duly authorized and issued, fully paid and nonassessable. The
Company further covenants and agrees that until expiration of this Option, the
Company will at all times have authorized, and reserved for the purpose of
issuance or transfer upon exercise of this Option, a sufficient number of shares
of Common stock to provide for the exercise of this Option.
4. Anti-Dilution Provisions; Adjustment of Option Exercise Price. The
foregoing provisions are, however, subject to the following:
(a) The Option Exercise Price shall be subject to adjustment
from time to time as hereinafter provided. Upon each adjustment of the
Option Exercise Price, the Holder of this Option shall thereafter be
entitled to purchase, at the Option Exercise Price resulting from such
adjustment, the number of shares obtained by multiplying the Option
Exercise Price in effect immediately prior to such adjustment by the
number of shares purchasable pursuant hereto immediately prior to such
adjustment and dividing the product thereof by the Option Exercise
Price resulting from such adjustment.
(b) Except as provided in this Section 4, if and whenever the
Company shall issue or sell any shares of its Common Stock for a
consideration per share less than $2.625 (the "Anti-Dilution Trigger
Price"), then, forthwith upon such issue or sale, the Option Exercise
Price shall be reduced to the price (calculated to the nearest cent)
determined by dividing (x) an amount equal to the sum of (1) the number
of shares of Common Stock outstanding immediately prior to such issue
or sale multiplied by the then existing Option Exercise Price and (2)
the consideration, if any, received by the Company upon such issue or
sale, by (y) an amount equal to the sum of (1) the number of shares of
Common Stock outstanding immediately prior to such issue or sale and
(2) the number of shares of Common Stock thus issued or sold. Solely
for purposes of (x)(1) and (y)(1) above, the term "Common Stock
outstanding" shall include those shares of Common Stock issuable upon
exercise of this Option.
(c) Notwithstanding any other provisions of this Section 4,
the Option Exercise Price shall not be adjusted in the case of issuance
by the Company of (A) shares of Common Stock issued upon exercise of
any warrants or options to purchase Common Stock outstanding on the
date hereof as listed on Schedule 1 hereto, (B) options to purchase
shares of Common Stock of the Company (including shares of Common Stock
issued upon the exercise thereof) granted or to be granted pursuant to
the Company's 1993 Stock Option Plan, as such plan is in effect on the
date hereof or as may be amended by the Board of Directors, (C) shares
of Common Stock issued upon exercise of this Option, (D) up to
2,500,000 shares of Common Stock issued within four (4) months of the
date hereof in the Company's private placement which is contemplated to
be commenced within 60 days hereafter and is expected to raise
approximately $5,000,000 or (E) shares issuable to The Atlanta
Cardiology Group, P.C. under a certain Convertible Subordinated Note in
the principal amount of $2,250,000 to be issued by the Company on or
about the date hereof.
(d) No adjustment of the Option Exercise Price, however, shall
be made in an amount less than 0.1% of the Option Exercise Price in
effect on the date of such adjustment, but any such lesser adjustment
shall be carried forward and shall be made at the time and together
with the next subsequent adjustment which, together with any such
adjustment so carried forward, shall be an amount equal to or greater
than 0.1% of the Option Exercise Price then in effect.
(e) For the purposes of this Section 4, the following
provisions (1) to (4), inclusive, shall also be applicable:
(1) In case at any time the Company shall grant
(whether directly or by assumption in a merger or otherwise)
any rights to subscribe for or to purchase, or any options for
the purchase of, (a) Common Stock or (b) any obligations or
any shares of stock or other securities of the Company which
are convertible into, or exchangeable for, Common Stock (any
of such obligations or shares of stock or other securities
being hereinafter called "Convertible Securities") whether or
not such rights or options or the right to convert or exchange
any such Convertible Securities are immediately exercisable,
and the price per share for which Common Stock is issuable
upon the exercise of such rights or options or upon conversion
or exchange of such Convertible Securities (determined by
dividing (x) the total amount, if any, received or receivable
by the Company as consideration for the granting of such
rights or options, plus the minimum aggregate amount of
additional consideration payable to the Company upon the
exercise of such rights or options, plus, in the case of such
Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the issue of
such Convertible Securities and upon the conversion or
exchange thereof, by (y) the total maximum number of shares of
Common Stock issuable upon the exercise of such rights or
options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such
rights or options) shall be less than the Anti-Dilution
Trigger Price, then the total maximum number of shares of
Common Stock issuable upon the exercise of such rights or
options or upon conversion or exchange of the total maximum
amount of such Convertible Securities issuable upon the
exercise of such rights or options shall (as of the date of
granting of such rights or options) be deemed to have been
issued for such price per share. Except as provided in Section
4(h) below, no further adjustments of the Option Exercise
Price shall be made upon the actual issue of such Common Stock
or of such Convertible Securities upon exercise of such rights
or options or upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities.
