As filed with the Securities and Exchange Commission on December 12, 1997.
Registration No. 333-
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
LIFERATE SYSTEMS, INC.
(Name of small business issuer in its charter)
MINNESOTA 7373 41-1682994
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
7210 METRO BOULEVARD
MINNEAPOLIS, MINNESOTA 55439
(612) 844-0599
(Address and telephone number of principal executive offices
and principal place of business)
--------------------------------------
DAVID J. CHINSKY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
7210 METRO BOULEVARD
MINNEAPOLIS, MINNESOTA 55439
(612) 844-0599
(Name, address and telephone number of agent for service)
---------------
COPIES TO:
THOMAS A. LETSCHER, ESQ.
OPPENHEIMER WOLFF & DONNELLY
3400 PLAZA VII, 45 SOUTH SEVENTH STREET
MINNEAPOLIS, MN 55402
(612) 607-7443
---------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
-----------------
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
----------------------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
============================================================================================================
PROPOSED PROPOSED
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE MAXIMUM MAXIMUM AMOUNT OF
TO BE REGISTERED REGISTERED(1) OFFERING PRICE AGGREGATE REGISTRATION FEE
PER SHARE(2) OFFERING PRICE
============================================================================================================
<S> <C> <C> <C> <C>
Common Stock, no par value.......... 4,394,000 $0.55 $2,416,700 $712.93
============================================================================================================
Common Stock underlying Warrants.... 4,394,000 $0.55 $2,416,700 $712.93
============================================================================================================
Total............................... 8,788,000 $0.55 $4,833,400 $1425.86
============================================================================================================
</TABLE>
(1) The amount to be registered hereunder consists of an aggregate of
8,788,000 total shares of Common Stock to be sold by certain selling
shareholders. Of the 8,788,000 shares of Common Stock, 4,394,000 are
currently outstanding and beneficially owned by such selling
shareholders and 4,394,000 shares are issuable upon the exercise of
certain warrants held by such selling shareholders.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(c) under the Securities Act of
1933, based upon the last sale of the Registrant's Common Stock on
December 9, 1997, as reported in the over-the-counter market.
-----------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
================================================================================
<PAGE>
Subject to Completion Dated December 12, 1997
PROSPECTUS
8,788,000 SHARES
LIFERATE SYSTEMS, INC.
COMMON STOCK
-----------------------
This Prospectus relates to 8,788,000 shares (the "Shares") of Common
Stock, no par value (the "Common Stock), of LifeRate Systems, Inc. (the
"Company"), that may be offered for sale for the account of certain shareholders
of the Company as stated herein under the heading "Selling Shareholders." The
Shares being offered by the Selling Shareholders hereunder consist of: (i)
4,394,000 outstanding shares of Common Stock issued in connection with a
Securities Purchase Agreement dated as of November 14, 1997 between the Company
and the Selling Shareholders (the "Purchase Agreement"), and (ii) 4,394,000
shares of Common Stock issuable upon the exercise of warrants (the "Warrants")
issued in connection with the Purchase Agreement. No period of time has been
fixed within which the Shares covered by this Prospectus may be offered or sold.
The Selling Shareholders have advised the Company that sales of the
Shares offered hereunder by them, or by their pledgees, donees, transferees or
other successors in interest, may be made from time to time in the
over-the-counter market, through negotiated transactions or otherwise, at market
prices prevailing at the time of sale or at negotiated prices. The Shares may be
sold by one or more of the following methods: (i) a block trade in which the
broker or dealer so engaged will attempt to sell the Shares as agent but may
position and resell a portion of the block as principal to facilitate the
transaction; (ii) purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this Prospectus; and (iii)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers. Sales may be made pursuant to this Prospectus to or through
broker-dealers who may receive compensation in the form of discounts,
concessions or commissions from the Selling Shareholders or the purchasers of
Shares for whom such broker-dealer may act as agent or to whom they may sell as
principal, or both (which compensation as to a particular broker-dealer may be
in excess of customary commissions). One or more supplemental prospectuses will
be filed pursuant to Rule 424 under the Securities Act of 1933, as amended (the
"Securities Act"), to describe any material arrangements for the sales of the
Shares offered hereunder when such arrangements are entered into by the Selling
Shareholders and any other broker-dealers that participate in the sale of the
Shares. In addition, any Shares that qualify for sale pursuant to Rule 144 under
the Securities Act may be sold under Rule 144 rather than pursuant to this
Prospectus.
The Selling Shareholders and any broker-dealers or other persons acting
on their behalf in connection with the sale of Shares hereunder may be deemed to
be "underwriters" within the meaning of the Securities Act, and any commissions
received by them and any profit realized by them on the resale of Shares as
principals may be deemed to be underwriting commissions under the Securities
Act. As of the date hereof, there are no special selling arrangements between
any broker-dealer or other person and any Selling Shareholder.
The Company will not receive any part of the proceeds of any sales of
Shares pursuant to this Prospectus. Pursuant to the terms of the Purchase
Agreement, the Company will pay all the expenses of registering the Shares,
except for selling expenses incurred by the Selling Shareholders in connection
with this offering, including any fees and commissions payable to broker-dealers
or other persons, which will be borne by the Selling Shareholders. In addition,
the Purchase Agreement provides for certain other usual and customary terms,
including indemnification by the Company of the Selling Shareholders against
certain liabilities arising under the Securities Act.
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE CERTAIN RISKS. SEE
"RISK FACTORS" BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
The Company's Common Stock is currently traded in the over-the-counter
market on the NASD "Electronic Bulletin Board" under the symbol "LRSI." As a
result, there may be a limited market for the Shares which could have an adverse
effect on the future sales price and liquidity of the Shares. On December 9,
1997, the closing bid price of the Common Stock in the over-the-counter market
was $.0.55 per share.
-----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------------
THE DATE OF THIS PROSPECTUS IS ______________, 1997.
<PAGE>
No person has been authorized to give any information or to make any
representations not contained or incorporated by reference in this Prospectus in
connection with the offer described in this Prospectus and, if given or made,
such information and representations must not be relied upon as having been
authorized by the Company or the Selling Shareholders. Neither the delivery of
this Prospectus nor any sale made under this Prospectus shall under any
circumstances create any implication that there has been no change in the
affairs of the Company since the date hereof or since the date of any documents
incorporated herein by reference. This Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy any securities other than the
securities to which it relates, or an offer or solicitation in any state to any
person to whom it is unlawful to make such offer in such state.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company pursuant to the Exchange
Act may be inspected and copied at the public reference facilities maintained by
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 and at the regional offices of the Commission located at Seven World Trade
Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can
also be obtained from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, the Commission maintains a Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. The address of the Commission's
Web site is http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on
Form SB-2 under the Securities Act. This Prospectus does not contain all of the
information, exhibits and undertakings set forth in the Registration Statement,
certain portions of which are omitted as permitted by the Rules and Regulations
of the Commission. Copies of the Registration Statement and the exhibits are on
file with the Commission and may be obtained, upon payment of the fee prescribed
by the Commission, or may be examined, without charge, at the offices of the
Commission set forth above. For further information, reference is made to the
Registration Statement and its exhibits.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO CONTAINED ELSEWHERE IN
THIS PROSPECTUS. INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH
UNDER THE HEADING "RISK FACTORS."
THE COMPANY
LifeRate Systems, Inc. ("LifeRate" or the "Company") has developed and
is marketing a set of information products designed to enable healthcare
providers to evaluate and demonstrate the quality and cost-effectiveness of the
medical care they deliver. LifeRate tools allow physicians, nurses and other
allied healthcare professionals to capture relevant clinical data, allowing
quick and easy access to patient information and the ability to report on
clinical and patient outcomes. This information can be used by healthcare
providers to improve their medical decision-making process, and to enhance the
competitiveness and profitability of their business. LifeRate believes that as
healthcare purchasers and payors, both public and private, continue to demand
more appropriate and cost-effective medical care for their beneficiaries, the
market for clinical information tools enabling physicians and hospitals to more
effectively manage the care of their patients will expand.
The Company presently is focused on two medical specialties: cardiology
and asthma and allergy. The cardiovascular disease market is large and growing.
A number of large regional and national providers of cardiovascular-related
services are emerging that link cardiologists and seek to provide a range of
practice management services. These large networks increasingly are recognizing
the important role information can play in facilitating more efficient and
effective medical care for their patients. The Company's other market focus is
on asthma and allergy. An estimated fifteen million Americans have asthma
resulting in estimated cost of approximately $6.2 billion a year in missed work
and school, in medications and hospital visits. LifeRate's presence in both the
cardiology and the asthma and allergy specialties position the Company within
the largest market segments for both adult and pediatric medical care.
LifeRate released demonstration versions of its core system, along with
the Cardiovascular Outpatient module, in August 1995 and commercial versions in
December 1995. The Company accepted initial orders in the third quarter of 1995,
and began installation in the fourth quarter of 1995. During 1996, LifeRate
completed development of its core software system, including outpatient modules
for cardiovascular and asthma and allergy specialists. The software has been
released in three phases, Version 1.1 in February, 1996; Version 1.2 in October,
1996; and Version 1.3 in September, 1997. These releases added functionality to
the core software and increased its operational benefits. In 1998, LifeRate
plans to release a new suite of products tailored to the needs of the cardiac
catheterization laboratory, offering both entry level and comprehensive product
options.
LifeRate's product suite comprises software-based, patient centered,
point-of-care clinical information tools and services that can be used to track
a patient throughout the continuum of care. Data collection tools are used to
populate a vast relational data repository that can be queried to analyze the
quality and effectiveness of patient care. Using analysis and report generation
tools, LifeRate and its customers are able to query the data repository on a
variety of parameters, such as drug utilization and effectiveness, repeat
procedures, functional status, etc. The Company believes its experienced
Integration Services team, which builds customized software links between
LifeRate and other clinical systems, represents a unique strength in the
healthcare information management marketplace.
The Company was incorporated in Minnesota in July, 1990. The Company's
principal executive offices are located at 7210 Metro Boulevard, Minneapolis,
Minnesota 55439, and its telephone number at that location is (612) 844-0599.
<PAGE>
RISK FACTORS
An investment in the Shares offered hereby is speculative and involves
a high degree of risk. See "Risk Factors."
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock offered by the Selling Shareholders.......8,788,000 Shares (including 4,394,000 shares
issuable pursuant to the exercise of Warrants
held by the Selling Shareholders)
Common Stock outstanding before the offering...........8,480,305 shares (as of December 1, 1997)
Common Stock to be outstanding after the offering......12,874,305 shares based on all Shares offered
under this Prospectus (assuming exercise of all
of the Warrants and no further issuances by the
Company)
Use of Proceeds........................................None of the proceeds of the sale of the Shares
registered hereunder will accrue to the
Company. See "Use of Proceeds."
</TABLE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------- -------------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Revenues..................... $119,900 $263,300 $615,700 $308,500 $366,100
Operating expenses............... 990,800 5,883,300 10,564,400 4,797,100 3,753,900
Interest income.................. 0 97,000 261,900 228,300 26,000
Interest expense................. 1,400 29,300 6,300 5,000 185,300
Net loss......................... (872,500) (5,595,300) (9,873,500) (4,976,500) (4,055,500)
Net loss per share............... (.89) (2.66) (2.61) (1.27) (1.06)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------------------- -----------------------------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ------------------------------
ACTUAL AS ADJUSTED(1)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficit)............... $340,900 $6,759,700 $1,833,600 $3,546,300 $(1,747,600) $1,799,700
Total assets............ 893,700 8,403,700 3,076,300 5,279,600 926,300 2,831,200
Total liabilities....... 623,100 1,259,400 2,923,900 1,197,900 4,790,200 2,922,600
Shareholders' equity
(deficit)............... 270,600 7,144,300 152,400 4,081,700 (3,863,900) (91,400)
</TABLE>
- -----------------------
(1) Gives effect to the issuance of 4,394,000 shares of Common Stock pursuant to
the Purchase Agreement, net of offering expenses, 11,550 shares of Common Stock
upon conversion of a convertible promissory note in November, 1997, and 250,000
shares of Common Stock upon conversion of $500,000 of convertible notes payable
in November 1997 and the effects of restructuring the remaining convertible
notes payable.
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK AND MAY NOT BE APPROPRIATE FOR INVESTORS WHO CANNOT AFFORD TO LOSE THEIR
ENTIRE INVESTMENT. PROSPECTIVE PURCHASERS OF THE SHARES OFFERED HEREBY SHOULD BE
FULLY AWARE OF THE FOLLOWING RISK FACTORS, AMONG OTHERS, AND SHOULD CAREFULLY
REVIEW THE INFORMATION AND FINANCIAL STATEMENTS CONTAINED ELSEWHERE IN THIS
PROSPECTUS.
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS. FOR THIS
PURPOSE, ANY STATEMENTS CONTAINED IN THIS PROSPECTUS THAT ARE NOT STATEMENTS OF
HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING
THE FOREGOING, WORDS SUCH AS "MAY," "WILL," "EXPECT," "BELIEVE," "ANTICIPATE,"
"ESTIMATE" OR "CONTINUE" OR THE NEGATIVE OR OTHER VARIATIONS THEREOF OR
COMPARABLE TERMINOLOGY ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS.
THESE STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES,
AND ACTUAL RESULTS MAY DIFFER MATERIALLY DEPENDING ON A VARIETY OF FACTORS,
INCLUDING THOSE DESCRIBED BELOW.
LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT; GOING CONCERN
UNCERTAINTY. The Company was formed in July, 1990, and has had revenues of
approximately $1,556,400 to date. As of September 30, 1997, the Company had an
accumulated deficit of approximately $21,163,800. The Company believes that its
future success will be dependent on the successful marketing of its
Cardiovascular Outpatient product, completion and successful marketing of its
Cardiac Catheterization Laboratory product, which is currently under
development, and successful modification of its core software system for certain
other medical specialties, such as asthma and allergy. There can be no assurance
that the Company will generate sufficient sales to achieve positive cash flow or
profitable operations. The report of the Company's independent auditors on the
Company's financial statements for the year ended December 31, 1996 contains an
explanatory paragraph which states that the Company's recurring losses and
negative cash flow from operations raises substantial doubt about its ability to
continue as a going concern.
FUTURE CAPITAL NEEDS. On November 14, 1997, the Company entered into a
Securities Purchase Agreement (the "Purchase Agreement") with Special Situations
Private Equity Fund, L.P., Special Situations Cayman Fund, L.P., Special
Situations Fund III, L.P. (collectively, the "Funds") and the other purchasers
named in the Purchase Agreement (the Funds and such other purchasers are
collectively referred to herein as the "Purchasers"), pursuant to which the
Company agreed to sell for cash up to 9,000,000 shares of common stock, no par
value, of the Company at prices ranging from $.50 to $.56 per share and warrants
to purchase up to 9,000,000 shares of Common Stock, as well as an additional
104,000 Shares and warrants for cancellation of certain indebtedness. To date,
the Company has sold an aggregate of 4,394,000 shares of Common Stock and issued
4,394,000 warrants under the Purchase Agreement for total gross cash proceeds of
$2,252,400. The Purchase Agreement also provides that, in the event the Company
fulfills certain conditions by January 15, 1998, the Company will sell to the
Funds and other Purchasers an additional 4,500,000 Shares and warrants to
purchase 4,500,000 shares of Common Stock at a purchase price of between $.50
and $.56 per share on or before January 31, 1998. The conditions to the second
closing include (a) the approval by the shareholders of the Company of an
amendment to the Company's Amended and Restated Articles of Incorporation to
increase the total number of authorized shares of Common Stock to an aggregate
of 75,000,000 and (b) the attainment by the Company no later than January 15,
1998, of the following milestones: (i) the Company's revenues derived from the
sale of existing or new systems during the period from October 1, 1997 through
January 15, 1998, shall be at least $200,000; (ii) the Company shall have
executed letters of intent and/or sales contracts, each with a minimum value of
$5,000, with at least five new (excluding current or previous) customers for the
sale of any existing or new systems during the period from October 1, 1997
through
<PAGE>
January 15, 1998; and (iii) the Company shall have made generally available for
sale a commercially marketable entry level cardiac catheterization laboratory
product designed to support the data requirements of the American College of
Cardiology, with a sales price range of $5,000 to $15,000.
With the proceeds received to date under the Purchase Agreement, the
Company currently estimates that it will have sufficient cash to continue
operations through March, 1998. If the Company successfully completes the second
closing, the Company estimates that it will have sufficient cash to continue
operations through August, 1998. Thereafter, the Company will likely require
additional capital to continue operations. The Company's working capital
requirements may vary substantially from those planned depending on numerous
factors, including a failure to significantly increase revenues, an unexpected
increase in expenses, growth of product sales beyond the Company's current plan
and other unplanned events. Required additional capital would be sought from a
number of sources and could include sales of additional shares of capital stock
or other securities or loans from banks or other sources. Any additional sales
of capital stock would likely be dilutive to shareholders. The Company's ability
to obtain additional capital will likely depend substantially on operating
results in future periods, and there can be no assurance that the Company will
be able to obtain additional capital on satisfactory terms or at all. The
Company will be materially adversely affected if it is not able to achieve
positive cash flow or profitability or to obtain any necessary financing on
satisfactory terms.
EFFECTS OF DELISTING FROM NASDAQ SMALL CAP MARKET. Effective with the
close of business July 3, 1997, the Company's Common Stock was no longer quoted
on the Nasdaq Stock Market because the Company no longer met, and currently does
not meet, the minimum net tangible assets and capital and surplus requirements
for continued quotation. The Company's Common Stock is currently quoted in the
"over-the-counter" market and is eligible to trade on the OTC Bulletin Board.
The public trading market for the Company's Common Stock may have been, and may
continue to be, adversely affected by this development. The minimum requirements
of the Nasdaq Small Cap Market for inclusion require the Company to have at
least two market makers in the Common Stock, total net tangible assets of $2.0
million, a minimum bid price for the Common Stock of $1.00 per share, 300
holders of its Common Stock and 500,000 shares of its Common Stock held by
non-affiliates, having a market value of $1,000,000 or more. There can be no
assurance that the Company will be able to achieve the total net tangible assets
qualification standard, the minimum bid price standard or the market value
standard in the near future or ever. Consequently, the liquidity of the
Company's Common Stock may be further impaired, not only in the number of shares
which may be bought and sold, but also through delays in the timing of
transactions and reduction in security analysts' and the news media's coverage,
if any, of the Company.