(2) In case the Company shall issue or sell (whether
directly or by assumption in a merger or otherwise) any
Convertible Securities, whether or not the rights to exchange
or convert thereunder are immediately exercisable, and the
price per share for which Common Stock is issuable upon such
conversion or exchange (determined by dividing (x) the total
amount received or receivable by the Company as consideration
for the issue or sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any,
payable to the Company upon the conversion or exchange
thereof, by (y) the total maximum number of shares of Common
Stock issuable upon the conversion or exchange of all such
Convertible Securities) shall be less than the Anti-Dilution
Trigger Price, then the total maximum number of shares of
Common Stock issuable upon conversion or exchange of all such
Convertible Securities shall (as of the date of the issue or
sale of such Convertible Securities) be deemed to be
outstanding and to have been issued for such price per share,
provided that (a) except as provided in Section 4(h) below, no
further adjustments of the Option Exercise Price shall be made
upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities, and (b) if any such
issue or sale of such Convertible Securities is made upon
exercise of any rights to subscribe for or to purchase or any
option to purchase any such Convertible Securities for which
adjustments of the Option Exercise Price have been or are to
be made pursuant to other provisions of this Section 4, no
further adjustment of the Option Exercise Price shall be made
by reason of such issue or sale.
(3) In case any shares of Common Stock or Convertible
Securities or any rights or options to purchase any such
Common Stock or Convertible Securities shall be issued or sold
for cash, the consideration received therefor shall be deemed
to be the amount received by the Company therefor, without
deducting therefrom any expenses incurred or any underwriting
commissions or concessions paid or allowed by the Company in
connection therewith. In case any shares of Common Stock or
Convertible Securities or any rights or options to purchase
any such Common Stock or Convertible Securities shall be
issued or sold for a consideration other than cash, the amount
of the consideration other than cash received by the Company
shall be deemed to be the fair value of such consideration as
determined by the Board of Directors of the Company, without
deducting therefrom any expenses incurred or any underwriting
commissions or concessions paid or allowed by the Company in
connection therewith. In case any shares of Common Stock or
Convertible Securities or any rights or options to purchase
such Common Stock or Convertible Securities shall be issued in
connection with any merger or consolidation in which the
Company is the surviving corporation, the amount of
consideration therefor shall be deemed to be the fair value as
determined by the Board of Directors of the Company of such
portion of the assets and business of the non-surviving
corporation or corporations as such Board shall determine to
be attributable to such Common Stock, Convertible Securities,
rights or options, as the case may be. In the event of any
consolidation or merger of the Company in which the Company is
not the surviving corporation or in the event of any sale of
all or substantially all of the assets of the Company for
stock or other securities of any other corporation, the
Company shall be deemed to have issued a number of shares of
its Common Stock for stock or securities of the other
corporation computed on the basis of the actual exchange ratio
on which the transaction was predicated and for a
consideration equal to the fair market value on the date of
such transaction of such stock or securities of the other
corporation, and if any such calculation results in adjustment
of the Option Exercise Price, the determination of the number
of shares of Common Stock issuable upon conversion immediately
prior to such merger, conversion or sale, for purposes of
Section 4(i) below, shall be made after giving effect to such
adjustment of the Option Exercise Price.
(4) In case the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them
(a) to receive a dividend or other distribution payable in
Common Stock or in Convertible Securities, or in any rights or
options to purchase any Common Stock or Convertible
Securities, or (b) to subscribe for or purchase Common Stock
or Convertible Securities, then the date of such record shall
be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such rights of
subscription or purchase, as the case may be.
(f) In case the Company shall (i) declare a dividend upon the
Common Stock payable in Common Stock (other than a dividend declared to
effect a subdivision of the outstanding shares of Common Stock, as
described in Section 4(g) below) or Convertible Securities, or in any
rights or options to purchase any Common Stock or Convertible
Securities, or (ii) declare any other dividend or make any other
distribution upon the Common Stock payable otherwise than out of
earnings or earned surplus, then thereafter the Holder upon the
conversion hereof will be entitled to receive the number of shares of
Common Stock issuable upon exercise of this Option, and, in addition
and without payment therefor, each dividend described in clause (i)
above and each dividend or distribution described in clause (ii) above
which such holder would have received by way of dividends or
distributions if continuously since the Holder became the record holder
of this Option the Holder (x) had been the record holder of the number
of shares of Common Stock then received, and (y) had retained all
dividends or distributions in stock or securities (including Common
Stock or Convertible Securities, or in any rights or options to
purchase any Common Stock or Convertible Securities) payable in respect
of such Common Stock or in respect of any stock or securities paid as
dividends or distributions and originating directly or indirectly from
such Common Stock. For the purposes of the foregoing a dividend or
distribution other than in cash shall be considered payable out of
earnings or earned surplus only to the extent that such earnings or
surplus are charged an amount equal to the fair value of such dividend
or distribution as determined by the Board of Directors of the Company.
(g) In case the Company shall at any time subdivide its
outstanding shares of Common Stock into a greater number of shares, the
Option Exercise Price in effect immediately prior to such subdivision
shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock of the Company shall be combined
into a smaller number of shares, the Option Exercise Price in effect
immediately prior to such combination shall be proportionately
increased.
(h) If (i) the purchase price provided for in any right or
option referred to in clause (1) of Section 4(e), or (ii) the
additional consideration, if any, payable upon the conversion or
exchange of Convertible Securities referred to in clause (1) or clause
(2) of Section 4(e), or (iii) the rate at which any Convertible
Securities referred to in clause (1) or clause (2) of Section 4(e) are
convertible into or exchangeable for Common Stock, shall change at any
time (other than under or by reason of provisions designed to protect
against dilution), the Option Exercise Price then in effect hereunder
shall forthwith be increased or decreased to such Option Exercise Price
as would have obtained had the adjustments made upon the issuance of
such rights, options or Convertible Securities been made upon the basis
of (a) the issuance of the number of shares of Common Stock theretofore
actually delivered upon the exercise of such options or rights or upon
the conversion or exchange of such Convertible Securities, and the
total consideration received therefor, and (b) the issuance at the time
of such change of any such options, rights, or Convertible Securities
then still outstanding for the consideration, if any, received by the
Company therefor and to be received on the basis of such changed price;
and on the expiration of any such option or right or the termination of
any such right to convert or exchange such Convertible Securities, the
Option Exercise Price then in effect hereunder shall forthwith be
increased to such Option Exercise Price as would have obtained had the
adjustments made upon the issuance of such rights or options or
Convertible Securities been made upon the basis of the issuance of the
shares of Common Stock theretofore actually delivered (and the total
consideration received therefor) upon the exercise of such rights or
options or upon the conversion or exchange of such Convertible
Securities. If the purchase price provided for in any right or option
referred to in clause (1) of Section 4(e), or the rate at which any
Convertible Securities referred to in clause (1) or clause (2) of
Section 4(e) are convertible into or exchangeable for Common Stock,
shall decrease at any time under or by reason of provisions with
respect thereto designed to protect against dilution, then in case of
the delivery of Common Stock upon the exercise of any such right or
option or upon conversion or exchange of any such Convertible Security,
the Option Exercise Price then in effect hereunder shall forthwith be
decreased to such Option Exercise Price as would have obtained had the
adjustments made upon the issuance of such right, option or Convertible
Security been made upon the basis of the issuance of (and the total
consideration received for) the shares of Common Stock delivered as
aforesaid.
(i) If any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company
with another corporation, or the sale of all or substantially all of
its assets to another corporation shall be effected in such a way that
holders of Common Stock shall be entitled to receive stock, securities
or assets with respect to or in exchange for Common Stock, then, as a
condition of such reorganization, reclassification, consolidation,
merger or sale, lawful and adequate provision shall be made whereby the
Holder of this Option shall thereafter have the right to receive upon
the basis and upon the terms and conditions specified herein and in
lieu of the shares of the Common Stock of the Company immediately
theretofore receivable upon the exercise of this Option, such shares of
stock, securities or assets as may be issued or payable with respect to
or in exchange for a number of outstanding shares of such Common Stock
equal to the number of shares of such stock immediately theretofore
receivable upon the exercise of this Option had such reorganization,
reclassification, consolidation, merger or sale not taken place, plus
all dividends unpaid and accumulated or accrued thereon to the date of
such reorganization, reclassification, consolidation, merger or sale,
and in any such case appropriate provision shall be made with respect
to the rights and interests of the Holder of this Option to the end
that the provisions hereof (including without limitation provisions for
adjustments of the Option Exercise Price and of the number of shares
receivable upon the exercise of the this Option) shall thereafter be
applicable, as nearly as may be in relation to any shares of stock,
securities or assets thereafter receivable upon the exercise of this
Option. The Company shall not effect any such consolidation, merger or
sale, unless prior to the consummation thereof the successor
corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets shall
assume by written instrument executed and mailed to the Holder of this
Option, at the last addresses of such holders appearing on the books of
the Company, the obligation to deliver to the Holder such shares of
stock, securities or assets as, in accordance with the foregoing
provisions, the Holder may be entitled to receive.