APPLICABILITY OF "PENNY STOCK RULES." Federal regulations under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") regulate the
trading of so-called "penny stocks" (the "Penny Stock Rules"), which are
generally defined as any security not listed on a national securities exchange
or the Nasdaq Stock Market, priced at less than $5.00 per share and offered by
an issuer with limited net tangible assets and revenues. In addition, equity
securities listed on the Nasdaq Stock Market which are priced at less than $5.00
are deemed "penny stocks" for the limited purpose of Section 15(b)(6) of the
Exchange Act, which makes it unlawful for any broker-dealer to participate in a
distribution of any "penny stock" without the consent of the Securities and
Exchange Commission if, in the exercise of reasonable care, the broker-dealer is
aware of or should have been aware of the participation of a previously
sanctioned person. The Company's Common Stock is currently trading below $5.00
per share. Accordingly, it may be more difficult for broker-dealers to sell the
Company's Common Stock and shareholders of the Company may therefore have
difficulty in selling their shares in the future in the secondary trading
market. Additionally, during the time that the Company's Common Stock trades
<PAGE>
below $5.00 per share and is not listed on the Nasdaq Stock Market or any
national securities exchange, trading, if any, of the Company's Common Stock
will be subject to the full range of the Penny Stock Rules. Under these rules,
broker-dealers must take certain steps prior to selling a "penny stock," which
steps include: (i) obtaining financial and investment information from the
investor; (ii) obtaining a written suitability questionnaire and purchase
agreement signed by the investor; and (iii) providing the investor a written
identification of the shares being offered and the quantity of the shares. If
the Penny Stock Rules are not followed by the broker-dealer, the investor has no
obligation to purchase the shares. The application of the comprehensive Penny
Stock Rules makes it more difficult for broker-dealers to sell the Company's
Common Stock and shareholders of the Company may have difficulty in selling
their shares in the future in the secondary trading market.
LIMITED OPPORTUNITY TO DEVELOP MARKET PRESENCE. The Company believes
that its ultimate success will be highly dependent on its ability to capitalize
on the currently existing market opportunity for computer-based, clinical
healthcare decision support systems, like LifeRate's system. The Company
believes that it has an opportunity to obtain a significant market presence in
this segment of the healthcare information industry if it is able to demonstrate
the value of its system to healthcare providers and payors and install a
significant number of systems in the remainder of 1997 and 1998. The Company
does not believe that it will be able to maintain its technical superiority over
competing information systems for an indefinite period of time and believes that
it will need to obtain a significant market presence in 1998 to achieve
long-term success. Although the Company's marketing personnel have experience in
marketing new products and services in the healthcare industry, LifeRate has
only limited experience in marketing its system. There can be no assurance that
the Company's marketing strategy will be successful.
SUCCESS DEPENDENT ON MARKET ACCEPTANCE. The Company's success will also
depend in large part on its ability to gain acceptance by physicians of
sophisticated, computer-based, clinical healthcare decision support systems.
Certain physicians may perceive such computer-based systems to infringe on their
discretion in providing medical treatment and, accordingly, may be reluctant to
accept such computer-based systems. Furthermore, although LifeRate's system has
been designed to operate on standard personal computer-based hardware, physician
practice groups may be required to upgrade their current computer hardware to
operate LifeRate's system. Physician groups may be reluctant to invest the
financial resources necessary to acquire LifeRate's system or any hardware
upgrades necessary to operate LifeRate's system. In addition, payors with
significant investments in other hardware and software systems may be reluctant
to abandon those systems for LifeRate's system. The Company believes, however,
that the demands of payors and buyers of healthcare and various healthcare
legislation will ultimately lead to the wide-spread use of computer-based
systems, like LifeRate's system, that integrate clinical and patient outcome
data in a single database. There can be no assurance, however, that the Company
will be able to obtain sufficient acceptance by providers and payors of its
system to achieve profitable operations.
COMPETITION. The healthcare information industry, of which the Company
is a part, is characterized by intense competition. A number of companies
provide computer-based healthcare information systems that provide partial
solutions to some or all of the types of healthcare information needs that
LifeRate's system addresses. In addition, the Company anticipates that new
competitors will attempt to enter the market and that existing or new
competitors will develop information systems in the future that duplicate or
improve on LifeRate's system. Many of the Company's competitors are well
established, better known and significantly larger with substantially greater
technical, marketing and financial resources than the Company. The Company's
ultimate ability to compete in the market will
<PAGE>
depend upon a number of factors, including its success in generating market
acceptance of LifeRate's system and the success of its marketing efforts.
DEPENDENCE ON KEY PERSONNEL. The Company is highly dependent on its key
management personnel, particularly David J. Chinsky, who became the Company's
President and Chief Executive Officer in August, 1997. The Company's future
success will also depend in part upon its ability to attract and retain highly
qualified management, technical, marketing and sales personnel. During 1997, a
number of personnel left the Company. The Company competes for such personnel
with other companies, and there can be no assurance that the Company will be
successful in hiring or retaining qualified personnel. The loss of key personnel
or the inability to hire or retain qualified personnel could have a material
adverse effect on the Company. The Company does not maintain key-man insurance
on any of its employees. "See Management."
LIMITED HISTORY OF MARKETING AND SALES. The Company began marketing its
Cardiovascular Outpatient product in the third quarter of 1995, and, to date,
the Company has installed or entered into agreements to install its
Cardiovascular Outpatient product at ten sites and its asthma and allergy
product at three sites. During 1995, the Company revised its marketing strategy
to focus on cardiology physician practice groups which the Company believes will
provide significant opportunities for sales of its system. During 1996, the
Company established internal sales, marketing, clinical support and quality
assurance functions. Prior to 1996, the Company relied, to a significant degree,
on an independent marketing firm to coordinate and conduct its marketing to
physician groups, rather than exclusively on its own employees. There can be no
assurance that the Company's revised marketing strategy, or its choice of
cardiology and asthma and allergy practice groups as initial target markets,
will be successful.
TECHNICAL OBSOLESCENCE. Computer-based technology in all industries is
undergoing, and is expected to continue to undergo, rapid and significant
technical advances. While LifeRate believes that its system is currently
technically superior to other computer-based healthcare information systems,
LifeRate expects future technology to be superior to the technology currently
used in its system. Although LifeRate's system has been designed to assimilate
future technical advancements, there can be no assurance that any such future
advancements or the development of new or competitive products by others will
not render LifeRate's system less competitive or obsolete. The greater financial
as well as other resources of many of the Company's present and potential
competitors may permit such competitors to respond more rapidly than the Company
to changes in the product needs and servicing requirements of healthcare
providers and payors.
LIMITED 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 U.S. patent application covering
certain aspects of its system and plans to file additional patent applications
in the future. 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.
<PAGE>
UNDESIGNATED PREFERRED STOCK; ANTI-TAKEOVER PROVISIONS. The Board of
Directors of the Company is authorized to issue undesignated preferred stock
("Undesignated Stock") in one or more series, and to determine the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms or conditions of redemption of each series
without any vote or action of the shareholders of the Company. No shares of
Undesignated Stock or other senior equity securities have been established or
issued, and there is no plan to establish or issue any such securities in the
foreseeable future. However, the issuance of Undesignated Stock with
preferential rights could adversely affect the voting power and other rights of
the holders of Common Stock. The Company is subject to certain provisions of the
Minnesota Business Corporation Act which limit the voting rights of shares
acquired in "control share acquisitions" and restrict certain "business
combinations." Additionally, pursuant to the Purchase Agreement, so long as the
Purchasers own or have the right to acquire an aggregate of 20% or more of the
then outstanding shares of Common Stock, the Company shall not, without the
prior written consent of the Funds and Miller, Johnson & Kuehn, Incorporated
enter into certain business combinations. The ability to issue Undesignated
Stock, the foregoing provisions of the Minnesota Business Corporation Act and
certain provisions in the Purchase Agreement could, in certain circumstances,
have the effect of delaying or preventing a change in control of the Company.
CONTROL BY CERTAIN PERSONS. The Funds and Medtronic, Inc. currently
beneficially own (within the meaning of Rule 13d-3 under the Securities Exchange
Act of 1934, as amended) approximately 46% and 8% of the Company's outstanding
Common Stock, respectfully. If the second closing conditions to the Purchase
Agreement are met, the Funds will be obligated to purchase 2,500,000 shares of
Common Stock and warrants to purchase 2,500,000 shares of Common Stock. If the
Company does not issue any other shares of Common Stock besides the shares
issuable under the Purchase Agreement, the Funds will beneficially own
approximately 56% of the Company's Common Stock immediately following the second
closing of the Purchase Agreement. Medtronic has a assignee that serves on the
Board of Directors and the Funds have the right to designate a person to serve
on the Board of Directors. In addition, Miller, Johnson & Kuehn Incorporated has
the right to designate a person to serve on the Board of Directors. Accordingly,
these shareholders, individually and as a group, will be able to influence the
outcome of shareholder votes, including votes concerning election of directors,
the adoption or amendment of provisions in the Company's Amended and Restated
Articles of Incorporation and Bylaws and the approval of certain mergers or
other similar transactions. Such control by existing shareholders could have the
effect of delaying, deferring or preventing a change in control of the Company.
See "Principal Shareholders and Beneficial Ownership of Management."
<PAGE>
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
From March 16, 1995 to July 3, 1997, the Common Stock was traded on The
Nasdaq Small Cap Market. See "Risk Factors -- Effects of Delisting from Nasdaq
Small Cap Market." The Common Stock currently trades in the over-the-counter
market on the NASD "Electronic Bulletin Board" under the symbol "LRSI." The
following table shows the high and low bid and asked prices of the Common Stock
for the periods indicated as reported by Nasdaq from March 16, 1995 through July
3, 1997 and by the OTC Bulletin Board, thereafter. These quotations reflect
inter-dealer prices without retail markup, markdown or commission and may not
necessarily represent actual transactions.
1995: HIGH LOW
First quarter (since March 16, 1995) $ 5 1/2 $ 5
Second quarter $ 6 3/8 $ 5
Third quarter $ 8 $ 6 1/8
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
1997:
First quarter $ 3 5/8 $ 2 1/2
Second quarter $ 2 5/8 $ 3/4
Third quarter $ 2 $ 3/8
Fourth quarter (through December 1, 1997) $ 1 3/16 $ 25/32
As of December 1, 1997, there were approximately 132 record holders of
the Company's Common Stock.
The Company has never paid cash dividends on the Common Stock and
currently intends to retain all future earnings, if any, for the continued
growth and development of its business and has no plans to pay cash dividends in
the future.
<PAGE>
USE OF PROCEEDS
None of the proceeds from the sale of the Shares of Common Stock
registered hereunder will accrue to the Company.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997(1)
---------------------
ACTUAL AS ADJUSTED(2)
------ --------------
<S> <C> <C>
Long-term obligations $2,616,000 $2,390,700
Shareholders' deficit:
Preferred Stock, no par value; 1,000,000 shares --- ---
authorized; no shares issued and outstanding
Common Stock, no par value, 20,000,000 shares 17,299,900 19,822,300
authorized 3,824,755 shares issued and outstanding;
3,824,755 actual and 8,480,305 as adjusted
Accumulated deficit (21,163,800) (19,913,700)
------------ ------------
Total shareholders' deficit (3,863,900) (91,400)
------------ ------------
Total long-term obligations and shareholders' $(1,247,900) $2,299,302
deficit ============ ============
</TABLE>
- ---------------------
(1) Does not include an aggregate of 7,305,019 shares of Common Stock issuable
upon exercise of options, warrants or conversion of convertible promissory notes
outstanding as of December 1, 1997.
(2) Gives effect to the issuance of 4,394,000 shares of Common Stock pursuant to
the Purchase Agreement, net of offering expenses, 11,550 shares of Common Stock
upon conversion of a convertible promissory note in November, 1997, and 250,000
shares of Common Stock upon conversion of $500,000 of convertible notes payable
in November 1997 and the effects of restructuring the remaining convertible
notes payable.
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes thereto included elsewhere in
this Prospectus. The statement of operations data set forth below for the years
ended December 31, 1994, 1995 and 1996 and the balance sheet data at December
31, 1995 and 1996 are derived from the financial statements audited by Ernst &
Young LLP included elsewhere in this Prospectus. The balance sheet data set
forth below at December 31, 1994 are derived from audited financial statements
not included in this Prospectus. The selected financial data as of and for the
nine months ended September 30, 1996 and 1997 have been derived from unaudited
financial statements of the Company which, in the opinion of management, include
all adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of such data. The results of operation for the nine months
ended September 30, 1997 are not necessarily indicative of the results of
operations to be expected for the entire year ending December 31, 1997.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Revenues..................... $119,700 $263,300 $615,700 $308,500 $366,100
Operating expenses:
Sales and marketing........... 167,800 2,525,800 2,568,800 1,268,800 1,020,600
Research and development...... 215,800 2,104,500 5,309,900 1,617,200 1,038,000
General and administrative.... 607,200 1,253,000 2,685,700 1,911,100 1,695,300
Interest income.................. 0 97,000 261,900 228,300 26,000
Interest expense................. 1,400 29,300 6,300 5,000 185,300
----- ------ ----- ----- -------
Net loss......................... (872,500) (5,595,300) (9,873,500) (4,976,500) (4,055,500)
======== ========== ========== ========== ==========
Net loss per share............... (.89) (2.66) (2.61) (1.27) (1.06)
==== ===== ===== ===== =====
Weighted average number of
shares of common stock
outstanding...................... 982,456 2,105,811 3,783,931 3,931,561 3,821,390
======= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------- ---------------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ---------------------------
ACTUAL AS ADJUSTED(1)
------ --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets....... $829,700 $7,915,900 $2,337,100 $4,405,400 $ 426,600 $2,331,500
Total assets......... 893,700 8,403,700 3,076,300 5,279,600 926,300 2,831,200
Current liabilities.. 488,800 1,156,200 503,500 859,100 2,174,200 531,900
Total liabilities.... 623,100 1,259,400 2,923,900 1,197,900 4,790,200 2,922,600
Shareholders' equity
(deficit)........... 270,600 7,144,300 152,400 4,081,700 (3,863,900) (91,400)
</TABLE>
- -------------------------
(1) Gives effect to the issuance of 4,394,000 shares of Common Stock pursuant to
the Purchase Agreement, net of offering expenses, 11,550 shares of Common Stock
upon conversion of a convertible promissory note in November, 1997, and 250,000
shares of Common Stock upon conversion of $500,000 of convertible notes payable
in November 1997 and the effects of restructuring the remaining convertible
notes payable.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
The Company generated revenues of $366,100 for the nine months ended
September 30, 1997. Revenues consisted of $217,500 of development fees,
installation fees of $25,000 and $123,600 of recurring license fees. This
compares to $308,500 in revenues for the nine months ended September 30, 1996,
which consisted of $220,500 of development fees, $50,000 of installation fees
and $38,000 of recurring license fees. Revenues from recurring license fees have
increased during 1997 as the Company has increased the number of installations
of its system.
Costs of revenues were $508,400 and $611,400 for the nine months ended
September 30, 1997 and 1996, respectively. Amortization of capitalized software
costs was $50,500 for the nine months ended September 30, 1997 and $75,600 for
the same period in 1996. The balance of the cost of revenues reflect the costs
of customer support and royalty expense. Customer support expenses have declined
from a year ago due to lower payroll and travel expenses. During 1996, customer
support personnel and expenses increased in anticipation of revenue growth that
was not achieved and in 1997 customer support personnel was reduced from 1996
levels. During the first quarter of 1997, the Company incurred royalty expense,
which is included in cost of revenues, of $14,900 under an agreement with
Anthony Furnary, M.D., a former director of the Company. In March, 1997, the
Company and Dr. Furnary modified this agreement, which provided for LifeRate to
pay Dr. Furnary royalties at 3% of all gross revenues beginning in 1999. No
royalty expense was recorded in the second and third quarters of 1997 or for the
comparable periods of 1996.
Sales and marketing expenses were $1,020,600 for the nine months ended
September 30, 1997, compared to $1,268,800 for the nine months ended September
30, 1996. During 1995, Clinical Sales & Service ("CSSI") provided substantially
all of the Company's sales, marketing and clinical support functions. During the
first quarter of 1996, the employees of CSSI became employees of the Company.
Expenses for the nine months ended September 30, 1997 are lower than those in
the comparable period of 1996 due to lower payroll expense in 1997 as a result
of fewer employees and one time costs associated with the integration of CSSI in
1996. The Company also implemented a cost containment program in the first
quarter of 1997, which has decreased sales and marketing expenses.
Research and development expenses for the nine months ended September
30, 1997 were $1,038,000, a decrease of $579,200, or 35.8%, from the nine months
ended September 30, 1996. This decrease reflects lower payroll expense in 1997
as a result of fewer employees, results of a cost containment program
implemented in the first quarter of 1997 and a number of one time expenses
incurred in 1996 related to the recruitment and relocation of key staff members.
The Company plans to continue to invest the resources needed to develop the
product capabilities being demanded by its customer base.
General and administrative expenses decreased from $1,911,100 for the
nine months ended September 30, 1996 to $1,695,300 for the nine months ended
September 30, 1997. The nine months ended September 30, 1996 included
non-recurring expenses of $190,000 to settle a lawsuit brought by a
<PAGE>
former officer of the Company and lease cancellation charges of $181,000. The
nine months ended September 30, 1997 include increased depreciation expense of
$171,000 related to equipment purchased in 1996, accrual for a $100,000
milestone payment to Dr. Furnary, and increased legal expenses of $93,900
related to the renegotiated agreements with Dr. Furnary and the Atlanta
Cardiology Group P.C. ("ACG"). These increases were offset by lower payroll
expense resulting from the change in management that occurred in the second
quarter of 1996 and expense reductions due to the cost containment program
implemented in the first quarter of 1997. Dr. Furnary waived his right to
receive the $100,000 milestone payment in connection with the Company's
November, 1997 equity financing. See "Certain Transactions."
Interest income decreased from $228,300 in the nine months ended
September 30, 1996 to $26,000 for the same period in 1997. This decrease
reflects the lower overall cash position in 1997 compared to 1996.
Prior to the second quarter of 1997, interest expense had not been a
significant expense to the Company. However, the Company incurred interest
expense of $185,300 in the nine month period ended September 30, 1997 under the
instruments described below. In April, 1997, interest began to accrue on a
$2,250,000 convertible subordinated note payable. This note was issued in
connection with the cancellation of a royalty agreement with ACG. As originally
issued, this note bore interest at 10% which was paid at a rate of 5%, with the
remaining 5% accruing until the end of the note term in 2002. In addition, the
Company issued convertible promissory notes in the aggregate amounts of
$1,000,000 in May, 1997 and $500,000 in July, 1997. As originally issued, these
notes bore interest at the prime rate and are described in more detail below
under the heading "Liquidity and Capital Resources." In connection with the
Company's November, 1997 equity financing described below, the Company is no
longer required to make interest payments on the above notes, and the
convertible promissory notes issued in July, 1997 were converted into shares of
Common Stock. The Company will continue to incur interest expense in future
periods due to amortization of discount on the ACG note and the convertible
promissory note for $1,000,000.
The net loss for the nine months ended September 30, 1997 and 1996 was
$4,055,500 and $4,976,500, respectively. Net losses have declined in 1997 due to
lower payroll expense as a result of fewer employees, the cost containment
program implemented in the first quarter of 1997 and the one time charges in
1996 related to the lawsuit settlement, the lease cancellation and the
integration of CSSI employees into LifeRate.
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
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, 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
<PAGE>
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.
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.