(j) Upon any adjustment of the Option Exercise Price, then and
in each case the Company shall give written notice thereof, by
first-class mail, postage prepaid, addressed to the Holder of this
Option, which shall state the Option Exercise Price resulting from such
adjustment and the increase or decrease, if any, in the number of
shares receivable at such price upon the exercise of this Option,
setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based, and which notice shall be
certified by a nationally recognized firm of independent auditors
(which may be the Company's independent auditors).
(k) In case at any time:
(1) the Company shall declare any cash dividend on
its Common Stock;
(2) the Company shall pay any dividend payable in
stock upon its Common Stock or make any distribution (other
than regular cash dividends) to the holders of its Common
Stock;
(3) the Company shall offer for subscription pro rata
to the holders of its Common Stock any additional shares of
stock of any class or other rights;
(4) there shall be any capital reorganization, or
reclassification of the capital stock of the Company, or
consolidation or merger of the Company with, or sales of all
or substantially all of its assets to, another corporation; or
(5) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give
written notice, by first-class mail, postage prepaid, addressed to the
Holder at the addresses of such holders as shown on the books of the
Company, of the date on which (a) the books of the Company shall close
or a record shall be taken for such dividend, distribution or
subscription rights, or (b) such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up
shall take place, as the case may be. Such notice shall also specify
the date as of which the holders of Common Stock of record shall
participate in such dividend, distribution or subscription rights, or
shall be entitled to exchange their Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, or winding up,
as the case may be. Such written notice shall be given at least twenty
(20) days prior to the action in question and not less than twenty (20)
days prior to the record date or the date on which the Company's
transfer books are closed in respect thereto.
(l) If any event occurs as to which in the opinion of the
Board of Directors of the Company the other provisions of this Section
4 are not strictly applicable or if strictly applicable would not
fairly protect the rights of the Holder in accordance with the
essential intent and principles of such provisions, then the Board of
Directors shall make an adjustment in the application of such
provisions, in accordance with such essential intent and principles, so
as to protect such rights as aforesaid.
(m) As used in this Section 4 the term "Common Stock" shall
mean and include the Company's presently authorized Common Stock and
shall also include any capital stock of any class of the Company
hereafter authorized which shall not be limited to a fixed sum or
percentage in respect of the rights of the holders thereof to
participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the
Company; provided that the shares receivable pursuant to exercise of
this Option shall include shares designated as Common Stock of the
Company as of the date of issuance of this Option, or, in case of any
reclassification of the outstanding shares thereof, the stock,
securities or assets provided for in Section 4(i) above.
(n) No fractional shares of Common Stock shall be issued upon
conversion pursuant to this Section 4, but, instead of any fraction of
a share which would otherwise be issuable, the Company shall pay a cash
adjustment in respect of such fraction in an amount equal to the same
fraction of the market price per share of Common Stock as of the close
of business on the day of conversion. "Market price" shall mean if the
Common Stock is traded on a securities exchange or the Nasdaq National
Market, the closing price of the Common Stock on such exchange or the
Nasdaq National Market, or, if the Common Stock is otherwise traded in
the over-the-counter market, the closing bid price, in each case
averaged over a period of twenty (20) consecutive business days prior
to the date as of which "market price" is being determined. If at any
time the Common Stock is not traded on an exchange or the Nasdaq
National Market, or otherwise traded in the over-the-counter market,
the "market price" shall be deemed to be the higher of (i) the book
value thereof as determined by any firm of independent public
accountants of recognized standing selected by the Board of Directors
of the Company as of the last day of any month ending within sixty (60)
days preceding the date as of which the determination is to be made, or
(ii) the fair value thereof determined in good faith by the Board of
Directors of the Company as of a date which is within fifteen (15) days
of the date as of which the determination is to be made.
5. No Rights as Shareholder. This Option shall not entitle the Holder
to any voting rights or other rights as a shareholder of the Company
6. Securities Laws Restrictions. The Holder, by acceptance hereof,
represents and warrants that (a) it is acquiring this Option for its own account
for investment purposes only and not with a view to its resale or distribution
and (b) it has no present intention to resell or otherwise dispose of all or any
part of this Option. Other than pursuant to registration under federal and state
securities laws or an exemption from such registration, the availability of
which the Company shall determine in its sole discretion, (y) the Company will
not accept the exercise of this Option or issue certificates for Option Shares
and (z) neither this Option nor any Option Shares may be sold, pledged, assigned
or otherwise disposed of (whether voluntarily or involuntarily). The Company may
condition such issuance or sale, pledge, assignment or other disposition on the
receipt from the party to whom this Option is to be so transferred or to whom
Option Shares are to be issued or so transferred of any representations and
agreements requested by the Company in order to permit such issuance or transfer
to be made pursuant to exemptions from registration under federal and applicable
state securities laws. Each certificate representing the Option (or any part
thereof) and any Option Shares shall be stamped with appropriate legends setting
forth these restrictions on transferability. The Holder, by acceptance hereof,
agrees to give written notice to the Company before exercising or transferring
this Option or transferring any Option Shares of the Holder's intention to do
so, describing briefly the manner of any proposed exercise or transfer. Within
thirty (30) days after receiving such written notice, the Company shall notify
the Holder as to whether such exercise or transfer may be effected.
7. Registration Rights. The Company shall register the issuance of the
Option Shares under the Securities Act of 1933, as amended, on a registration
statement on Form S-8 (or any comparable successor form) within ninety (90) days
of the date hereof.
8. Nontransferability. This Option may not be transferred or assigned
by the Holder, either voluntarily or involuntarily, except by will or otherwise
under the laws of descent and distribution; provided, however, that if the rules
applicable to the use of a registration statement on Form S-8 (or any comparable
successor form) are hereafter amended to permit the transferablity of options
registered on a Form S-8 (or any comparable successor form), this Option shall
become transferable to the extent permitted by the rules then applicable to the
use of Form S-8 (or any comparable successor form) and any other applicable
federal or state securities laws or regulations. Any transfer of this Option
other than in accordance with this Agreement shall be null and void.
9. Amendment. Neither this Option nor any term hereof may be changed,
waived, discharged or terminated orally but only by an instrument in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective the day and year first above written.
LIFERATE SYSTEMS, INC.
By_____________________________________
Its____________________________________
APF, LLC
By_____________________________________
Its____________________________________
NON-STATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT is entered into and effective as of March 4, 1997, by
and between LifeRate Systems, Inc., a Minnesota corporation. (the "Company") and
APF, LLC, an Oregon limited liability company (the "Holder").
A. The Company, the Holder and Anthony Furnary, M.D. have entered into
an agreement, dated the date hereof, pursuant to which, among other things such
parties have agreed to certain modifications to the "CORIS" Computer Software
Purchase Agreement, dated July 2, 1995, among such parties (the "Purchase
Agreement").
B. The Company has agreed to grant the option set forth herein in
replacement of the option granted to the Holder pursuant to Section 6.2 of the
Purchase Agreement.
Accordingly, the parties hereby agree as follows:
1. Grant of Option. The Company hereby grants to the Holder the right,
privilege, and option (the "Option") to purchase from the Company Twenty-Six
Thousand (26,000) fully paid and nonassessable shares of the Company's Common
Stock, no par value (such class of stock being hereinafter referred to as the
"Common Stock" and such shares of Common Stock as may be acquired upon exercise
hereof being hereinafter referred to as the "Option Shares") at an exercise
price equal to $2.625 per share, subject to adjustment as provided in Section 4
("Option Exercise Price"). The Option is not intended to be an "incentive stock
option," as that term is used in Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"). This Option shall remain exercisable through the
latest date of exercisability with respect to the number of Option Shares set
forth below:
Latest Date of
Exercisability Number of Option Shares
-------------- -----------------------
March 31, 2005 8,667
March 31, 2006 8,667
March 31, 2007 8,666
This Option shall expire and become void with respect to the numbers of
Option Shares designated above opposite and as of the respective, designated
Latest Dates of Exercisability. In any event, this Option shall become void and
expire as to all unexercised and unpurchased Option Shares at 5:00 p.m.
(Minneapolis, Minnesota time) on March 31, 2007.
2. Exercise. The rights represented by this Option may be exercised by
the Holder, in whole or in part (but not as to a fractional share of Common
Stock), by written notice of exercise delivered to the Company at the principal
office of the Company in Minneapolis, Minnesota (Attention: Chief Executive
Officer), and upon payment to it, by cash, certified check or bank draft, of the
Option Exercise Price for such shares. In addition, the Holder may elect to pay
the full purchase price, in whole or in part, by delivery of a Broker Exercise
Notice. For purposes of this Agreement, a "Broker Exercise Notice" shall mean a
written notice from the Holder to the Company at its principal executive office
in Minneapolis, Minnesota (Attention: Chief Executive Officer), pursuant to
which the Holder irrevocably elects to exercise all or any portion of this
Option and irrevocably directs the Company to deliver the Holder's stock
certificates to be issued to the Holder upon such Option exercise directly to a
broker or dealer. A Broker Exercise Notice must be accompanied by or contain
irrevocable instructions to the broker or dealer (i) to promptly sell a
sufficient number of shares of such Common Stock or to loan the Holder a
sufficient amount of money to pay the aggregate Option Exercise Price and, if
not otherwise satisfied by the Holder, to fund any related employment and
withholding tax obligations due upon such exercise, and (ii) to promptly remit
such sums to the Company upon the broker's or dealer's receipt of the stock
certificates. Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificates for the Option Shares, except in accordance
with the provisions and subject to the limitations of Section 6 below.