<PAGE>
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. In May, 1997, the Company
issued a convertible promissory note in the principal amount of $1,000,000 to
Medtronic, Inc., a principal shareholder of the Company with a representative
that serves on the Company's Board of Directors. As originally issued, this note
bore interest at the prime rate. The Company also granted Medtronic a warrant to
purchase a number of shares of Common Stock equal to 10% of the principal amount
of the note. In connection with the November, 1997 equity financing described
below: the note became non-interest bearing and is payable in 2002; the
conversion price on the convertible note was changed to $1.50 per share; and the
warrant exercise price was changed to $.50 per share. In July, 1997, the Company
issued additional notes in the aggregate principal amount of $500,000 and
warrants to certain private investors. In connection with the November, 1997
equity financing: these notes were converted into Common Stock at a price of
$2.00 per share; interest under the notes was waived; and the warrant exercise
price was changed to $2.00 per share. In September, October and November, 1997,
bridge loans totaling $304,200 were obtained to fund operations while the
Company attempted to complete an equity offering. An aggregate of $246,425 of
these bridge loans were repaid from proceeds from the November, 1997 equity
financing, an aggregate of $52,000 was canceled in exchange for shares of Common
Stock and warrants issued in the November, 1997 equity financing described
below, and the balance was converted into shares of Common Stock at a price of
$.50 per share.
At September 30, 1997, the Company had $81,200 in cash and cash
equivalents, a $1,990,800 decrease from December 31, 1996. The primary use of
this cash was to fund operations. The Company does not have significant capital
equipment purchase commitments but does plan to continue to fund software
development efforts.
<PAGE>
To date, the Company has sold an aggregate of 4,394,000 shares of
Common Stock and issued warrants to purchase an aggregate of 4,394,000 shares of
Common Stock under the Purchase Agreement for total gross cash proceeds of
$2,252,400 and the cancellation of $52,000 of indebtedness. The Purchase
Agreement also provides that, in the event the Company fulfills certain
conditions by January 15, 1998, the Company will sell to the Funds and other
Purchasers an additional 4,500,000 shares of Common Stock and warrants to
purchase an aggregate of 4,500,000 shares of Common Stock at a purchase price of
between $.50 and $.56 per share on or before January 31, 1998. The conditions to
the second closing include (a) the approval by the shareholders of the Company
of an amendment to the Company's Amended and Restated Articles of Incorporation
to increase the total number of authorized shares of Common Stock to an
aggregate of 75,000,000 and (b) the attainment by the Company no later than
January 15, 1998, of the following milestones: (i) the Company's revenues
derived from the sale of existing or new systems during the period from October
1, 1997 through January 15, 1998, shall be at least $200,000; (ii) the Company
shall have executed letters of intent and/or sales contracts, each with a
minimum value of $5,000, with at least five new (excluding current or previous)
customers for the sale of any existing or new systems during the period from
October 1, 1997 through January 15, 1998; and (iii) the Company shall have made
generally available for sale a commercially marketable entry level cardiac
catheterization laboratory product designed to support the data requirements of
the American College of Cardiology, with a sales price range of $5,000 to
$15,000. With the proceeds received to date under the Purchase Agreement, the
Company currently estimates that it will have sufficient cash to continue
operations through March, 1998. If the Company successfully completes the second
closing, the Company estimates that it will have sufficient cash to continue
operations through August, 1998.
In October, 1997, eight of the Company's non-employee directors loaned
the Company an aggregate of $46,200 in order for the Company to continue
operations pending completion of the November, 1997 equity financing. A total of
$40,425 was repaid, without interest, to seven of these non-employee directors
from the proceeds of the first closing under the Purchase Agreement, and the
balance of $5,775 was converted into 11,550 shares of Common Stock at a price of
$.50 per share.
In October and November, 1997, Miller, Johnson & Kuehn, Incorporated
("MJK") and principals of MJK loaned the Company an aggregate of $258,000 in
order for the Company to continue operations pending completion of the November,
1997 equity financing. A total of $206,000 was repaid, without interest, to MJK
from the proceeds of the first closing under the Purchase Agreement, and the
balance of $52,000 was converted into 104,000 shares of Common Stock and
warrants to purchase 104,000 shares of Common Stock in the first closing at a
price of $.50 per share.
<PAGE>
BUSINESS
INTRODUCTION
LifeRate Systems, Inc. ("LifeRate" or the "Company") has developed and
is marketing a set of information products designed to enable healthcare
providers to evaluate and demonstrate the quality and cost-effectiveness of the
medical care they deliver. LifeRate tools allow physicians, nurses and other
allied healthcare professionals to capture relevant clinical data, allowing
quick and easy access to patient information and the ability to report on
clinical and patient outcomes. This information can be used by healthcare
providers to improve their medical decision-making process, and to enhance the
competitiveness and profitability of their business. LifeRate believes that as
healthcare purchasers and payors, both public and private, continue to demand
more appropriate and cost-effective medical care for their beneficiaries, the
market for clinical information tools enabling physicians and hospitals to more
effectively manage the care of their patients will expand.
MARKET OVERVIEW
Propelled by the rapid transition to managed care, the Health Care
Information Systems ("HCIS") market is estimated to be approximately $10 billion
today, and is expected to be $20 billion by the year 2000. An emphasis on
controlling costs, which began in the 1980's, has led to a consolidation of
healthcare purchasers and providers in the 1990's, as well as a stronger need
for improved computer-based communications and information systems. Payors soon
realized, however, that healthcare decisions could not be made solely based on
cost. The focus began shifting from simply controlling costs, to delivering
quality medical care cost-effectively.
The Company presently is focused on two medical specialties: cardiology
and asthma and allergy. The cardiovascular disease market is large and growing.
Each year more money is spent on the treatment of heart disease than on any
other disease. While it is estimated that nearly three-fourths of the roughly
16,000 cardiologists in the U.S. today practice alone or in groups of two or
three physicians, a growing number of cardiologists are organizing themselves
into larger clinics and networks. A number of large regional and national
providers of cardiovascular-related services are emerging that link
cardiologists and seek to provide a range of practice management services. These
large networks increasingly are recognizing the important role information can
play in facilitating more efficient and effective medical care for their
patients. Included among this growing network of cardiology practice management
companies are MedCath, Raytel Medical Corporation, Cardiovascular Provider
Resources, CORDA Medical Care, Inc. and InteCardia.
The Company's other market focus is on asthma and allergy. An estimated
fifteen million Americans have asthma at an estimated cost of approximately $6.2
billion a year in missed work and school, in medications and hospital visits.
Asthma has become the most common chronic disease of childhood and the number
one cause of hospitalization and absenteeism. LifeRate's presence in both the
cardiology and the asthma and allergy specialties position the Company within
the largest market segments for both adult and pediatric medical care.
COMPANY MISSION AND EVOLUTION
The Company was founded in 1990 to develop a computer system that could
help physicians respond to the fee discount demands from managed care
organizations. As development ensued and the
<PAGE>
market need for patient-centered data grew, the Company's mission was formed: to
be the acknowledged leader in developing software-based solutions and clinical
tools that allow healthcare providers to demonstrate quality and
cost-effectiveness of the medical care they deliver. This mission is based on
the belief that the most formidable barrier to consistent excellence in American
medicine is the failure by well-intentioned and competent physicians to
carefully examine what works best and then integrate those findings into routine
use. LifeRate is committed to providing its customers with products and related
services that improve and increase the overall effectiveness and quality of care
delivered by healthcare providers, by identifying patterns of medical care and
treatment that work better than others, and by helping healthcare providers
document their own best practice experience in order to increase their
profitability when negotiating with managed care and other payor organizations.
At the core of the LifeRate solution is a powerful clinical data
repository which includes thousands of data points. LifeRate released
demonstration versions of its core system, along with the Cardiovascular
Outpatient module, in August 1995 and commercial versions in December 1995. The
Company accepted initial orders in the third quarter of 1995, and began
installation in the fourth quarter of 1995. During 1996, LifeRate continued its
development activities, focusing on releasing two Cardiovascular Outpatient
product enhancements and an Asthma and Allergy Outpatient module. LifeRate made
important investments in technical support, customer service and field sales as
it internalized these functions. Marketing and software quality assurance
functions were also established.
A strong emphasis on sales in 1996 and 1997 has yielded positive
results. To date, LifeRate has installed or entered into agreements to install
its Cardiovascular Outpatient System at ten cardiovascular practice groups and
its Asthma and Allergy Outpatient System at three asthma and allergy practice
groups. Development of LifeRate's newest product, for the cardiac
catheterization laboratory, is nearing completion and pre-sale activities for
this product have begun.
The Company has also entered into several agreements with key strategic
partners.
* In December 1995, LifeRate entered into Investment and
Development Agreements with Medtronic, Inc., a worldwide leader
in clinical devices.
* In January 1996, LifeRate and Pfizer, Inc., an established
international leader in drug manufacturing, entered into a
three-year pilot program for LifeRate to install outpatient
cardiology systems at five cardiology practice groups and explore
ways to capture and report clinical data.
* In February 1996, LifeRate entered into a preliminary agreement
with the National Asthma and Allergy System ("NAAS"), a
partnership of leading asthma and allergy group practices, to
install allergy and asthma outpatient systems at up to eight
asthma and allergy practice groups. NAAS was also appointed as
LifeRate's exclusive distributor of the asthma and allergy
outpatient system. The parties signed a final development
agreement in August 1997.
* In January 1997, National Jewish Medical and Research Center, a
renowned center of respiratory medicine and immunology
excellence, signed an agreement with LifeRate to develop
computerized extensions of their disease management program.
* In June 1997, Washington Heart, a worldwide leader in
cardiovascular medicine, contracted with LifeRate to utilize its
clinical data repository to capture and report clinical
information from disparate data servers.
<PAGE>
The Company's plans for 1998 call for building revenues from existing
and new products, and leveraging the strengths of its key partners.
PRODUCTS
LifeRate's product suite comprises software-based, patient centered,
point-of-care clinical information tools and services that can be used to track
a patient throughout the continuum of care. Data collection tools are used to
populate a vast relational data repository that can be queried to analyze the
quality and effectiveness of patient care. Using analysis and report generation
tools, LifeRate and its customers are able to query the data repository on a
variety of parameters, such as drug utilization and effectiveness, repeat
procedures, functional status, etc. The Company believes its experienced
Integration Services team, which builds customized software links between
LifeRate and other clinical systems, represents a unique strength in the
healthcare information management marketplace. The Company's Client Services
team includes clinical and technical professionals that assist providers with
integrating the various tools into their overall clinical practice.
During 1996, LifeRate completed development of its core software
system, including outpatient modules for cardiovascular and asthma and allergy
specialists. The software has been released in three phases, Version 1.1 in
February, 1996; Version 1.2 in October, 1996; and Version 1.3 in September,
1997. These releases added functionality to the core software and increased its
operational benefits. In 1998, LifeRate plans to release a new suite of products
tailored to the needs of the cardiac catheterization laboratory, offering both
entry level and comprehensive product options. The Company hopes to enable total
community solutions linking physician practices and hospitals.
LifeRate also plans to continue to enhance the existing cardiovascular
and allergy and asthma outpatient products with special attention to the growing
market need for actionable outcomes information. The Company believes that tools
that directly report how providers treat clinical conditions will provide the
best economic value and respond most directly to the emerging clinical decision
support requirements of the market.
MARKETING STRATEGY
The Company's customer focus is on healthcare providers seeking
information systems solutions which allow them to maintain leadership and market
position. LifeRate targets those organizations which are:
* Thought leaders in their specialty
* Progressively responding to managed care trends (e.g., taking
risk contracts)
* High volume and procedurally oriented
* Committed to demonstrating they deliver quality medicine on a
cost-effective basis within their practices
LifeRate plans to continue to align itself with national partners
committed to providing information to ensure more efficient and effective
medical care. Specifically in 1998, LifeRate plans to expand its target market
to include the growing number of physician practice management organizations
serving the cardiology and asthma and allergy medical specialties.
<PAGE>
COMPETITION
The HCIS market originated by satisfying the need for computer-based
systems focused largely on practice management (e.g., billing, accounting,
scheduling and purchasing) and electronic medical records ("EMR") documentation.
As the HCIS market evolved, some vendors added the ability to capture limited
clinical data to their practice management and EMR systems.
LifeRate's product has been designed specifically as a clinically
oriented, out-comes-based information system that generates outcomes reports
targeted at demonstrating quality of care. LifeRate's tools and services provide
the following competitive advantages:
* In-depth clinical data collection tools for the specialties of
cardiology and asthma and allergy
* A comprehensive clinical data repository representing thousands
of clinical data points
* Real-time, on-line access to individual patient clinical data
* The creation of comparable outcomes through a consistent yet
flexible data repository structure
* The ability to successfully integrate data from clinical systems
and other diverse software applications
* A robust technical architecture that includes a patient-centered,
problem-oriented relational database and offers growth and open
access to industry-standard tools
* A collection of tools and services that comprise a total solution
for providers incorporating information systems into their
patient care activities
The following products, while not directly competing on a per-product
capability basis or across segments within specialty areas, are potential
competitors: Summit Medical Systems' VISTA and CRESCENDO products, Seattle
Systems' APOLLO, Apache's HEART CARE SERIES CARDIOCOMPASS and SURVEYOR+, Health
Point's HEALTH POINT ACS, Medical Logic's LOGICIAN, and Cerner and Clinitec's
NEXT GEN. These products are generally considered to be electronic medical
record systems, meaning they capture limited clinical data and cannot support
detailed outcomes reports.
In addition to the foregoing competitors, the Company anticipates that
new competitors will attempt to enter the market and that existing or new
competitors will develop information systems in the future that duplicate or
improve on LifeRate's system. Many of the Company's competitors are well
established, better known and significantly larger with substantially greater
technical, marketing and financial resources than the Company. The Company's
ultimate ability to compete in the market will depend upon a number of factors,
including its success in generating market acceptance of LifeRate's system and
the success of its marketing efforts.
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 U.S. patent application covering certain aspects of its system and
plans to file additional patent applications in the future. 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
<PAGE>
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.
EMPLOYEES
As of September 30, 1997, the Company had one part-time employee and 29
full-time employees, including four in management and administration, 14 in
software development, eight in sales and marketing and four in customer support.
FACILITIES
The Company's facilities are currently located at 7210 Metro Boulevard,
Edina, 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.
LEGAL PROCEEDINGS
The Company is not currently involved in any material legal
proceedings.
<PAGE>
MANAGEMENT
The directors and executive officers of the Company as of December 1,
1997 are as follows:
NAME AGE POSITION
---- --- --------
David J. Chinsky 43 President and Chief Executive Officer
and Director
Paul D. Benson 51 Senior Vice President, Strategic
Business Development
Daniel A. Pelak 46 Director
Kevin L. Roberg 46 Director
DAVID J. CHINSKY. Mr. Chinsky joined the Company in August, 1997 as
President and Chief Executive Officer and a director. Prior to joining LifeRate,
Mr. Chinsky was employed for more than nine years in a variety of positions by
The MEDSTAT Group, an information services and consulting firm serving the
healthcare industry, most recently as Executive Vice President. Mr. Chinsky
received his undergraduate degree form the University of Michigan, his Masters
of Business Administration from Keller Graduate School of Management, his
Masters of Science in Public Health from the University of Illinois and his
Doctorate of Public Health from the University of Michigan.
PAUL D. BENSON. 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.
DANIEL A. PELAK. Mr. Pelak has been a director of the Company since
January, 1996. Mr. Pelak is currently a Vice President of Medtronic, Inc., a
multi-national medical device manufacturer. He has been with Medtronic, Inc.
since 1976 and has held several key managerial positions. Mr. Pelak served as
the Vice President and General Manager of the Nortech Division of Medtronic from
1988 to 1992, and he is currently Vice President of Cardiovascular Marketing at
Medtronic. Mr. Pelak was elected to the Board as the designee of Medtronic. See
"Certain Transactions."
KEVIN L. ROBERG. Mr. Roberg has been a director of the Company since
October, 1995. He is currently the Chief Executive Officer of ValueRx, Inc.,
which markets a patient-focused medication management system developed by the
Mayo Clinic. He was previously President of EBP Western HealthPlans, a
subsidiary of Employee Benefit Plans, Inc. He also was President of PIMRExtra,
EBP's managed pharmacy division. Prior to joining EBP, Mr. Roberg was President
and earlier Vice President and Chief Operating Officer of the Self-Funded and
Private Label division of Diversified Pharmaceutical Services. Mr. Roberg has
more than 20 years experience in the health care and insurance industries.
ADDITIONAL INFORMATION ABOUT THE BOARD OF DIRECTORS
In November, 1997, as a condition to the closing of an equity financing
transaction, the Company's Board of Directors was reduced from ten directors to
five directors, and all of the non-employee directors of the Company, other than
Daniel A. Pelak and Kevin L. Roberg, resigned from the Board. In connection with
the November, 1997 equity financing, the Company also agreed, so long as
<PAGE>
the Purchasers under the Purchase Agreement, own or have the right to acquire at
least 20% of the then outstanding shares of Common Stock, that (a) the Company
shall maintain the number of directors who constitute the Board of Directors at
five; (b) so long as the Funds own at least 2.5% of the then outstanding shares
of Common Stock, the Company shall maintain on the Board one director nominee to
be designated by the Funds; and (c) for a period of three years from the date of
the Purchase Agreement, the Company shall maintain on the Board of Directors one
director nominee to be designated by MJK, which nominee is to be mutually
acceptable to the Company and MJK. Neither the Funds nor MJK has designated its
director as of the date hereof. See "Certain Transactions -- November, 1997
Equity Financing."
DIRECTOR COMPENSATION
The Company does not pay fees to non-employee directors of the Company.
The Company generally reimburses non-employee directors of the Company for
out-of-pocket expenses incurred while attending Board or committee meetings. In
1996, no director other than the Chairman of the Board received any cash
compensation for services as a director in 1996.
David D. Koentopf received $51,500 in compensation in 1996 for acting
as Chairman of the Board. Mr. Koentopf served as interim Chief Executive Officer
from April 24, 1996 to April 29, 1996 but received no additional compensation
for such services.