3. Covenants of the Company. The Company covenants and agrees that all
Option Shares that may be issued upon the exercise of this Option will, upon
issuance, be duly authorized and issued, fully paid and nonassessable. The
Company further covenants and agrees that until expiration of this Option, the
Company will at all times have authorized, and reserved for the purpose of
issuance or transfer upon exercise of this Option, a sufficient number of shares
of Common stock to provide for the exercise of this Option.
4. Anti-Dilution Provisions; Adjustment of Option Exercise Price. The
foregoing provisions are, however, subject to the following:
(a) The Option Exercise Price shall be subject to adjustment
from time to time as hereinafter provided. Upon each adjustment of the
Option Exercise Price, the Holder of this Option shall thereafter be
entitled to purchase, at the Option Exercise Price resulting from such
adjustment, the number of shares obtained by multiplying the Option
Exercise Price in effect immediately prior to such adjustment by the
number of shares purchasable pursuant hereto immediately prior to such
adjustment and dividing the product thereof by the Option Exercise
Price resulting from such adjustment.
(b) In case the Company shall at any time subdivide its
outstanding shares of Common Stock into a greater number of shares, the
Option Exercise Price in effect immediately prior to such subdivision
shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock of the Company shall be combined
into a smaller number of shares, the Option Exercise Price in effect
immediately prior to such combination shall be proportionately
increased.
(c) If any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company
with another corporation, or the sale of all or substantially all of
its assets to another corporation shall be effected in such a way that
holders of Common Stock shall be entitled to receive stock, securities
or assets with respect to or in exchange for Common Stock, then, as a
condition of such reorganization, reclassification, consolidation,
merger or sale, lawful and adequate provision shall be made whereby the
Holder of this Option shall thereafter have the right to receive upon
the basis and upon the terms and conditions specified herein and in
lieu of the shares of the Common Stock of the Company immediately
theretofore receivable upon the exercise of this Option, such shares of
stock, securities or assets as may be issued or payable with respect to
or in exchange for a number of outstanding shares of such Common Stock
equal to the number of shares of such stock immediately theretofore
receivable upon the exercise of this Option had such reorganization,
reclassification, consolidation, merger or sale not taken place, plus
all dividends unpaid and accumulated or accrued thereon to the date of
such reorganization, reclassification, consolidation, merger or sale,
and in any such case appropriate provision shall be made with respect
to the rights and interests of the Holder of this Option to the end
that the provisions hereof (including without limitation provisions for
adjustments of the Option Exercise Price and of the number of shares
receivable upon the exercise of the this Option) shall thereafter be
applicable, as nearly as may be in relation to any shares of stock,
securities or assets thereafter receivable upon the exercise of this
Option. The Company shall not effect any such consolidation, merger or
sale, unless prior to the consummation thereof the successor
corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets shall
assume by written instrument executed and mailed to the Holder of this
Option, at the last addresses of such holders appearing on the books of
the Company, the obligation to deliver to the Holder such shares of
stock, securities or assets as, in accordance with the foregoing
provisions, the Holder may be entitled to receive.
(d) Upon any adjustment of the Option Exercise Price, then and
in each case the Company shall give written notice thereof, by
first-class mail, postage prepaid, addressed to the Holder of this
Option, which shall state the Option Exercise Price resulting from such
adjustment and the increase or decrease, if any, in the number of
shares receivable at such price upon the exercise of this Option,
setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based, and which notice shall be
certified by a nationally recognized firm of independent auditors
(which may be the Company's independent auditors).
(e) If any event occurs as to which in the opinion of the
Board of Directors of the Company the other provisions of this Section
4 are not strictly applicable or if strictly applicable would not
fairly protect the rights of the Holder in accordance with the
essential intent and principles of such provisions, then the Board of
Directors shall make an adjustment in the application of such
provisions, in accordance with such essential intent and principles, so
as to protect such rights as aforesaid.