The following directors were granted options to purchase 13,333 shares
of Common Stock upon their initial election to the Board: Stanley R. Cowle,
William W. Chorske, William D. Knopf, M.D., David D. Koentopf, Kevin L. Roberg,
Carl J. Schramm and Donald C. Wegmiller. In September, 1996, the Company entered
into a settlement agreement and a consulting agreement with William D. Knopf,
M.D., in connection with which he was granted an option to purchase 50,000
shares of Common Stock at an exercise price equal to the fair market value of
one share of Common Stock on the date of grant. See "Certain Transactions --
Knopf Agreement." In November, 1997, as a condition to the closing of the
November, 1997 equity financing, all of the non-employee directors of the
Company agreed to cancel all options and warrants to purchase shares of Common
Stock held by them (except for certain options to purchase an aggregate of
236,333 shares held by APF, LLC and Dr. Anthony P. Furnary and options to
purchase 10,000 shares, exercisable at $1.00 per share held by each of William
W. Chorske and William D. Knopf, M.D.). See "Certain Transactions -- November,
1997 Equity Financing."
<PAGE>
COMPENSATION AND OTHER BENEFITS
The following table sets forth the total compensation for each of the
last three fiscal years awarded to or earned by the Chief Executive Officer of
the Company and each of the Company's four most highly compensated executive
officers whose total compensation exceeded $100,000 in 1996 (the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------ ------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- --------------------------- ---- ------ ----- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
William W. Chorske (1) 1996 $166,667 -- $20,000 75,000 --
FORMER PRESIDENT AND CHIEF
EXECUTIVE OFFICER AND FORMER
CHAIRMAN
David D. Koentopf (2) 1996 -- -- $51,500 -- --
FORMER CHAIRMAN AND FORMER
INTERIM CHIEF EXECUTIVE OFFICER
David W. Haskin (3) 1996 $63,636 -- -- -- --
FORMER CHIEF EXECUTIVE OFFICER 1995 $125,000 -- -- -- --
1994 $90,000 -- -- -- --
Paul D. Benson 1996 $95,000 $20,000 -- -- --
SENIOR VICE PRESIDENT, 1995 $75,000 $20,000 -- -- --
STRATEGIC BUSINESS DEVELOPMENT 1994 $75,000 -- -- -- --
Bruce Klein (4) 1996 $95,833 $40,000 -- 40,000 --
FORMER CHIEF FINANCIAL OFFICER
Thomas Niccum (5) 1996 $91,688 $25,000 -- -- --
FORMER VICE PRESIDENT, PRODUCT 1995 $47,187 $100,000 -- 10,000 $9,450(6)
DEVELOPMENT
</TABLE>
- ------------------------
(1) William W. Chorske served as President and Chief Executive Officer from
May, 1996 through April, 1997. John R. Goodrich served as interim
President and Chief Executive Officer from May, 1997 to August, 1997.
David J. Chinsky became President and Chief Executive Officer in
August, 1997. Mr. Chorske became Chairman of the Board in May, 1997 and
resigned such position on November 14, 1997. See "Certain Transactions
-- November, 1997 Equity Financing."
(2) David D. Koentopf served as interim Chief Executive Officer of the
Company from April 24, 1996 until April 29, 1996, but received no
additional compensation for such service. The amounts shown in the
table reflect Mr. Koentopf's compensation for serving as Chairman of
the
<PAGE>
Board, a position he assumed on April 24, 1996. Mr. Koentopf served as
Chairman of the Board until May, 1997.
(3) David W. Haskin resigned as Chief Executive Officer on April 24, 1996.
(4) Bruce Klein became Chief Financial Officer in March, 1996 and resigned
such position effective January, 1997.
(5) Thomas Niccum became an employee of the Company in June, 1995. Prior to
such time he provided services to the Company as an independent
contractor. Mr. Niccum resigned as Vice President, Product Development,
in May, 1997.
(6) Represents consulting fees paid to Mr. Niccum for services rendered
prior to his becoming an employee of the Company in June, 1995.
OPTION GRANTS AND EXERCISES IN 1996
The following tables provide information for the year ended December
31, 1996 as to individual grants and exercises of options to purchase shares of
the Company's Common Stock by each of the Named Executive Officers of the
Company.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------------------------
PERCENT OF TOTAL
NUMBER OF SECURITIES OPTIONS GRANTED EXERCISE OR
UNDERLYING OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(#)(1) FISCAL YEAR ($/Sh) DATE
- ---- -------------------- ---------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
William W. Chorske 75,000 21.2% $9.375 4/29/06
David D. Koentopf -- -- -- --
David W. Haskin -- -- -- --
Bruce Klein 40,000 11.3% $9.375 1/97(2)
Paul D. Benson -- -- -- --
Thomas Niccum -- -- -- --
</TABLE>
- ------------------------
(1) All options were granted under the Company's 1993 Stock Option Plan and
are subject to the terms of such plan. Such options vest at the rate of
one-third of the shares covered by such options on the date of grant
and each of the first two anniversaries of the date of grant, provided
that such individuals continue to provide services to the Company. Upon
a defined "Change in Control" of the Company, all outstanding options
become immediately exercisable in full and will remain exercisable for
the remainder of their terms regardless of whether the holder remains
in the employ or service of the Company or any subsidiary. A "Change in
Control" of the Company for purposes of the 1993 Stock Option Plan
includes (i) the sale, lease, exchange or other transfer of all or
substantially all of the assets of the Company to a corporation that is
not controlled by the Company, (ii) the approval by the Company's
shareholders of any plan or proposal for the liquidation or dissolution
of the Company, (iii) the acquisition by any person, directly or
indirectly, of 50% of more of the Company's Common Stock, excluding
shares acquired by Special Situation Fund (see "Certain Transactions -
November, 1997 Equity
<PAGE>
Financing") or (iv) any change in control of the Company of a nature
that would be required to be reported pursuant to Section 13 or 15(d)
of the Exchange Act, whether or not the Company is then subject to such
reporting requirements.
(2) Expired upon Mr. Klein's departure from the Company in January, 1997.
AGGREGATED OPTION EXERCISES IN
LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS AT FY-END(#)(1) OPTIONS AT FY-END($)(2)
----------------------- -----------------------
NAME (EXERCISABLE/ UNEXERCISABLE) (EXERCISABLE/ UNEXERCISABLE)
- ---- ---------------------------- ---------------------------------
<S> <C> <C>
William W. Chorske 4,444/70,556 0/0
David D. Koentopf 13,333/0 $1,111/0
David W. Haskin 0/0 --
Bruce Klein 13,333/26,667 0/0
Paul D. Benson 0/0 --
Thomas Niccum 6,666/3,334 0/0
</TABLE>
- ------------------------
(1) The exercise price may be paid in cash or, in the Stock Option
Committee's discretion, in shares of the Company's Common Stock valued
at fair market value on the date of exercise.
(2) Based on the closing bid price on December 31, 1996 of $3.25, as
reported by the Nasdaq Small Cap Market System.
EMPLOYMENT AGREEMENTS
CHINSKY EMPLOYMENT AGREEMENT. In August, 1997, the Company and David J.
Chinsky entered into an employment agreement, which provides for the employment
of Mr. Chinsky as the Company's President and Chief Executive Officer. The
agreement has an initial term of one year and will automatically renew for
additional one-year periods, unless terminated by one of the parties. The
agreement provides for an annual base salary of $225,000 with an annual
performance bonus of up to $100,000 per year if to be agreed upon performance
criteria are met. The Company has guaranteed payment of a first year bonus of
$100,000. The Company has also agreed to pay Mr. Chinsky $108,000 in February,
1998 for a bonus that Mr. Chinsky would have otherwise received from previous
employment, provided that the Company successfully completes an equity
financing. In addition, the Company has granted Mr. Chinsky options to purchase
an aggregate of 300,000 shares of Common Stock at an exercise price of $.50 per
share, which vest over a period of three years. The Company has also agreed to
grant Mr. Chinsky options to purchase additional shares of Common Stock such
that after any equity financings completed within Mr. Chinsky's first year of
employment he will have been granted options covering a total number of shares
of Common Stock equal to 7.84% of the number of outstanding shares of Common
Stock. In the event that Mr. Chinsky terminates the agreement for "good reason"
following a change of control of the Company, Mr. Chinsky is entitled to receive
his base salary for the remaining term of the agreement and the bonus that would
otherwise be payable. The agreement also requires Mr. Chinsky to assign to the
Company any inventions related to the Company's business and to keep the
Company's proprietary information confidential. Mr. Chinsky is also prohibited
from
<PAGE>
competing with the Company for a period of two years following termination of
his employment with the Company.
In connection with the closing of the November, 1997 equity financing,
Mr. Chinsky's employment agreement was amended to provide that: (a) the
transactions contemplated by the November, 1997 equity financing did not
constitute a "change in control," as defined in the employment agreement; (b)
bonuses payable to Mr. Chinsky will be payable, at the option of the Company, in
cash or shares of Common Stock; (c) the payment of a certain bonus in the amount
of $108,000 was accelerated and paid in November, 1997, (d) all prior stock
options granted to Mr. Chinsky were canceled and Mr. Chinsky was granted a
replacement option to purchase 650,000 shares of Common Stock at an exercise
price of $.50 per share, and (e) Mr. Chinsky waived his right to receive any
additional options upon completion of the November, 1997 equity financing. See
"Certain Transactions."
CHORSKE EMPLOYMENT AGREEMENT. Effective May 1, 1996, the Company and
William W. Chorske entered into a one-year employment agreement, which provided
for the employment of Mr. Chorske as the Company's President and Chief Executive
Officer. The agreement provided for an annual base salary of $250,000. In
addition, the Company granted Mr. Chorske an option (not under any formal plan
of the Company) to purchase 61,667 shares of Common Stock at a price of $9.375
per share, which became exercisable in full upon completion of one year of
employment. Mr. Chorske was also paid a bonus upon termination of the agreement
equal to the amount by which the "value" of the foregoing option was less than
$150,000. For purposes of the agreement, the "value" of the foregoing option is
equal to 50,000 (which represents a portion of the shares subject to the
foregoing option) multiplied by the difference between the average of the
closing bid prices of the Company's Common Stock in the twenty-business day
period preceding termination of the agreement and the exercise price of the
option. In consideration for his service as a director, the Company also granted
Mr. Chorske an option under the Company's 1993 Stock Option Plan to purchase
13,333 shares of Common Stock at price of $9.375, exercisable with respect to
one-third of such shares and will become exercisable with respect to one-third
of such shares on each of the first two anniversaries of his election as a
director, provided that Mr. Chorske remains a director of the Company. The
agreement also required Mr. Chorske to assign to the Company any inventions
related to the Company's business and to keep the Company's proprietary
information confidential. Mr. Chorske was also prohibited from competing with
the Company for a period of two years following termination of his employment
with the Company. Mr. Chorske's employment and positions as President and Chief
Executive Officer ended April 30, 1997, and he resigned as a director in
November 1997. In connection with the November 1997 equity financing Mr. Chorske
agreed to cancel all outstanding options except options to purchase 10,000
shares at $1.00 per share.
CERTAIN TRANSACTIONS
NOVEMBER 1997 EQUITY FINANCING
On November 14, 1997, the Company entered into a Securities Purchase
Agreement (the "Purchase Agreement") with Special Situations Private Equity
Fund, L.P., Special Situations Cayman Fund, L.P., Special Situations Fund III,
L.P. (collectively, the "Funds") and the other purchasers named in the Purchase
Agreement (the Funds and such other purchasers are collectively referred to
herein as the "Purchasers"), pursuant to which the Company agreed to sell up to
9,000,000 shares of Common Stock of the Company at prices ranging from $.50 to
$.56 per share and warrants to purchase up to 9,000,000 shares of Common Stock,
as well as an additional 104,000 shares of Common Stock and warrants to purchase
104,000 shares of Common Stock for cancellation of certain indebtedness. The
<PAGE>
warrants are exercisable for a period of ten years at a price of $1.50 per
share, subject to adjustment as provided in the warrants. The first closing
under the Purchase Agreement was held on November 14, 1997, at which the Company
sold an aggregate of 2,500,000 shares of Common Stock at a price of $.50 per
share and issued warrants to purchase an aggregate of 2,500,000 shares of Common
Stock to the Funds for an aggregate purchase price of $1,250,000 and an
aggregate of 104,000 shares of Common Stock and warrants to purchase an
aggregate of 104,000 shares of Common Stock for the cancellation of $52,000 of
indebtedness (the "First Closing"). The interim closing was held on November 21,
1997, at which the Company sold an additional 1,790,000 shares of Common Stock
at a price of $.56 per share and issued warrants to purchase an aggregate of
1,790,000 shares of Common Stock to purchasers other than the Funds for an
aggregate purchase price of $1,002,400.
The Purchase Agreement also provides that, in the event the Company
fulfills certain conditions by January 15, 1998 (the "Second Closing
Conditions"), the Company will issue up to an additional 4,500,000 shares of
Common Stock and warrants to purchase 4,500,000 shares of Common Stock at a
purchase price of between $.50 and $.56 per share on or before January 31, 1998
(the "Second Closing"). The Second Closing Conditions include (a) the approval
by the shareholders of the Company of an amendment to the Company's Amended and
Restated Articles of Incorporation to increase the total number of authorized
shares of Common Stock to an aggregate of 75,000,000 and (b) the attainment by
the Company no later than January 15, 1998, of the following milestones: (i) the
Company's net revenues derived from the sale of existing or new systems during
the period from October 1, 1997 through January 15, 1998, shall be at least
$200,000; (ii) the Company shall have executed letters of intent and/or sales
contracts, each with a minimum value of $5,000, with at least five new
(excluding current or previous) customers for the sale of any existing or new
systems during the period from October 1, 1997 through January 15, 1998; and
(iii) the Company shall have made generally available for sale a commercially
marketable entry level cardiac cath lab product designed to support the data
requirements of the American College of Cardiology, with a sales price range of
$5,000 to $15,000. If the Second Closing Conditions are met, the Funds will be
obligated to purchase 2,500,000 shares of Common Stock at a price of $.50 per
share and warrants to purchase 2,500,000 Shares of Common Stock for an aggregate
purchase price of $1,250,000. If all of the additional 4,500,000 shares of
Common Stock and warrants to purchase 4,500,000 shares of Common Stock are
issued in the Second Closing, the Funds purchase 2,500,000 of the shares to
purchase 4,500,000 shares of Common Stock and warrants to purchase 2,50,000
Shares of Common Stock and the Company does not issue any other shares of Common
Stock, the Funds will "beneficially own" (within the meaning of Rule 13d-3 under
the Securities Exchange Act of 1934, as amended) approximately 56% of the
Company's Common Stock immediately following the Second Closing.
As a condition to the First Closing, the Company's Board of Directors
was reduced from ten directors to five directors, and all of the non-employee
directors of the Company, other than Daniel A. Pelak and Kevin L. Roberg,
resigned from the Board. In addition, all of the non-employee directors of the
Company agreed to cancel all options or warrants to purchase shares of Common
Stock held by them (except for certain options to purchase an aggregate of
236,333 shares held by APF, LLC ("APF") and Dr. Furnary and options to purchase
10,000 shares, exercisable at $1.00 per share held by each of William W. Chorske
and William D. Knopf, M.D.). Under the Purchase Agreement, the Company has also
agreed, so long as the Purchasers own or have the right to acquire at least 20%
of the then outstanding shares of Common Stock, that (a) the Company shall
maintain the number of directors who constitute the Board of Directors at five;
(b) so long as the Funds own at least 2.5% of the then outstanding shares of
Common Stock, the Company shall maintain on the Board of Directors one director
nominee to be designated by the Funds; and (c) for a period of three years form
the date of the Purchase Agreement, the company shall maintain on the Board of
Directors one director nominee to be
<PAGE>
designated by Miller Johnson & Kuehn, Incorporated ("MJK"), which nominee is to
be mutually acceptable to the company and MJK (the "MJK Director"). Neither the
Funds nor MJK has designated its nominee to the Board as of the date hereof.
The Company agreed to a number of covenants under the Purchase
Agreement. So long as the Purchasers own or have the right to acquire at least
20% of the outstanding shares of Common Stock, the Company has agreed not to do
any of the following without the consent of the Funds and the MJK Director: (a)
sell Common Stock or any rights or securities convertible into or exercisable or
exchangeable for Common Stock at a purchase, exercise or conversion price, as
the case may be, of less than $1.00 per share of Common Stock for a period of
three years from the date of the Purchase Agreement; (b) issue any securities
senior to the common Stock; (c) effect any reclassification, capital
reorganization or other change of outstanding shares of capital stock of the
Company; (d) merge, consolidate or enter into any other business combination of
the company with or into another entity (other than a merger of a wholly owned
subsidiary, in which merger the Company shall be the surviving entity); (e)
sell, lease or otherwise dispose of all or substantially all of its assets; or
(f) liquidate, dissolve or wind-up the Company.
As further conditions to the First Closing, the Company amended certain
agreements between the Company and certain officers, directors and affiliated
entities. These amendments are described below and under the heading "Management
- -- Employment Agreements."
NON-EMPLOYEE DIRECTOR LOANS
In October 1997, eight of the Company's then non-employee directors
loaned the Company $5,775 and an aggregate of $46,200 in order for the Company
to continue operations pending completion of the November 1997 equity financing.
The Company repaid a total of $40,425, without interest, to seven of these
non-employee directors from the proceeds of the November 1997 equity financing,
and the balance of $5,775 owed to Mr. Wegmiller was converted into 11,550 shares
of Common Stock at a price of $.50 per share.
AGREEMENTS WITH MEDTRONIC, INC.
In May 1997, the Company issued a convertible promissory note in the
principal amount of $1,000,000 to Medtronic, Inc. (the "Medtronic Note"), a
principal shareholder of the Company with a representative that serves on the
Company's Board of Directors. As originally issued, the Medtronic Note accrued
interest at the prime rate. Under its original terms, the Medtronic Note would
have become due upon the earlier of the completion by the Company of an equity
financing raising gross proceeds of at least $5,000,000 or November 30, 1997,
and was convertible, at the option of the holder, into Common Stock at a
conversion price equal to the lower of $2.00 or the average per share price in
one or more rounds of equity financing raising gross proceeds to the Company of
at least $5,000,000 (including proceeds from this offering). At the time of
issuance of the original Medtronic Note, the Company granted Medtronic a warrant
to purchase 100,000 shares of Common Stock, exercisable at the same price as the
conversion price of the Medtronic Note (the "Medtronic Warrant"). Under the
original terms of the Medtronic Note, the Company would have been obligated to
grant an additional warrant to purchase a number of shares of Common Stock equal
to 5% of the principal amount of the Medtronic Note if the note was not paid by
November 30, 1997 and an additional warrant to purchase a number of shares of
Common Stock equal to 5% of the principal amount of the Medtronic Note if the
note was not paid by February 28, 1998. In connection with the November 1997
equity financing, the Medtronic Note was amended to provide that: (a) no
interest will accrue thereunder and accrued interest will be forfeited; (b)
<PAGE>
principal will not become due until May 12, 2002; (c) the conversion price of
the Medtronic Note is $1.50 per share; and (d) the Company will not be obligated
to issue any additional warrants to Medtronic under the Medtronic Note. The
Medtronic Warrant was also amended to provide that the exercise price is $.50
per share and that there was no other adjustment to the exercise price or the
number of shares covered by the Medtronic Warrant as a result of the November
1997 equity financing.
On December 26, 1995, the Company entered into an Investment Agreement
and a License and Development Agreement with Medtronic, Inc. ("Medtronic") and a
Shareholder Voting Agreement with Medtronic and certain shareholders of the
Company. Pursuant to the Investment Agreement, the Company privately sold to
Medtronic 600,000 shares of Common Stock at a price of $8.00 per share for a
total price of $4.8 million. The Company granted to Medtronic certain rights of
first refusal to purchase capital stock and assets of the Company and to develop
or commercialize the Company's technology in one or more fields other than the
cardiovascular and neurological fields, certain rights to have shares of the
Company held by Medtronic and certain assignees of Medtronic registered for sale
to the public and the right to designate one person to be nominated and elected
to the Board of Directors of the Company. Daniel A. Pelak, a Vice President of
Medtronic, was elected to the Company's Board in January 1996 as Medtronic's
designee under this agreement. Pursuant to the License and Development
Agreement, the Company granted to Medtronic a 30-year world-wide, 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 Company's system at certain clinical
sites specified by Medtronic on a preferred pricing basis, to install the system
at one site specified by Medtronic at no cost to Medtronic and to engage with
Medtronic in certain joint development of products and systems. Under the
Shareholder Voting Agreement, officers of the Company who are parties the
agreement, including Paul D. Benson, agreed to vote their shares of Common Stock
of the Company for the person designated by Medtronic to be a member of the
Board of Directors of the Company. In connection with the November 1997 equity
financing, Medtronic waived the restrictions on registration rights contained in
Section 8.4 of the Investment Agreement, waived its right of first refusal to
purchase securities in the November 1997 equity financing, agreed not to
exercise and to otherwise waive any of its registration rights until January 1,
2000, waived its superior position with respect to an underwriter's cutback of
piggyback registration rights and waived its right of first refusal on the sale
of the Company in certain circumstances.
AGREEMENTS WITH FURNARY AND APF, LLC
In July 1995, the Company entered into an agreement with Anthony P.
Furnary, M.D., an advisor to the Company at the time, and APF, an entity owned
by Dr. Furnary under which the Company acquired certain software developed by
Dr. Furnary and agreed to pay royalties to Dr. Furnary initially equal to 7.5%
of gross revenues. Dr. Furnary also received an option to purchase 26,000 shares
of Common Stock at an exercise price of $4.50 per share. In 1995, the Company
paid no royalties to Dr. Furnary under this agreement. In 1996, the Company
accrued $46,169 in royalties, of which amount $10,000 was paid to Dr. Furnary.
In March 1997, the Company and Dr. Furnary entered into a agreement modifying
the July 1995 agreement. 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 APF, for
services previously rendered to the Company, to purchase 550,000 shares of
Common Stock at an exercise price of $2.625 per share and to reprice outstanding
<PAGE>
options to purchase 36,333 shares held by Dr. Furnary to $2.625 per share (which
represents the closing price of the Company's Common Stock on the date the
Company and Dr. Furnary reached agreement in principle on the modification
agreement); (iii) to enter into a consulting agreement with Dr. Furnary; and
(iv) to appoint Dr. Furnary to the Company's Board of Directors within 90 days.
The consulting agreement, which has an initial term of five years, with two-year
renewal rights upon mutual agreement, provides that Dr. Furnary will provide
consulting services to the Company in the area of system design and development
as the Senior Advisor and System Architect for an annual fee of $100,000.
In connection with the November 1997 equity financing, the Consulting
Agreement, between the Company and Dr. Furnary was terminated, and the Company's
obligation to make milestone royalty payments of $450,000 under the modified
agreement was terminated. The 550,000 share stock option agreement was amended
to reduce the number of shares to 200,000 and the exercise price to $1.00 per
share. APF and Furnary also agreed (a) not to exercise and to otherwise waive
any of their registration rights under the foregoing option or the other options
held by them to purchase an aggregate of an additional 36,333 shares until
January 1, 2000; (b) not to sell or otherwise transfer any shares of Common
Stock purchased upon exercise of any of such options prior to January 1, 2000;
and (c) that there was no other adjustment to the exercise price of such options
or the number of shares issuable upon exercise of the foregoing options thereof
as a result of the November 1997 equity financing. Furnary also waived his right
to be appointed to the Company's Board of Directors and agreed that his observer
status is only exercisable by him personally.
AGREEMENTS WITH THE ATLANTA CARDIOLOGY GROUP, P.C.
In September 1994, The Atlanta Cardiology Group, P.C. ("ACG") and the
Company entered into an agreement for the joint development of practice
guidelines and clinical outcomes for cardiology, under which ACG agreed to pay
the Company a fee for system design and implementation and ACG was to receive
royalties on sales of the cardiology system over the next ten years. During
1995, the Company paid (or accrued) $150,000 for all services rendered by ACG
and the Company received $50,000 in revenues from the sale of products and
services to ACG. In early 1996, the Company and ACG agreed to restructure their
relationship. Among other things, the Company agreed to pay ACG a royalty equal
to 10% of gross sales of the Company's cardiology system and a 2% royalty on all
database sales. In 1996, the Company received no revenues from ACG and accrued
$60,052 in fees to ACG for all services rendered in 1996, including royalties
under the prior agreement. In March 1997, the Company entered into an agreement
with ACG to replace the prior agreements. Under the revised agreement, the
Company issued a convertible subordinated note to ACG in the principal amount of
$2,250,000, maturing on April 1, 2002 (the "ACG Note"). The note accrues
interest at a rate of 10% per annum, and interest is payable at the rate of 5%
per year, with the balance of accrued interest payable at the maturity date. Up
to $2,000,000 of the principal amount of the note is convertible by ACG into
shares of Common Stock at the rate of $3.32 per share. As long as the note is
outstanding, ACG has the right to designate an individual to attend all board
meetings. William D. Knopf, M.D., a practicing cardiologist and partner in ACG,
is a director of the Company. In connection with the November 1997 equity
financing, the ACG Note was amended to provide that no interest will accrue
thereunder and that any accrued interest shall be forfeited. In addition, ACG
agreed that there was no adjustment to the conversion price of the ACG Note or
the number of shares issuable upon conversion of the ACG Note as a result of the
November 1997 equity financing. ACG also agreed not to exercise and to otherwise
waive any of its registration rights prior to January 1, 2000 and waived its
right to designate a person to attend meetings of the Board.
<PAGE>
KNOPF AGREEMENT
In September 1996, the Company entered into an agreement with William
D. Knopf, M.D., a former director of the Company, relating to the termination of
Dr. Knopf's employment by the Company. Pursuant to this agreement, the Company
entered into a consulting agreement with Dr. Knopf, under which Dr. Knopf has
agreed to provide certain consulting and advisory services to the Company and
will receive an annual consulting fee of $60,000. The consulting agreement also
includes a non-competition covenant for 12 months following the expiration of
the term of the consulting agreement, which expired by its terms on September 1,
1997. In addition, Dr. Knopf received an option to purchase 50,000 shares at an
exercise price equal to the fair market value on the date of grant, which was
$6.625 per share. This option was exercisable with respect to one-third of such
shares on the date of grant and will become exercisable with respect to
one-third of such shares on each of the first two anniversaries of the date of
grant. The option is exercisable for a period of ten years from the date of
grant. The Company and Dr. Knopf also executed mutual releases of any and all
claims relating to Dr. Knopf's employment by the Company or the termination of
his employment.
EDMONDS AGREEMENT
In September 1996, the Company entered into an agreement with Donna J.
Edmonds, a former director and executive officer of the Company, whose
employment with the Company terminated effective April 24, 1996. Pursuant to
such agreement, the Company agreed to pay Ms. Edmonds an aggregate of $190,000
and granted Ms. Edmonds an option to purchase 80,000 shares of the Company's
Common Stock, at an exercise price of $5.00 per share, which was the closing bid
price on September 12, 1996. This option is exercisable for a period of ten
years following the date of grant. The Company and Ms. Edmonds also agreed to
execute a stipulation of dismissal with prejudice to resolve the then pending
litigation brought by Ms. Edmonds against the Company and the Company and Ms.
Edmonds also executed mutual releases of any and all other claims relating to
Ms. Edmonds' employment by the Company or the termination of her employment.
HASKIN AGREEMENT
In June 1996, the Company entered into an agreement with David W.
Haskin, a former director and Chief Executive Officer of the Company, whose
employment with the Company terminated effective April 24, 1996. Pursuant to the
terms of this agreement, the Company agreed to pay or reimburse Mr. Haskin up to
$10,000 per year for premiums on health insurance coverage for himself and his
spouse until Mr. Haskin reaches age 65. In addition, the Company agreed to use
its reasonable efforts to cause the release of shares owned by Mr. Haskin from
the "cheap stock" escrow with the Commissioner of Commerce for the State of
Minnesota and certain lock-up arrangements with MJK and granted Mr. Haskin
certain registration rights with respect to certain shares of the Company's
Common Stock. The Company and Mr. Haskin also executed mutual releases of any
and all claims relating to Mr. Haskin's employment by the Company or the
termination of his employment.
COMER AGREEMENT
In June 1996, the Company entered into an agreement with Jeffrey B.
Comer, a former executive officer of the Company, whose employment with the
Company terminated effective April 24, 1996. Pursuant to the terms of this
agreement, the Company entered into a consulting agreement with Mr. Comer,
pursuant to which Mr. Comer provided consulting services for a period of six
months and received an aggregate of $160,000 for such consulting services. The
consulting agreement also included
<PAGE>
a non-competition covenant for 12 months following the expiration of the term of
the consulting agreement, which occurred on December 1, 1996. In addition, Mr.
Comer received an option to purchase 51,000 shares of the Company's Common Stock
for an exercise price per share equal to the fair market value per share on the
date of such grant, which was $8.625 per share, and the Company granted him
certain registration rights with respect to certain shares owned or subject to
options held by Mr. Comer. The Company and Mr. Comer also executed mutual
releases of any and all claims relating to Mr. Comer's employment by the Company
or the termination of his employment.
OLSON AGREEMENT
In February 1996, the Company entered into a Separation Agreement and
Release with each of Donald B. Olson, a former officer and director of the
Company, and Merry M. Olson, Mr. Olson's spouse. Under the terms of the
agreements, each of the Olsons resigned all offices and directorships held with
the Company. Also, the Company and each of the Olsons granted to each other
mutual releases of all claims and potential claims. Pursuant to the terms of
their agreement, the Company agreed to pay each of the Olsons severance payments
in the amount of $5,000 per month and COBRA benefits until April 30, 1997. In
connection with the separation agreements, the Company granted certain
registration rights to the purchasers of 330,342 shares of Common Stock of the
Company previously owned by the Olsons.
<PAGE>
PRINCIPAL SHAREHOLDERS AND BENEFICIAL OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Common Stock of the Company as of December 1, 1997, unless
otherwise indicated, by (a) each shareholder who is known by the Company to own
beneficially more than 5% of the outstanding Common Stock, (b) each director,
(c) each of the Named Executive Officers and (d) all directors and executive
officers of the Company as a group.
SHARES OF COMMON STOCK
NAME BENEFICIALLY OWNED (1)
- ---- ----------------------------------------
AMOUNT PERCENT OF CLASS(2)
------ -------------------
Special Situations Funds (3) 5,000,000 (3) 45.5% (3)
Medtronic Inc. 700,000 (4) 8.2%
David J. Chinsky 0 0
Daniel A. Pelak 0 (5) 0
Kevin L. Roberg 0 0
Paul D. Benson 97,667 1.2%
William W. Chorske 10,000 (6) *
David D. Koentopf 0 0
David W. Haskin 138,332 (7) 1.6%
Bruce Klein 0 0
Thomas Niccum 666 *
All directors and executive
officers as a group (4 persons) 97,667 (5) 1.2%
- ------------------------
* Less than 1% of the outstanding shares
(1) Unless otherwise noted, all of the shares are held by individuals
possessing sole voting and dispositive power with respect to the shares
shown. Shares not outstanding, but deemed beneficially owned by virtue
of the right of a person or member of a group to acquire them within 60
days, are treated as outstanding only when determining the amount and
percent owned by such person or group.
(2) Based upon 8,480,305 outstanding shares of Common Stock as of December
1, 1997.
<PAGE>
(3) As set forth in a Schedule 13D filed with the Securities and Exchange
Commission on November 25, 1997, this amount consists of: (i) 1,000,000
shares of Common Stock held by Special Situations Private Equity Fund,
L.P.; (ii) 1,000,000 shares of Common Stock issuable to Special
Situations Private Equity Fund, L.P. pursuant to outstanding warrants;
(iii) 1,100,000 shares of Common Stock held by Special Situations Fund
III, L.P.; (iv) 1,100,000 shares of Common Stock issuable to Special
Situations Fund III, L.P. pursuant to outstanding warrants; (v) 400,000
shares of Common Stock held by Special Situations Cayman Fund, L.P.;
and (vi) 400,000 shares of Common Stock issuable to Special Situations
Cayman Fund, L.P pursuant to outstanding warrants. Austin W. Marxe and
David M. Greenhouse, principals of the investment advisors to the
Funds, are deemed to beneficially own the securities held by the Funds
as reported herein. The address of Special Situations Funds is 153 East
53rd Street, 51st Floor, New York, New York 10022.
If the Second Closing Conditions to the Purchase Agreement are met, the
Funds will be obligated to purchase 2,500,000 shares of Common Stock at
a price of $.50 per share and warrants to purchase 2,500,000 shares of
Common Stock for an aggregate purchase price of $1,250,000. If all of
the additional 4,500,000 shares of Common Stock and warrants to
purchase 4,500,000 shares of Common Stock are issued in the Second
Closing, the Funds purchase 2,500,000 of the shares of Common Stock and
warrants to purchase 2,500,000 shares of Common Stock and the Company
does not issue any other shares of Common Stock, the Funds will
"beneficially own" (within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934, as amended) approximately 56.0% of the
Company's Common Stock immediately following the Second Closing of the
Purchase Agreement.
(4) Includes 100,000 shares that Medtronic, Inc. has the right to acquire
within 60 days pursuant to the exercise of warrants. The address of
Medtronic, Inc. is 7000 Central Avenue, N.E., Minneapolis, Minnesota
55432.
(5) Does not include any shares beneficially owned by Medtronic, Inc. Mr.
Pelak is an employee of Medtronic and its designee for election to the
Board of Directors.
(6) Includes 10,000 shares that Mr. Chorske has the right to acquire within
60 days pursuant to the exercise of stock options.
(7) Includes 8,332 shares held by two of Mr. Haskin's daughters.
<PAGE>
SELLING SHAREHOLDERS
This Prospectus relates to the offering of 8,788,000 shares of Common
Stock of the Company by the Selling Shareholders named below. The shares being
offered by the Selling Shareholders hereunder include: (i) 4,394,000 currently
outstanding shares of Common Stock issued to the Selling Shareholders in a
private transaction pursuant to the Purchase Agreement, and (ii) 4,394,000
shares of Common Stock issuable pursuant to the exercise of Warrants held by the
Selling Shareholders. The Company agreed to provide registration rights pursuant
to the Purchase Agreement that require the Company to register the 4,394,000
shares of Common Stock issued to the Selling Shareholders and the 4,394,000
shares of Common Stock issuable to the Selling Shareholders upon the exercise of
the Warrants. The 8,788,000 shares of Common Stock have been registered
hereunder pursuant to such registration rights. The following table sets forth
certain information, as of December 1, 1997, and as adjusted to reflect the sale
of the shares offered hereby, with respect to the beneficial ownership of the
Common Stock by the Selling Shareholders. Unless otherwise indicated, the
Selling Shareholders possesses sole voting and investment power with respect to
the shares shown.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED AFTER
SHARES OF COMMON NUMBER OF COMPLETION OF
STOCK BENEFICIALLY SHARES THE OFFERING(2)
OWNED PRIOR TO THE BEING ------------------------
SELLING SHAREHOLDER OFFERING(1) OFFERED NUMBER % OF CLASS(3)
- ------------------- ----------- ------- ------ -------------
<S> <C> <C> <C> <C>
Special Situations Fund III, L.P. (4) 2,200,000 (5) 2,200,000 0 *
Special Situations Private Equity 2,000,000 (5) 2,000,000 0 *
Fund L.P. (4)
Special Situations Cayman 800,000 (5) 800,000 0 *
Fund, L.P. (4)
John R. Albers 762,819 (6) 600,000 162,819 1.5%
Aaron Boxer Rev. Trust 495,000 (7) 400,000 95,000 *
Lee Wesley 350,000 (5) 350,000 0 *
June Lawrence 4th RGI Trust 200,000 (5) 200,000 0 *
Steve Romanek 200,000 (5) 200,000 0 *
Kenneth M. Viste 200,000 (5) 200,000 0 *
Thomas Petters 160,000 (5) 160,000 0 *
Kenneth Cheng 153,077 (8) 100,000 53,077 *
John O. Hanson 141,200 (9) 100,000 41,200 *
David B. Johnson (10) 138,090 (11) 62,400 75,690 *
Paul R. Kuehn (10) 138,090 (12) 62,400 75,690 *
Jeff Dobbs 118,000 (13) 90,000 28,000 *
Robert W. Clark Self-Declared Trust 110,000 (5) 100,000 10,000 *
Mike J. Brings 100,000 (5) 100,000 0 *
Isadore J. Goldstein Rev. Living Trust 100,000 (5) 100,000 0 *
Judy Peterson 100,000 (5) 100,000 0 *
VBS General Partnership 100,000 (5) 100,000 0 *
John L. Von Gunten and Jeanette Von 100,000 (5) 100,000 0 *
Gunten Trust dated 10/18/91
Ila M. Waseka Rev. Living Trust 100,000 (5) 100,000 0 *
Eldon C. Miller (10) 87,630 (14) 62,400 25,230 *
Wallace S. Wells 80,000 (5) 80,000 0 *
Kenneth G. Benson 50,000 (5) 50,000 0 *
Alton B. Meyer, Jr. Rev. Trust 50,000 (5) 50,000 0 *
<PAGE>
Linda Kintzel 50,000 (5) 50,000 0 *
John S. and David B. Rydberg 50,000 (5) 50,000 0 *
Donal C. Thomas Trust 50,000 (5) 50,000 0 *
Leola J. Vidger 50,000 (5) 50,000 0 *
Frank E. Walton 50,000 (5) 50,000 0 *
Michael W. Wright 1993 Irrev. GST 50,000 (5) 50,000 0 *
Family Trust
Stanley D. Rahm (10) 46,031 (15) 20,800 25,231 *
</TABLE>
- --------------------------------------
* Less than one percent (1%)
(1) Shares not outstanding but deemed beneficially owned by virtue of the right
of a person or member of a group to acquire them within 60 days are treated as
outstanding only when determining the amount and percentage owned by such person
or group.
(2) This assumes all shares being offered and registered hereunder are sold,
although the Selling Shareholders are not obligated to sell any shares.
(3) Based upon 8,480,305 shares of Common Stock outstanding as of December 1,
1997.
(4) Pursuant to the Purchase Agreement, so long as Special Situations Private
Equity Fund, L.P., Special Situations Fund III, L.P. and Special Situations
Cayman Fund, L.P. (collectively, the "Funds"), individually or in the aggregate,
own 2.5% of the then outstanding shares of Common Stock of the Company, the
Funds have the right to nominate one director on the Board of Directors of the
Company.
(5) One-half of all shares of Common Stock beneficially owned by such Selling
Shareholder are issuable upon the exercise of outstanding warrants.
(6) Includes 338,333 shares issuable to Mr. Albers within 60 days upon the
exercise of warrants.
(7) Includes 232,500 shares issuable to the Aaron Boxer Rev. Trust within 60
days upon the exercise of warrants.