(f) No fractional shares of Common Stock shall be issued upon
conversion pursuant to this Section 4, but, instead of any fraction of
a share which would otherwise be issuable, the Company shall pay a cash
adjustment in respect of such fraction in an amount equal to the same
fraction of the market price per share of Common Stock as of the close
of business on the day of conversion. "Market price" shall mean if the
Common Stock is traded on a securities exchange or the Nasdaq National
Market, the closing price of the Common Stock on such exchange or the
Nasdaq National Market, or, if the Common Stock is otherwise traded in
the over-the-counter market, the closing bid price, in each case
averaged over a period of twenty (20) consecutive business days prior
to the date as of which "market price" is being determined. If at any
time the Common Stock is not traded on an exchange or the Nasdaq
National Market, or otherwise traded in the over-the-counter market,
the "market price" shall be deemed to be the higher of (i) the book
value thereof as determined by any firm of independent public
accountants of recognized standing selected by the Board of Directors
of the Company as of the last day of any month ending within sixty (60)
days preceding the date as of which the determination is to be made, or
(ii) the fair value thereof determined in good faith by the Board of
Directors of the Company as of a date which is within fifteen (15) days
of the date as of which the determination is to be made.
5. No Rights as Shareholder. This Option shall not entitle the Holder
to any voting rights or other rights as a shareholder of the Company
6. Securities Laws Restrictions. The Holder, by acceptance hereof,
represents and warrants that (a) it is acquiring this Option for its own account
for investment purposes only and not with a view to its resale or distribution
and (b) it has no present intention to resell or otherwise dispose of all or any
part of this Option. Other than pursuant to registration under federal and state
securities laws or an exemption from such registration, the availability of
which the Company shall determine in its sole discretion, (y) the Company will
not accept the exercise of this Option or issue certificates for Option Shares
and (z) neither this Option nor any Option Shares may be sold, pledged, assigned
or otherwise disposed of (whether voluntarily or involuntarily). The Company may
condition such issuance or sale, pledge, assignment or other disposition on the
receipt from the party to whom this Option is to be so transferred or to whom
Option Shares are to be issued or so transferred of any representations and
agreements requested by the Company in order to permit such issuance or transfer
to be made pursuant to exemptions from registration under federal and applicable
state securities laws. Each certificate representing the Option (or any part
thereof) and any Option Shares shall be stamped with appropriate legends setting
forth these restrictions on transferability. The Holder, by acceptance hereof,
agrees to give written notice to the Company before exercising or transferring
this Option or transferring any Option Shares of the Holder's intention to do
so, describing briefly the manner of any proposed exercise or transfer. Within
thirty (30) days after receiving such written notice, the Company shall notify
the Holder as to whether such exercise or transfer may be effected.
7. Registration Rights. The Company shall register the issuance of the
Option Shares under the Securities Act of 1933, as amended, on a registration
statement on Form S-8 (or any comparable successor form) within ninety (90) days
of the date hereof.
8. Nontransferability. This Option may not be transferred or assigned
by the Holder, either voluntarily or involuntarily, except by will or otherwise
under the laws of descent and distribution; provided, however, that if the rules
applicable to the use of a registration statement on Form S-8 (or any comparable
successor form) are hereafter amended to permit the transferability of options
registered on a Form S-8 (or any comparable successor form), this Option shall
become transferable to the extent permitted by the rules then applicable to the
use of Form S-8 (or any comparable successor form) and any other applicable
federal or state securities laws or regulations. Any transfer of this Option
other than in accordance with this Agreement shall be null and void.
9. Amendment. Neither this Option nor any term hereof may be changed,
waived, discharged or terminated orally but only by an instrument in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought.
10. Prior Stock Option Agreement. This Agreement shall supercede and
replace in its entirety the Non-Statutory Stock Option Agreement executed by the
parties pursuant to Section 6.2 of the ("Purchase Agreement").
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective the day and year first above written.
LIFERATE SYSTEMS, INC.
By____________________________________
Its___________________________________
APF, LLC
By____________________________________
Its___________________________________
NON-STATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT is entered into and effective as of March 4, 1997 (the
"Date of Grant"), by and between LifeRate Systems, Inc. (the "Company") and
Anthony Furnary, M.D. (the "Optionee").
A. The Company has adopted the 1993 Stock Option Plan (the "Plan")
authorizing the Board of Directors of the Company, or a committee as provided
for in the Plan (the Board or such a committee to be referred to as the
"Committee"), to grant non-statutory stock options to employees and nonemployee
consultants and independent contractors of the Company.
B. 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.
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 Ten Thousand Three Hundred Thirty-Three
(10,333) 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 and the Plan. The Option is not intended to be an "incentive stock
option," as that term is used in Section 422 of the Internal Revenue Code of
1986, as amended (the "Code").
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 $2.625, the fair value of one common share of the Company
on March 4, 1997.
ARTICLE
3.