(8) Includes 50,000 shares issuable to Mr. Cheng within 60 days upon the
exercise of warrants.
(9) Includes 70,000 shares issuable to Mr. Hanson within 60 days upon the
exercise of warrants.
(10) Such individual is a principal of Miller, Johnson & Kuehn, Incorporated
("MJK"), which has acted as the Company's placement agent in connection with
private sales of the Company's Common Stock. MJK also makes a market in the
Company's Common Stock. Pursuant to the Purchase Agreement, MJK has the right to
nominate one director on the Board of Directors of the Company, which nominee is
to be mutually acceptable to the Company and MJK, for a period of three years
from the date of the Purchase Agreement.
(11) Includes 106,890 shares issuable to Mr. Johnson within 60 days upon the
exercise of warrants.
(12) Includes 106,890 shares issuable to Mr. Kuehn within 60 days upon the
exercise of warrants.
<PAGE>
(13) Includes 58,000 shares issuable to Mr. Dobbs within 60 days upon the
exercise of warrants.
(14) Includes 56,430 shares issuable to Mr. Miller within 60 days upon the
exercise of warrants.
(15) Includes 35,631 shares issuable to Mr. Rahm within 60 days upon the
exercise of warrants.
<PAGE>
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 20,000,000
shares of Common Stock (the "Common Stock"), and 1,000,000 shares of
undesignated preferred stock (the "Undesignated Stock"). As of December 1, 1997,
there were 8,480,305 shares of Common Stock issued and outstanding, held by
approximately 132 holders of record, and no shares of Undesignated Stock issued
and outstanding. In addition, 7,963,355 shares of Common Stock were reserved for
issuance under the Company's 1993 Stock Option Plan, Employee Stock Purchase
Plan and outstanding options, warrants and convertible securities as of December
1, 1997. The Company has scheduled a Special Meeting of Shareholders for January
28, 1997 to approve an amendment to the Company's Amended and Restated Articles
of Incorporation to increase the number of authorized shares of Common Stock to
75,000,000.
COMMON STOCK
All outstanding shares of Common Stock, including the Shares offered
hereby, are fully paid and nonassessable. Each share of the outstanding Common
Stock is entitled to participate equally in dividends as and when declared by
the Board of Directors and is entitled to participate equally in any
distribution of net assets made to the shareholders upon liquidation of the
Company. There are no redemption, sinking fund, conversion or preemptive rights
with respect to the shares of Common Stock. All shares of Common Stock have
equal rights and preferences. The holders of Common Stock are entitled to one
vote for each share held of record on all matters voted upon by shareholders and
may not cumulate votes for the election of directors. Accordingly, the owners of
a majority of the shares of Common Stock outstanding may elect all of the
directors if they choose to do so, subject to the rights of the Funds and MJK to
designate directors to be nominated under the Purchase Agreement, and the owners
of the balance of such shares would not be able to elect any directors.
UNDESIGNATED STOCK
Under applicable Minnesota law, no action by the Company's shareholders
is necessary, and only action of the Board of Directors is required, to
authorize the issuance of any Undesignated Stock. The Board of Directors is
empowered to establish, and to designate the name of, each class or series of
the shares of Undesignated Stock and to set the terms of such shares (including
terms with respect to redemption, sinking fund, dividend, liquidation,
preemptive, conversion and voting rights and preferences). The Board of
Directors can issue shares of such class or series to, among other individuals,
the holders of another class or series of preferred stock or to the holders of
Common Stock. Accordingly, the Board of Directors, without shareholder approval,
can issue preferred stock with voting or conversion rights which could adversely
affect the voting power of the holders of the Common Stock. The Undesignated
Stock may have the effect of discouraging an attempt, through acquisition of a
substantial number of shares of Common Stock, to acquire control of the Company
with a view to effecting a merger, sale or exchange of assets or a similar
transaction. For example, the Board of Directors could issue such shares as a
dividend to holders of Common Stock or place such shares privately with
purchasers who may side with the Board of Directors in opposing a takeover bid.
OPTIONS, WARRANTS AND CONVERTIBLE SECURITIES
As of December 1, 1997, The Company had reserved 750,000 shares of
Common Stock under the 1993 Stock Option Plan. As of December 1, 1997, the
Company had outstanding options to purchase an aggregate of 178,547 shares under
the plan and options to purchase an aggregate of 956,000 shares
<PAGE>
that were not issued under any formal plan. The weighted average exercise price
of outstanding options is $1.72. As of December 1, 1997, the Company also had
warrants to purchase an aggregate of 4,901,395 shares of Common Stock at a
weighted average exercise price of $1.75 per share, which are exercisable at
various times, the earliest of which expire in March, 2000 and the latest of
which expire in November, 2007. The outstanding options and warrants provide for
anti-dilution adjustments in the event of certain mergers, consolidations,
reorganizations, recapitalizations, stock dividends, stock splits or other
changes in the corporate structure of the Company. In addition, options to
purchase an aggregate of 200,000 shares are subject to a weighted-average
anti-dilution adjustment for issuances of Common Stock (including options,
warrants and other rights to acquire Common Stock) at a price of less than $2.52
per share. Holders of the outstanding warrants have certain demand and
incidental registration rights with respect to the shares issuable upon exercise
of the warrants. See "Description of Capital Stock -- Registration Rights."
The Company also has outstanding a subordinated convertible promissory
note in the principal amount of $2,250,000. Up to $2,000,000 principal amount of
this note is convertible, at the option of the holder, into shares of Common
Stock at a conversion price of $3.32 per share. The conversion price of this
note is subject to a weighted-average anti-dilution adjustment for issuances of
Common Stock (including options, warrants and other rights to acquire Common
Stock) at a price of less than $3.32 per share. Additionally, the Company has
outstanding a convertible promissory bridge note in the principal amount of
$1,000,000 that is convertible, at the option of the holder, into shares of
Common Stock at a conversion price of $1.50 per share.
REGISTRATION RIGHTS
All of the shares of Common Stock issuable upon exercise of options
granted or to be granted under the Company's 1993 Stock Option Plan and Employee
Stock Purchase Plan have been registered under the Securities Act. The Company
has filed a Registration Statement on Form S-3 under the Securities Act, which
is currently effective, covering the resale of an aggregate of 1,405,815 shares
of Common Stock and warrants to purchase an aggregate of 332,396 shares of
Common Stock. This registration statement will remain effective until the
Company files its Annual Report on Form 10-KSB for the year ending December 31,
1997, at which time it will lapse. The Company has filed this Registration
Statement covering the resale of an aggregate of 4,394,000 shares of Common
Stock and warrants to purchase an aggregate of 4,394,000 shares of Common Stock
issued in connection with the Company's November, 1997 equity financing. In
addition, holders of certain options, warrants and convertible promissory notes
have certain demand and incidental registration rights with respect to the
shares issuable upon exercise of such options and warrants and conversion of
such notes. In connection with the Company's November, 1997 equity financing,
the holders of substantially all of these securities agreed not to exercise and
to otherwise waive their registration rights until January 1, 2000.
LIMITATION OF LIABILITY OF DIRECTORS AND INDEMNIFICATION
The Company's Amended and Restated Articles of Incorporation provide
the Company's Board of Directors with the power and authority to limit the
liability of its directors to the fullest extent permitted by the Minnesota
Business Corporation Act. Specifically, directors of the Company will not be
personally liable for monetary damages for breach of fiduciary duty as
directors, except liability for (i) any breach of the duty of loyalty to the
Company or its shareholders, (ii) acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law, (iii) dividends or
other distributions of corporate assets that are in contravention of certain
statutory or contractual restrictions, (iv) violations of certain Minnesota
securities laws, or (v) any transaction from which the director
<PAGE>
derives an improper personal benefit. Liability under federal securities law is
not limited by the Amended and Restated Articles of Incorporation or action by
the Company's Board of Directors.
The Minnesota Business Corporation Act requires that the Company
indemnify any director, officer or employee made or threatened to be made a
party to a proceeding, by reason of the former or present official capacity of
the person, against judgments, penalties, fines, settlements and reasonable
expenses incurred in connection with the proceeding if certain statutory
standards are met. "Proceeding" means a threatened, pending or completed civil,
criminal, administrative, arbitration or investigative proceeding, including a
derivative action in the name of the Company. Reference is made to the detailed
terms of Section 302A.521 of the Minnesota Business Corporation Act for a
complete statement of such indemnification rights. The Company's Bylaws also
require the Company to provide indemnification to the fullest extent of the
Minnesota Business Corporation Act.
The Company maintains a directors' and officers' liability insurance,
including a reimbursement policy in favor of the Company.
Pursuant to the Purchase Agreement, the directors and officers of the
Company are indemnified against certain civil liabilities that they may incur
under the Securities Act in connection with this Prospectus and the related
Registration Statement.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company is aware that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
CERTAIN ANTI-TAKEOVER PROVISIONS
The Company is subject to the provisions of Sections 302A.671 and
302A.673 of the Minnesota Business Corporation Act. These anti-takeover
provisions may eventually operate to deny shareholders the receipt of a premium
on their Common Stock and may also have a depressive effect on the market price
of the Company's Common Stock. In general, Section 302A.671 provides that the
shares of a corporation acquired in a "control share acquisition" have no voting
rights unless voting rights are approved by the shareholders in a prescribed
manner. A "control share acquisition" is defined as an acquisition of beneficial
ownership of shares that would, when added to all other shares beneficially
owned by the acquiring person, entitle the acquiring person to have voting power
of 20% or more in the election of directors. Section 302A.673 prohibits a public
corporation from engaging in a "business combination" with an "interested
shareholder" for a period of four years after the date of the transaction in
which the person became an interested shareholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions. An "interested
shareholder" is a person who is the beneficial owner, of 10% or more of the
corporation's voting stock. Reference is made to the detailed terms of Sections
302A.671 and 302A.673 of the Minnesota Business Corporation Act.
Pursuant to the Purchase Agreement, so long as the Selling Shareholders
own or have the right to acquire an aggregate of 20% or more of the then
outstanding shares of Common Stock, the Company shall not, without the prior
written consent of the Funds and MJK, (i) effect any reclassification, capital
reorganization or other change of outstanding shares of capital stock of the
Company, (ii) merge, consolidate or enter into any business combination of the
Company with or into another entity (other than a merger of a wholly owned
subsidiary, in which merger the Company shall be the surviving entity),
<PAGE>
(iii) sell, lease or otherwise dispose of all or substantially all of its assets
or (iv) liquidate, dissolve or wind-up the Company.
TRANSFER AGENT
The transfer agent for the Company's Common Stock is Norwest Bank
Minnesota, N.A.
VALIDITY OF SHARES
Certain legal matters with respect to the Shares offered hereby will be
passed upon for the Company by Oppenheimer Wolff & Donnelly, Minneapolis,
Minnesota.
EXPERTS
The financial statements of LifeRate Systems, Inc. as of December 31,
1996, 1995 and 1994, included in this prospectus and in the Registration
Statement, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and is included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
The following Financial Statements and Independent Auditors' Report
thereon are included herein on the pages indicated:
Report of Independent Auditors F-1
Balance Sheets as of December 31, 1996 and 1995 F-2 - F-3
Statements of Operations for the years ended December 31, 1996, F-4
1995 and 1994
Statements of Changes in Shareholders' Equity for the years ended F-5 - F-7
December 31, 1996, 1995 and 1994
Statements of Cash Flows for the years ended December 31, 1996, F-8
1995 and 1994
Notes to Financial Statements F-9 - F-21
Balance Sheets as of September 30, 1997 and December 31, 1996 F-22
Statements of Operations for the nine months ended September 30, F-23
1997 and 1996
Statements of Cash Flows for the nine months ended September 30, F-24
1997 and 1996
Notes to Financial Statements F-25
<PAGE>
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.
14. SUBSEQUENT EVENTS (UNAUDITED)
In November 1997, the Company sold 4,290,000 shares of common stock resulting in
net proceeds of $1,996,500. In addition, the Company converted approximately
$588,000 of convertible notes payable into 365,550 shares of common stock. The
Company also amended its remaining convertible debt obligations which provide
that no interest would accrue under the terms of the notes and that any accrued
interest would be forfeited.
<PAGE>
LIFERATE SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
ASSETS 1997 1996
(UNAUDITED) (NOTE)
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 81,200 $ 2,072,000
Accounts receivable, less allowance of $22,900 at September 30,
1997 and $60,400 at December 31, 1996 193,700 142,400
Prepaid expenses and other current assets 151,700 122,700
------------ ------------
Total current assets 426,600 2,337,100
Furniture and fixtures 206,100 177,400
Computer equipment 840,600 837,200
------------ ------------
1,046,700 1,014,600
Less accumulated depreciation 547,000 325,900
------------ ------------
499,700 688,700
Software development costs, net of amortization of $151,300 at
September 30, 1997 and $100,800 at December 31, 1996 -- 50,500
------------ ------------
Total Assets $ 926,300 $ 3,076,300
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities $ 485,200 $ 417,800
Accrued interest 56,200 --
Other current liabilities 15,600 73,900
Current portion of convertible notes payable-related parties 1,104,000 --
Current portion of notes payable 504,500 10,800
Current portion of capitalized lease obligations 8,700 1,000
------------ ------------
Total current liabilities 2,174,200 503,500
Convertible subordinated note 2,250,000 2,250,000
Accrued interest 104,600 --
Notes payable -- 1,800
Capitalized lease obligation 5,000 --
Deferred rent 7,900 16,800
Deferred revenue 248,500 151,800
Shareholders' equity (deficit):
Preferred stock, no par value: Authorized shares - 1,000,000
Issued and outstanding shares-none in 1997 and 1996
Common stock, no par value: Authorized shares - 20,000,000
Issued and outstanding shares - 3,824,755 at September 30, 1997
and 3,811,639 at December 31, 1996 17,299,900 17,260,700
Deficit accumulated during the development stage (21,163,800) (17,108,300)
------------ ------------
Total shareholders' equity (deficit) (3,863,900) 152,400
------------ ------------
Total liabilities and shareholders' equity (deficit) $ 926,300 $ 3,076,300
============ ============
</TABLE>
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date.
<PAGE>
LIFERATE SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
July 18, 1990
Three Months Nine Months (Date of
Ended September 30 Ended September 30 Inception) to
------------------------------ -----------------------------
1997 1996 1997 1996 September 30 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 122,500 $ 49,200 $ 366,100 $ 308,500 $ 1,556,400
Cost of revenues 134,600 220,000 508,400 711,200 1,562,000
------------ ------------ ------------ ------------ ------------
Gross profit (12,100) (170,800) (142,300) (402,700) (5,600)
Operating expenses:
Sales and marketing 281,600 443,500 1,020,600 1,268,800 5,671,000
Research and development 244,500 564,900 1,038,000 1,617,200 9,049,600
General and administrative 432,700 700,200 1,695,300 1,911,100 6,600,200
------------ ------------ ------------ ------------ ------------
Loss from operations (970,900) (1,879,400) (3,896,200) (5,199,800) (21,326,400)
Interest income 4,100 60,200 26,000 228,300 384,900
Interest expense 113,600 2,300 185,300 5,000 222,300
------------ ------------ ------------ ------------ ------------
Net loss $ (1,080,400) $ (1,821,500) $ (4,055,500) $ (4,976,500) $(21,163,800)
Net loss per share $ (0.28) $ (0.48) $ (1.06) $ (1.27)
============ ============ ============ ============
Weighted average number of common
shares outstanding 3,824,755 3,811,639 3,821,390 3,931,561
============ ============ ============ ============
</TABLE>
See accompanying notes
<PAGE>
LIFERATE SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 18, 1990
(DATE OF
NINE MONTHS ENDED INCEPTION) TO
SEPTEMBER 30 SEPTEMBER 30
------------------------------
1997 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (4,055,500) $ (4,976,500) $(21,163,800)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 292,900 125,700 720,200
Writedown of software development costs to net realizable value -- -- 599,600
Stock issued for services -- -- 187,500
Value of stock options granted for services rendered 8,300 -- 982,300
Convertible subordinated note issued for services rendered -- -- 2,250,000
Changes in operating assets and liabilities:
Accounts receivable (51,300) (72,600) (193,700)
Prepaid and other current assets 16,300 (53,100) (106,400)
Other assets -- 11,800 --
Accounts payable and other accrued liabilities 9,100 (288,500) 836,600
Accrued interest 160,800 -- 160,800
Deferred revenue 96,700 258,100 248,500
Deferred rent (8,900) (8,900) 7,900
------------ ------------ ------------
Net cash used in operating activities (3,531,600) (5,004,000) (15,470,500)
INVESTING ACTIVITIES
Software development costs -- -- (750,900)
Purchase of furniture and equipment (32,100) (523,900) (1,004,500)
------------ ------------ ------------
Net cash used in investing activities (32,100) (523,900) (1,755,400)
FINANCING ACTIVITIES
Payments on notes payable and capital lease obligations (12,900) (22,200) (174,300)
Stock subscription received -- 5,000 5,000
Proceeds from issuance of notes payable and capital lease obligations 1,554,900 -- 1,845,100
Proceeds from issuance of common stock 30,900 1,908,900 15,631,300
------------ ------------ ------------
Net cash provided by financing activities 1,572,900 1,891,700 17,307,100
------------ ------------ ------------
Increase (Decrease) in cash and cash equivalents (1,990,800) (3,636,200) 81,200
Cash and cash equivalents at beginning of period 2,072,000 7,750,500 --
------------ ------------ ------------
Cash and cash equivalents at end of period $ 81,200 $ 4,114,300 $ 81,200
============ ============ ============
</TABLE>
See accompanying notes
<PAGE>
LIFERATE SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. Organization and Description of Business
LifeRate Systems, Inc. is a development stage enterprise engaged in
marketing proprietary clinical software systems to health care
providers to produce information to measure and quantify the quality
and cost of health care.
2. Basis of Presentation
The financial information presented as of September 30, 1997 and 1996
has been prepared from the books and records without audit. Financial
information as of December 31, 1996 is based on audited financial
statements of LifeRate Systems, Inc. but does not include all
disclosures required by generally accepted accounting principles. In
the opinion of management, all adjustments, consisting only of normal
recurring adjustments necessary for a fair presentation of the
financial information for the periods indicated have been included. For
further information regarding the Company's accounting policies, refer
to the financial statements and attached notes included in the
Company's Form 10-KSB for the fiscal year ended December 31, 1996 as
filed with the Securities and Exchange Commission.
3. Net Loss Per Share
Net loss per share is computed using the weighted average number of
common shares outstanding during the period. Common equivalent shares
from stock options and warrants are excluded from the computation as
their effect is antidilutive. In February 1997, the Financial
Accounting Standards Board (FASB) issued FASB Statement No. 128,
"EARNINGS PER SHARE." This Statement replaces the presentation of
primary earnings per share (EPS) with basic EPS and also requires dual
representation of basic and diluted EPS for entities with complex
capital structures. This Statement is effective for the fiscal year
ended December 31, 1997. For the three and nine month periods ended
September 30, 1997, there is no difference between basic earnings per
share under Statement No. 128 and primary net loss per share as
reported.
4. Reclassified
Prior year amounts have been reclassified to match the current year
presentation.
5. Subsequent Events
In November 1997, the Company sold 4,290,000 shares of common stock
resulting in net proceeds of $1,996,500. In addition, the Company
converted approximately $588,000 of convertible notes payable into
365,550 shares of common stock. The Company also amended its remaining
convertible debt obligations which provide that no interest would
accrue under the terms of the notes and that any accrued interest would
be forfeited.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article IX of the Company's Amended and Restated Articles of
Incorporation provides that the Company's Board of Directors with the power and
authority to limit the liability of its directors to the fullest extent
permitted by the Minnesota Business Corporation Act. Specifically, directors of
the Company will not be personally liable for monetary damages for breach of
fiduciary duty as directors, except liability for (i) any breach of the duty of
loyalty to the Company or its shareholders, (ii) acts or omissions not in good
faith or that involve intentional misconduct or a knowing violation of law,
(iii) dividends or other distributions of corporate assets that are in
contravention of certain statutory or contractual restrictions, (iv) violations
of certain Minnesota securities laws, or (v) any transaction from which the
director derives an improper personal benefit. Liability under federal
securities law is not limited by the Amended and Restated Articles of
Incorporation or action by the Company's Board of Directors.
The Minnesota Business Corporation Act requires that the Company
indemnify any director, officer or employee made or threatened to be made a
party to a proceeding, by reason of the former or present official capacity of
the person, against judgments, penalties, fines, settlements and reasonable
expenses incurred in connection with the proceeding if certain statutory
standards are met. "Proceeding" means a threatened, pending or completed civil,
criminal, administrative, arbitration or investigative proceeding, including a
derivative action in the name of the Company. Reference is made to the detailed
terms of Section 302A.521 of the Minnesota Business Corporation Act for a
complete statement of such indemnification rights. The Company's Bylaws also
require the Company to provide indemnification to the fullest extent of the
Minnesota Business Corporation Act.
The Company maintains a directors' and officers' liability insurance,
including a reimbursement policy in favor of the Company.
Pursuant to the Purchase Agreement, the directors and officers of the
Company are indemnified against certain civil liabilities that they may incur
under the Securities Act in connection with this Registration Statement and the
related Prospectus.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company is aware that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth estimated expenses incurred by the
Company in connection with the issuance and distribution of the Shares being
registered. All such expenses are estimated except for the SEC registration fee.
SEC registration fee....................................... $ 1,425.86
Printing expenses.......................................... 2,500.00
Fees and expenses of counsel for the Company............... 20,000.00
Fees and expenses of accountants for Company............... 4,000.00
Blue sky fees and expenses................................. 1,000.00
Miscellaneous.............................................. 5,000.00
----------
*Total............................................ $33,925.86
==========
- ---------------------
* None of the expenses listed above will be borne by the Selling
Shareholders.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Since December 1, 1994, the Company has issued the following securities
without registration under the Securities Act:
1. In December, 1994, the Company sold an aggregate of 155,555 shares of
Common Stock at a price of $4.50 per share for a total purchase price
of $700,000. In addition, each investor was issued a warrant to
purchase one share of Common Stock at a price of $4.50 per share for
each share purchased.
2. In December, 1994, the Company sold 19,999 shares of Common Stock to a
physician investor at a price of $4.50 per share for an aggregate price
of $90,000, $10,000 of which was paid in cash and $80,000 of which was
paid with a promissory note.
3. In December, 1994, the Company issued 26,666 shares of Common Stock to
a consultant upon the exercise of a stock option at a price of $3.00
per share for an aggregate price of $79,998.
4. In December, 1994, Merry M. Olson, Donald B. Olson and David W. Haskin
converted accrued salary aggregating $300,000 into a total of 66,664
shares of Common Stock of the Company at a conversion price of $4.50
per share. In addition, Donald and Merry Olson converted indebtedness
from the Company in the amount of $119,937 into 26,652 shares of Common
Stock at a conversion price of $4.50 per share.
5. In December, 1995, the Company issued to Medtronic, Inc. 600,000 shares
of Common Stock at a price of $8.00 per share for a total purchase
price of $4,800,000.
6. In December, 1995, the Company issued an aggregate of 562,853 shares of
Common Stock to accredited investors at a price of $6.50 per share for
a total purchase price of approximately $3,658,545. In connection
therewith, the Company issued to a selling agent a warrant to purchase
56,286 shares of Common Stock.
<PAGE>
7. In January, 1996, the Company issued an aggregate of 295,546 shares of
Common Stock to accredited investors at a price of $6.50 per share for
a total purchase price of $1,921,049. In connection therewith, the
Company issued to a selling agent a warrant to purchase 29,555 shares
of Common Stock.
8. In March, 1997, the Company issued a convertible subordinated
promissory note to The Atlanta Cardiology Group, P.C. in the principal
amount of $2,250,000, maturing on April 1, 2002. As originally issued,
the note accrued interest at the rate of 10% per year and interest was
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 $3.32 per share,
subject to adjustment in certain cases to protect ACG from certain
dilutive events. This note was issued in exchange for the cancellation
of a royalty agreement with ACG. In connection with the November, 1997
equity financing, this note was amended to be non-interest bearing.
9. In May, 1997, the Company issued to Medtronic, Inc. a convertible
promissory note in the principal amount of $1,000,000 and a warrant to
purchase 100,000 shares of Common Stock at an exercise price of the
lower of $2.00 per share or the average price per share of Common Stock
paid by all purchasers of Common Stock in the Company's next equity
financing. In connection with the November, 1997 equity financing, the
warrant was amended to reflect an exercise price of $.50 per share. As
originally issued, the note was convertible, at the option of
Medtronic, Inc., into Common Stock at a conversion price of $2.00 per
share and bore interest at the prime rate. In connection with the
November, 1997 equity financing, the note was amended to reflect a
conversion rate of $1.50 per share and to be non-interest bearing.
10. In July, 1997, the Company issued to accredited investors warrants to
purchase an aggregate of 50,000 shares of Common Stock exercisable at a
price of $2.00 per share and convertible promissory notes in an
aggregate principal amount of $500,000. In connection therewith, the
Company issued to a selling agent a warrant to purchase 25,000 shares
of Common Stock. In November, 1997, these notes were converted into an
aggregate of 250,000 shares of Common Stock a conversion rate of $2.00
per share.
11. In October, 1997, the Company issued a convertible promissory notes to
each of the Company's then non-employee directors in the principal
amount of $5,775 and in the aggregate of $46,200. The Company repaid a
total of $40,425, without interest, to seven of these non-employee
directors from the proceeds of the November, 1997 equity financing, and
the balance of $5,775 owed to one director was converted into 11,550
shares of Common Stock at a price of $.50 per share.
12. In November, 1997, the Company issued an aggregate of 4,394,000 shares
of Common Stock to accredited investors. An aggregate of 2,500,000
shares were sold at a price of $.50 per share, an aggregate of
1,790,000 shares were sold for $.56 per share, and an aggregate of
104,000 shares were issued upon cancellation of promissory notes at
$.50 per share. In addition, each investor was issued a warrant to
purchase one share of Common Stock at a price of $1.50 per share for
each share purchased.
<PAGE>
No underwriting commissions or discounts were paid with respect to the
sales of the unregistered securities described above. In addition, all of the
above sales were made in reliance on either Section 4(2) of the Securities Act
as transactions by an issuer not involving any public offering or Regulation D
of the Securities Act. In all such transactions, certain inquiries were made by
the Company to establish that such sales qualified for such exemption from the
registration requirements. In particular, the Company confirmed that with
respect to the exemption claimed under Section 4(2) of the Securities Act (i)
all offers of sales and sales were made by personal contact from officers and
directors of the Company or other persons closely associated with the Company,
(ii) each investor made representations that he or she was sophisticated in
relation to this investment (and the Company has no reason to believe that such
representations were incorrect), (iii) each purchaser gave assurance of
investment intent and the certificates for the shares bear a legend accordingly,
and (iv) offers and sales within any offering were made to a limited number of
persons.
ITEM 27. EXHIBITS.
EXHIBIT
NO. DESCRIPTION
- --- -----------
3.1 Amended and Restated Articles of Incorporation.
3.2 Amended and Restated Bylaws, as amended.
4.1 Form of the Company's Common Stock Certificate.
4.2 Amended and Restated Articles of Incorporation (filed as Exhibit 3.1).
4.3 Amended and Restated Bylaws, as amended (filed as Exhibit 3.2).
4.4 Form of Warrant dated December, 1994 to purchase shares of Common Stock
issued to investors in connection with the Company's December, 1994
Private Placement.
4.5 Form of Warrant dated March, 1995 to purchase 91,000 shares of Common
Stock issued to Principals of Miller Johnson & Kuehn in connection with
the Company's Initial Public Offering.
4.6 Form of Warrant dated December, 1995 to purchase 56,286 shares of
Common Stock issued to Principals of Miller Johnson & Kuehn in
connection with the Company's December, 1995 Private Placement.
4.7 Form of Warrant dated January, 1996 to purchase 29,555 shares of Common
Stock issued to Principals of Miller Johnson & Kuehn in connection with
the Company's January, 1996 Private Placement.
4.8 Warrant dated May 12, 1997 to purchase 100,000 shares of Common Stock
issued to Medtronic, Inc.
4.9 Form of Warrant to purchase shares of Common Stock of the Company
issued to investors in connection with the July, 1997 Bridge Financing.
<PAGE>
EXHIBIT
NO. DESCRIPTION
- --- -----------
4.10 Form of Warrant dated July 21, 1997 to purchase 29,555 shares of Common
Stock to Principals of Miller Johnson & Kuehn in connection with the
Company's July, 1997 Bridge Financing.
4.11 Form of Warrant to Purchase Common Stock of the Company issued in
connection with the November, 1997 Equity Financing.
5.1 Opinion and Consent of Oppenheimer Wolff & Donnelly.
10.1 1993 Stock Option Plan, as amended.
10.2 Form Incentive Stock Option Agreement for Employees.
10.3 Form Non-Statutory Stock Option Agreement for Non-Employees.
10.4 Employee Stock Purchase Plan, as amended.
10.5 Form of Employment Agreement.
10.6 Lease Agreement with Alpha Associates, Inc. dated April 30, 1993.
10.7 Agreement with Clinical Sales and Service, Inc., dated July 1, 1994.
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).
10.9 Agreement with Clinical Sales and Service, Inc., dated November 1,
1994.
10.10 Amendment to Marketing Agreement with Clinical Sales and Service, Inc.,
dated December 31, 1994.
10.11 Promissory Note, dated January 24, 1995, from Paul Benson to the
Company.
10.12 Computer Software Purchase Agreement, dated July 2, 1995, between the
Company, Anthony Furnary, M.D. and APF, LLC.
10.13 Sales and Marketing Services Agreement, dated as of September 18, 1995,
between the Company and Clinical Sales and Services, Inc.
10.14 Investment Agreement, dated as of December 26, 1995 between the Company
and Medtronic, Inc.
10.15 License and Development Agreement, dated as of December 26, 1995
between the Company and Medtronic, Inc.
<PAGE>
EXHIBIT
NO. DESCRIPTION
- --- -----------
10.16 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.
10.17 Separation Agreement and Release, dated as of February 2, 1996 between
the Company and Donald B. Olson.
10.18 Separation Agreement and Release, dated as of February 2, 1996 between
the Company and Merry M. Olson.
10.19 Stock Option Agreement, dated April 29, 1996, between the Company and
William W. Chorske.
10.20 Agreement, dated June 4, 1996, between the Company and Jeffrey B.
Comer.
10.21 Non-Statutory Stock Option Agreement, dated June 6, 1995, between the
Company and Jeffrey B. Comer.
10.22 Agreement, dated June 5, 1996, between the Company and David W. Haskin.
10.23 Agreement, dated September 1, 1996, between the Company and William
Knopf, M.D.
10.24 Non-Statutory Stock Option Agreement dated September 1, 1996, between
the Company and William Knopf, M.D.
10.25 Non-Statutory Stock Option Agreement, dated September 1, 1996, between
the Company and Donna J. Edmonds.
10.26 Agreement, dated September 25, 1996, between the Company and Donna J.
Edmonds.
10.27 Agreement, dated December 18, 1996, between the Company and National
Jewish Center (confidential portions have been omitted and filed with
the Secretary of the Commission).
10.28 Technical Support Agreement, dated as of December 18, 1996, between the
Company and National Jewish Center.
10.29 Non-Statutory Stock Option Agreement, dated March 4, 1997, covering
26,000 shares between the Company and APF, LLC.
10.30 Non-Statutory Stock Option Agreement, dated March 4, 1997, covering
10,333 shares between the Company and APF, LLC.
10.31 Non-Statutory Stock Option Agreement, dated March 24, 1997, covering
550,000 shares between the Company and APF, LLC.
<PAGE>
EXHIBIT
NO. DESCRIPTION
- --- -----------
10.32 Master Agreement, dated March 25, 1997, among the Company, Anthony
Furnary, M.D. and APF, LLC.
10.33 Modification Agreement, dated March 25, 1997, among the Company,
Anthony Furnary, M.D. and APF, LLC.
10.34 Agreement, dated March 28, 1997 between The Company and Atlanta
Cardiology Group, P.C.
10.35 Convertible Subordinated Promissory Note, dated March 28, 1997, issued
by the Company to The Atlanta Cardiology Group, P.C.
10.36 Mutual Release, dated March 28, 1997, between the Company and The
Atlanta Cardiology Group, P.C.
10.37 Note dated May 12, 1997 in the principal amount of $1,000,000 issued to
Medtronic, Inc.
10.38 Employment Agreement, dated August 18, 1997, between the Company and
David J. Chinsky.
10.39 Letter Agreement, dated November 10, 1997, among the Company, APF, LLC
and Anthony P. Furnary, M.D.
10.40 Letter Agreement, dated November 10, 1997, between the Company and the
Atlanta Cardiology Group, P.C.
10.41 Letter Agreement, dated November 10, 1997, between the Company and
Medtronic, Inc.
10.42 Amendment to Employment Agreement, dated November 13, 1997, between the
Company and David J. Chinsky.
10.43 Non-Statutory Stock Option Agreement, dated November 13, 1997, between
the Company and David J. Chinsky.
10.44 Securities Purchase Agreement, dated as of November 14, 1997, among the
Company and the Purchasers. Omitted from this Exhibit, as filed, are
the exhibits and schedules referenced in such agreement. The Company
will furnish supplementally a copy of any such exhibits and schedules
to the Commission upon request.
23.1 Consent of Oppenheimer Wolff & Donnelly (included in Exhibit 5.1).
23.2 Consent of Independent Auditors.
<PAGE>
EXHIBIT
NO. DESCRIPTION
- --- -----------
24.1 Power of Attorney (included on page II-5 of this Registration
Statement).
27.1. Financial Data Schedule.
ITEM 28. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and authorized this Registration Statement
on Form SB-2 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Minneapolis and State of Minnesota, on December 10,
1997.
LIFERATE SYSTEMS, INC.
By /s/ David J. Chinsky
-------------------------------------------
David J. Chinsky
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David J. Chinsky, as his true and lawful
attorney-in-fact and agent, with full powers of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments (including post-effective amendments) to this Registration
Statement, and any additional Registration Statements filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
Signatures Title Date
- ---------- ----- ----
/s/ David J. Chinsky President and Chief Executive December 10, 1997
- -------------------------- Officer and Director
David J. Chinsky (principal executive, financial
and accounting officer)
/s/ Daniel A. Pelak Director December 11, 1997
- --------------------------
Daniel A. Pelak
/s/ Kevin L. Roberg Director December 11, 1997
- --------------------------
Kevin L. Roberg
<PAGE>
LIFERATE SYSTEMS, INC.
REGISTRATION STATEMENT ON FORM SB-2
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION METHOD OF FILING
- --- ----------- ----------------
<S> <C> <C>
3.1 Amended and Restated Articles of Incorporation........... Incorporated by reference to Exhibit
3.1 to 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 for the year ended
December 31, 1995 (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).
4.2 Amended and Restated Articles of Incorporation........... See Exhibit 3.1.
4.3 Amended and Restated Bylaws, as amended.................. See Exhibit 3.2.
4.4 Form of Warrant dated December, 1994 to purchase shares Incorporated by reference to Exhibit
of Common Stock issued to investors in connection with 10.17 of the Company's Registration
the Company's December, 1994 Private Placement........... Statement on Form SB-2 (File No.
33-89016C).
4.5 Form of Warrant dated March, 1995 to purchase 91,000
shares of Common Stock issued to Principals of Miller
Johnson & Kuehn in connection with the Company's Initial
Public Offering.......................................... Filed herewith.
4.6 Form of Warrant dated December, 1995 to purchase 56,286
shares of Common Stock issued to Principals of Miller
Johnson & Kuehn in connection with the Company's
December, 1995 Private Placement......................... Filed herewith.
<PAGE>
EXHIBIT
NO. DESCRIPTION METHOD OF FILING
- --- ----------- ----------------
4.7 Form of Warrant dated January, 1996 to purchase 29,555
shares of Common Stock issued to Principals of Miller
Johnson & Kuehn in connection with the Company's
January, 1996 Private Placement......................... Filed herewith.
4.8 Warrant dated May 12, 1997 to purchase 100,000 shares of Incorporated by reference to Exhibit
Common Stock issued to Medtronic, Inc.................... 10.2 of the Company's Quarterly
Report on Form 10-QSB for the quarter
ended June 30, 1997 (File No.
0-25530).
4.9 Form of Warrant to purchase shares of Common Stock of
the Company issued to investors in connection with the
July, 1997 Bridge Financing.............................. Filed herewith.
4.10 Form of Warrant dated July 21, 1997 to purchase 29,555
shares of Common Stock to Principals of Miller Johnson &
Kuehn in connection with the Company's July, 1997 Bridge
Financing................................................ Filed herewith.
4.11 Form of Warrant to Purchase Common Stock of the Company Incorporated by reference to Exhibit
issued in connection with the November, 1997 Equity 10.2 of the Company's Current Report
Financing................................................ on Form 8-K dated November 26, 1997
(File No. 0-25530).
5.1 Opinion and Consent of Oppenheimer Wolff & Donnelly...... Filed herewith.
10.1 1993 Stock Option Plan, as amended....................... Incorporated by reference to Exhibit
99.1 to the Company's Registration
Statement on Form S-8 (File No.
333-02850).
10.2 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).
10.3 Form Non-Statutory Stock Option Agreement for Incorporated by reference to Exhibit
Non-Employees........................................... 10.15 to the Company's Registration
Statement on Form SB-2 (File No.
33-89016C).
10.4 Employee Stock Purchase Plan, as amended................. Incorporated by reference to Exhibit
10.27 to the Company's
<PAGE>
EXHIBIT
NO. DESCRIPTION METHOD OF FILING
- --- ----------- ----------------
Annual Report on Form 10-KSB/A
(Amendment No. 1) (File No.
0-25530).