DURATION OF OPTION AND TIME OF EXERCISE
3.1. Initial Period of Exercisability. The Option shall become
exercisable with respect to the Option Shares in three installments. The
following table sets forth the initial dates of exercisability of each
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
-------------- ----------------------
March 7, 1998 3,445
March 7, 1999 3.444
March 7, 2000 3,444
The foregoing rights to exercise this Option shall be cumulative with
respect to the Option Shares becoming exercisable on each 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 March 3, 2007 (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 the Optionee's employment or other service
with the Company and all Subsidiaries (as defined in the Plan) is
terminated for "cause" (as defined in the Plan), all rights of the
Optionee under the Plan and this Agreement shall immediately terminate
without notice of any kind, and this Option shall no longer be
exercisable. In the event that the Optionee's employment or other
service with the Company and all Subsidiaries is terminated for any
reason other than cause, this Option shall remain exercisable to the
extent exercisable as of such termination until the Time of
Termination.
(b) Notwithstanding anything in this Agreement or the Plan 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 Committee in its sole discretion may
immediately terminate all rights of the Optionee under this Agreement
and the Plan 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 9.1 of the Plan.
(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 Committee, 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
Committee, 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 in the Plan and
herein, by delivery, in person or by registered mail, to the Company at its
principal executive office in Edina, Minnesota (Attention: Chief Financial
Officer), of a written notice of exercise. Such notice shall be in a form
satisfactory to the Committee, shall identify the Option, shall specify the
number of Option Shares with respect to which the Option is being exercised, and
shall be signed by the person or persons so exercising the 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, as
provided by the Plan and Section 3.2 above, 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 the Option. As soon as practicable after the
effective exercise of the 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.
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 Plan, the Committee, 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
Committee 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
Committee 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 Committee 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.
ARTICLE
5.
NONTRANSFERABILITY
Neither this Option nor the Option Shares acquired upon exercise may be
transferred by the Optionee, either voluntarily or involuntarily, or subjected
to any lien, directly or indirectly, by operation of law or otherwise, except as
provided in the Plan. Any attempt to transfer or encumber this Option or the
Option Shares other than in accordance with this Agreement and the Plan shall be
null and void and shall void this Option.
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 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 Committee (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.
SUBJECT TO PLAN
The Option and the Option Shares granted and issued pursuant to this
Agreement have been granted and issued under, and are subject to the terms of,
the Plan. The terms of the Plan are incorporated by reference herein in their
entirety, and the Optionee, by execution hereof, acknowledges having received a
copy of the Plan. The provisions of this Agreement shall be interpreted as to be
consistent with the Plan, and any ambiguities herein shall be interpreted by
reference to the Plan. In the event that any provision hereof is inconsistent
with the terms of the Plan, the terms of the Plan shall prevail.
ARTICLE
10.
MISCELLANEOUS
10.1. Binding Effect. This Agreement shall be binding upon the heirs,
executors, administrators and successors of the parties hereto.
10.2. 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.
10.3. Entire Agreement. This Agreement and the Plan set forth the
entire agreement and understanding of the parties hereto with respect to the
grant and exercise of this Option and the administration of the Plan and
supersede all prior agreements, arrangements, plans and understandings relating
to the grant and exercise of this Option and the administration of the Plan.
10.4. Amendment and Waiver. Other than as provided in the Plan, 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.
10.5. Prior Stock Option Agreements. This Agreement shall supercede and
replace in their entirety the Non-Statutory Stock Option Agreements executed by
the parties covering an option to purchase 1,333 shares previously granted on or
about January 1, 1995 and an option covering 9,000 shares granted on or about
June 5, 1995.
The parties hereto have executed this Agreement effective the day and
year first above written.
LIFERATE SYSTEMS, INC.
By__________________________________
Its_________________________________
[By execution hereof, the Optionee
acknowledges having receive a copy
of the Plan.] ____________________________________
Anthony P. Furnary, M.D.
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (No. 333-02856) pertaining to the LifeRate Systems, Inc. 1993 Stock
Option Plan, as amended, in the Registration Statement on Form S-8 (No.
333-06783) pertaining to the LifeRate Systems, Inc. Employee Stock Option Plan
and in the Registration Statement on Form S-3 (No. 333-04939) dated June 21,
1996, of our report dated February 13, 1997, with respect to the financial
statements of LifeRate Systems, Inc. included in the Annual Report (Form 10-KSB)
for the year ended December 31, 1996.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
April 10, 1997
<TABLE> <S> <C>
<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.
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
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<CURRENT-ASSETS> 2,337
<PP&E> 1,015
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0
0
<COMMON> 17,261
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<SALES> 616
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<CGS> 180
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<OTHER-EXPENSES> (262)
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