10.5 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).
10.6 Lease Agreement with Alpha Associates, Inc. dated April 30, Incorporated by reference to Exhibit
1993..................................................... 10.20 to the Company's Registration
Statement on Form SB-2 (File No.
33-89016C).
10.7 Agreement with Clinical Sales and Service, Inc., dated July Incorporated by reference to Exhibit
1, 1994.................................................. 10.3 to the Company's Registration
Statement on Form SB-2 (File No.
33-89016C).
10.8 Letter Agreement with The Atlanta Cardiology Group, dated Incorporated by reference to Exhibit
September 28, 1994 (confidential portions have been omitted 10.2 to the Company's Registration
and filed with the Secretary of the Commission).......... Statement on Form SB-2 (File No.
33-89016C).
10.9 Agreement with Clinical Sales and Service, Inc., dated Incorporated by reference to Exhibit
November 1, 1994......................................... 10.4 to the Company's Registration
Statement on Form SB-2 (File No.
33-89016C).
10.10 Amendment to Marketing Agreement with Clinical Sales and Incorporated by reference to Exhibit
Service, Inc., dated December 31, 1994................... 10.5 to the Company's Registration
Statement on Form SB-2 (File No.
33-89016C).
10.11 Promissory Note, dated January 24, 1995, from Paul Benson Incorporated by reference to Exhibit
to the Company........................................... 10.19 to the Company's Registration
Statement on Form SB-2 (File No.
33-89016C).
10.12 Computer Software Purchase Agreement, dated July 2, 1995, Incorporated by reference to Exhibit
between the Company, Anthony Furnary, M.D. and APF, 10.28 of the Company's Annual Report
LLC...................................................... on Form 10-KSB for the year ended
December 31, 1995 (File No. 0-25530).
10.13 Sales and Marketing Services Agreement, dated as of Incorporated by reference to Exhibit
September 18, 1995, between the Company and 10.29 of the Company's
<PAGE>
EXHIBIT
NO. DESCRIPTION METHOD OF FILING
- --- ----------- ----------------
Clinical Sales and Services, Inc......................... Annual Report on Form 10-KSB for the
year ended December 31, 1995 (File
No. 0-25530).
10.14 Investment Agreement, dated as of December 26, 1995 between Incorporated by reference to Exhibit
the Company and Medtronic, Inc........................... 10.2 of the Company's Current Report
on Form 8-K dated December 22, 1995
(File No. 0-25530).
10.15 License and Development Agreement, dated as of December 26, Incorporated by reference to Exhibit
1995 between the Company and Medtronic, Inc.............. 10.3 of the Company's Current Report
on Form 8-K dated December 22, 1995
(File No. 0-25530).
10.16 Shareholder Voting Agreement, dated as of December 26, 1995 Incorporated by reference to Exhibit
by and among the Company, Medtronic, Inc., Donna J. 10.1 of the Company's Current Report
Edmonds, Jeffrey B. Comer, David W. Haskin and Paul D. on Form 8-K dated December 22, 1995
Benson................................................... (File No. 0-25530).
10.17 Separation Agreement and Release, dated as of February 2, Incorporated by reference to Exhibit
1996 between the Company and Donald B. Olson............ 10.30 of the Company's Annual Report
on Form 10-KSB for the year ended
December 31, 1995 (File No. 0-25530).
10.18 Separation Agreement and Release, dated as of February 2, Incorporated by reference to Exhibit
1996 between the Company and Merry M. Olson.............. 10.31 of the Company's An nual
Report on Form 10-KSB for the year
ended December 31, 1995 (File No.
0-25530).
10.19 Stock Option Agreement, dated April 29, 1996, between the Incorporated by reference to Exhibit
Company and William W. Chorske........................... 10.1 of the Company's Quarterly Report
on Form 10-QSB for the quarter ended
March 30, 1996 (File No. 0-25530).
10.20 Agreement, dated June 4, 1996, between the Company and Incorporated by reference to Exhibit
Jeffrey B. Comer......................................... 10.21 of the Company's Annual Report
on Form 10-KSB for the year ended
December 31, 1996 (File No. 0-25530).
<PAGE>
EXHIBIT
NO. DESCRIPTION METHOD OF FILING
- --- ----------- ----------------
10.21 Non-Statutory Stock Option Agreement, dated June 6, 1995, Incorporated by reference to Exhibit
between the Company and Jeffrey B. Comer................. 10.23 of the Company's Annual Report
on Form 10-KSB for the year ended
December 31, 1996 (File No. 0-25530).
10.22 Agreement, dated June 5, 1996, between the Company and Incorporated by reference to Exhibit
David W. Haskin.......................................... 10.24 of the Company's Annual Report
on Form 10-KSB for the year ended
December 31, 1996 (File No. 0-25530).
10.23 Agreement, dated September 1, 1996, between the Company and Incorporated by reference to Exhibit
William Knopf, M.D....................................... 10.1 of the Company's Quarterly Report
on Form 10-QSB for the quarter ended
September 30, 1996 (File No. 0-25530).
10.24 Non-Statutory Stock Option Agreement dated September 1, Incorporated by reference to Exhibit
1996, between the Company and William Knopf, M.D......... 10.3 of the Company's Quarterly
Report on Form 10-QSB for the quarter
ended September 30, 1996 (File No.
0-25530).
10.25 Non-Statutory Stock Option Agreement, dated September 1, Incorporated by reference to Exhibit
1996, between the Company and Donna J. Edmonds........... 10.29 of the Company's Annual Report
on Form 10-KSB for the year ended
December 31, 1996 (File No. 0-25530).
10.26 Agreement, dated September 25, 1996, between the Company Incorporated by reference to Exhibit
and Donna J. Edmonds..................................... 10.28 of the Company's Annual Report
on Form 10-KSB for the year ended
December 31, 1996 (File No. 0-25530).
10.27 Agreement, dated December 18, 1996, between the Incorporated by reference to Exhibit
Company and National Jewish Center (confidential 10.30 of the Company's Annual Report
portions have been omitted and filed with the on Form 10-KSB for the year ended
Secretary of the Commission)............................. December 31, 1996 (File No. 0-25530).
10.28 Technical Support Agreement, dated as of December 18, 1996, Incorporated by reference to Exhibit
between the Company and National Jewish Center........... 10.31 of the Company's Annual Report
on Form 10-KSB for the year ended
December 31,
<PAGE>
EXHIBIT
NO. DESCRIPTION METHOD OF FILING
- --- ----------- ----------------
1996 (File No. 0-25530).
10.29 Non-Statutory Stock Option Agreement, dated March 4, Incorporated by reference to Exhibit
1997, covering 26,000 shares between the Company and 10.39 of the Company's Annual Report
APF, LLC................................................. on Form 10-KSB for the year ended
December 31, 1996 (File No. 0-25530).
10.30 Non-Statutory Stock Option Agreement, dated March 4, Incorporated by reference to Exhibit
1997, covering 10,333 shares between the Company and 10.40 of the Company's Annual Report
APF, LLC................................................. on Form 10-KSB for the year ended
December 31, 1996 (File No. 0-25530).
10.31 Non-Statutory Stock Option Agreement, dated March 24, Incorporated by reference to Exhibit
1997, covering 550,000 shares between the Company and 10.38 of the Company's Annual Report
APF, LLC................................................. on Form 10-KSB for the year ended
December 31, 1996 (File No. 0-25530).
10.32 Master Agreement, dated March 25, 1997, among the Company, Incorporated by reference to Exhibit
Anthony Furnary, M.D. and APF, LLC....................... 10.35 of the Company's Annual Report
on Form 10-KSB for the year ended
December 31, 1996 (File No. 0-25530).
10.33 Modification Agreement, dated March 25, 1997, among the Incorporated by reference to Exhibit
Company, Anthony Furnary, M.D. and APF, LLC.............. 10.36 of the Company's Annual Report
on Form 10-KSB for the year ended
December 31, 1996 (File No. 0-25530).
10.34 Agreement, dated March 28, 1997 between The Company and Incorporated by reference to Exhibit
Atlanta Cardiology Group, P.C............................ 10.32 of the Company's Annual Report
on Form 10-KSB for the year ended
December 31, 1996 (File No. 0-25530).
10.35 Convertible Subordinated Promissory Note, dated March 28, Incorporated by reference to Exhibit
1997, issued by the Company to The Atlanta Cardiology 10.33 of the Company's Annual Report
Group, P.C............................................... on Form 10-KSB for the year ended
December 31, 1996 (File No. 0-25530).
10.36 Mutual Release, dated March 28, 1997, between the Company Incorporated by reference to Exhibit
and The Atlanta Cardiology Group, P.C.................... 10.34 of the Company's Annual Report
on Form 10-KSB
<PAGE>
EXHIBIT
NO. DESCRIPTION METHOD OF FILING
- --- ----------- ----------------
for the year ended December 31, 1996
(File No. 0-25530).
10.37 Note dated May 12, 1997 in the principal amount of Incorporated by reference to Exhibit
$1,000,000 issued to Medtronic, Inc...................... 10.1 of the Company's Quarterly
Report on Form 10-QSB for the quarter
ended June 30, 1997 (File No.
0-25530).
10.38 Employment Agreement, dated August 18, 1997, between the Incorporated by reference to Exhibit
Company and David J. Chinsky............................. 10.6 of the Company's Current Report
on Form 8-K dated November 26, 1997
(File No. 0-25530).
10.39 Letter Agreement, dated November 10, 1997, among the Incorporated by reference to Exhibit
Company, APF, LLC and Anthony P. Furnary, M.D............ 10.3 of the Company's Current Report
on Form 8-K dated November 26, 1997
(File No. 0-25530).
10.40 Letter Agreement, dated November 10, 1997, between the Incorporated by reference to Exhibit
Company and the Atlanta Cardiology Group, P.C............ 10.4 of the Company's Current Report
on Form 8-K dated November 26, 1997
(File No. 0-25530).
10.41 Letter Agreement, dated November 10, 1997, between the Incorporated by reference to Exhibit
Company and Medtronic, Inc............................... 10.5 of the Company's Current Report
on Form 8-K dated November 26, 1997
(File No. 0-25530).
10.42 Amendment to Employment Agreement, dated November 13, Incorporated by reference to Exhibit
1997, between the Company and David J. Chinsky........... 10.7 of the Company's Current Report
on Form 8-K dated November 26, 1997
(File No. 0-25530).
10.43 Non-Statutory Stock Option Agreement, dated November 13, Incorporated by reference to Exhibit
1997, between the Company and David J. Chinsky........... 10.8 of the Company's Current Report
on Form 8-K dated November 26, 1997
(File No. 0-25530).
10.44 Securities Purchase Agreement, dated as of November 14, Incorporated by reference to Exhibit
1997, among the Company and the 10.1 of the Company's
<PAGE>
EXHIBIT
NO. DESCRIPTION METHOD OF FILING
- --- ----------- ----------------
Purchasers. Omitted from this Exhibit, as filed, are the Current Report on Form 8-K dated
exhibits and schedules referenced in such agreement. November 26, 1997 (File No.
The Company will furnish supplementally a copy of any 0-25530).
such exhibits and schedules to the Commission upon
request..................................................
23.1 Consent of Oppenheimer Wolff & Donnelly.................. Included in Exhibit 5.1.
23.2 Consent of Independent Auditors.......................... Filed herewith.
24.1 Power of Attorney........................................ Included on page II-8 of this
Registration Statement.
27.1. Financial Data Schedule.................................. Filed herewith.
</TABLE>
EXHIBIT 4.5
COMMON STOCK WARRANT
To Purchase 91,000
Shares of Common Stock of
LifeRate Systems, Inc.
March 23, 1995
THIS CERTIFIES THAT, in consideration for its payment of $50.00 to the
Company, Miller, Johnson & Kuehn, Incorporated ("MJK") or its registered assigns
is entitled to subscribe for and purchase from LifeRate Systems, Inc. (the
"Company"), a Minnesota corporation, at any time after the first anniversary of
the date hereof to and including March __, 2000, Ninety-one Thousand (91,000)
fully paid and nonassessable shares of the Company's Common Stock, $.01 par
value, at a price of $6.00 per share:
This Warrant is subject to the following provisions, terms and
conditions:
1. Exercise, Transferability. The rights represented by this Warrant may be
exercised by the holder hereof, in whole or in part (but not as to a fractional
share of Common stock), by written notice of exercise delivered to the Company
ten (10) days prior to the intended date of exercise and by the surrender of
this Warrant (properly endorsed if required) at the principal office of the
Company and upon payment to it by check of the purchase price for such shares.
This Warrant may be transferred, or divided into two (2) or more
Warrants of smaller denominations (collectively, the "Warrants"), subject to the
following conditions: (i) during the first year after the effective date of the
Company's registered offering of 910,000 shares of Common Stock, pursuant to
Registration Statement No. 33-89016C, the Warrant may not be sold, transferred,
assigned or hypothecated except to persons who are (x) both officers and
shareholders of MJK, or (y) both officers and employees of MJK, and (ii) after
such period, the Warrant shall be transferable without restriction, but subject
to the opinions of counsel as provided by paragraph 7 herein that such transfer
is not in violation of federal or state securities laws.
2. Issuance of Shares. The Company agrees that the shares purchased hereby shall
be and are deemed to be issued to the record holder hereof as of the close of
business on the date on which this Warrant shall have been exercised by
surrender of the Warrant and payment for the shares. Subject to the provisions
of the next succeeding paragraph, certificates for the shares of stock so
purchased shall be delivered to the holder hereof within a reasonable time, not
exceeding ten (10) days after the rights represented by this Warrant shall have
been so exercised, and, unless this Warrant has expired, a new Warrant
representing the number of shares, if any, with respect to which this Warrant
shall not then have been exercised shall also be delivered to the holder hereof
within such time.
Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for shares of stock upon exercise of this
Warrant, except in accordance with the provisions, and subject to the
limitations, of paragraph 7 hereof.
3. Covenants of Company. The Company covenants and agrees that all shares which
may be issued upon the exercise of the rights represented by this Warrant will,
upon issuance, be duly authorized and
<PAGE>
issued, fully paid, nonassessable and free from all taxes, liens and charges
with respect to the issue thereof, and, without limiting the generality of the
foregoing, the Company covenants and agrees that it will from time to time take
all such action as may be required to assure that the par value per share of
common stock is at all times equal to or less than the then effective purchase
price per share of the common stock issuable pursuant to this Warrant. The
Company further covenants and agrees that, during the period within which the
rights represented by this Warrant may be exercised, the Company will at all
times have authorized, and reserved for the purpose of issue or transfer upon
exercise of the subscription rights evidenced by this Warrant, a sufficient
number of shares of its common stock to provide for the exercise of the rights
represented by this Warrant.
4. Anti-Dilution Adjustments. The above provisions are, however, subject to the
following:
(a) In case the Company shall at any time hereafter subdivide or
combine the outstanding shares of common stock or declare a dividend payable in
common stock, the exercise price of this Warrant in effect immediately prior to
the subdivision, combination or record date for such dividend payable in common
stock shall forthwith be proportionately increased, in the case of combination,
or decreased, in the case of subdivision or dividend payable in common stock.
Upon each adjustment of the exercise price, the holder of this Warrant shall
thereafter be entitled to purchase, at the exercise price resulting from such
adjustment, the number of shares obtained by multiplying the exercise price
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 exercise price resulting from such adjustment.
(b) No fractional shares of common stock are to be issued upon the
exercise of this Warrant, but the Company shall pay a cash adjustment in respect
of any fraction of a share which would otherwise be issuable in an amount equal
to the same fraction of the market price per share of common stock on the day of
exercise as determined in good faith by the Company.
(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 hereof shall thereafter have the right to
purchase and receive, upon the basis and upon the terms and conditions specified
in this Warrant and in lieu of the shares of common stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such 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 purchasable and receivable upon the exercise of the rights
represented hereby had such reorganization, reclassification, consolidation,
merger or sale not taken place, and in any such case appropriate provisions
shall be made with respect to the rights and interests of the holder of this
Warrant to the end that the provisions hereof (including without limitation
provisions for adjustments of the Warrant purchase price and of the number of
shares purchasable upon the exercise of this Warrant) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise hereof. 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 registered holder hereof
at the last address of such holder appearing on the books of the Company, the
obligation to deliver
<PAGE>
to such holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holder may be entitled to purchase.
Notwithstanding any language to the contrary set forth in this
paragraph 4 (c), if an occurrence or event described herein shall take place in
which the shareholders of the Company receive cash for their shares of common
stock of the Company and a successor corporation or corporation purchasing
assets shall survive the transaction then, at the election of the record holder
hereof, such corporation shall be obligated to purchase this Warrant (or the
unexercised part hereof) from the record holder without requiring the holder to
exercise all or part of the Warrant. If such corporation refuses to so purchase
this Warrant then the Company shall purchase the Warrant for cash. In either
case the purchase price shall be the amount per share that shareholders of the
outstanding common stock of the Company shall receive as a result of the
transaction multiplied by the number of shares covered by the Warrant, minus the
aggregate exercise price of the Warrant. Such purchase shall be closed within 60
days following the election of the holder to sell this Warrant.
(d) Upon any adjustment of the Warrant purchase price, then, and in
each such case, the Company shall give written notice thereof, by first class
mail, postage prepaid, addressed to the registered holder of this Warrant at the
address of such holder as shown on the books of the Company, which notice shall
state the Warrant purchase price resulting from such adjustment and the increase
or decrease, if any, in the number of shares purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
(e) If any event occurs as to which in the good faith determination of
the Board of Directors of the Company the other provisions of this paragraph 4
are not-strictly applicable or if strictly applicable would not fairly protect
the purchase rights of the holder of this Warrant or of common stock 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 purchase rights as aforesaid.
5. Common Stock. As used herein, the term "common stock" shall mean and include
the Company's presently authorized shares of common stock and shall also include
any capital stock of any class of the Company hereafter authorized which shall
not be limited to fixed sum or percentage in respect of the rights of the
holders thereof to participate in dividends or in the distribution, dissolution
or winding up of the Company; provided that the shares purchasable pursuant to
this Warrant shall include shares designated as common stock of the Company on
the date of original issue of this Warrant or, in the case of any
reclassification of the outstanding shares thereof, the stock, securities or
assets provided for in Section 4 above.
6. No Voting Rights. This Warrant shall not entitle the holder hereof to any
voting rights or other rights as a stockholder of the Company.
7. Notice of Transfer of Warrant or Resale of Shares. The holder of this
Warrant, by acceptance hereof, agrees to give written notice to the Company
before transferring this Warrant, or transferring any common stock issued upon
the exercise hereof, of such holder's intention to do so, describing briefly the
manner of any proposed transfer. Promptly upon receiving such written notice,
the Company shall present copies thereof to the Company's counsel and to counsel
to the original purchaser of this Warrant. If in the opinion of each such
counsel the proposed transfer may be effected without registration or
qualification (under any Federal or State law), the Company, as promptly as
practicable, shall notify such
<PAGE>
holder of such opinions, whereupon such holder shall be entitled to transfer
this Warrant or to dispose of shares of common stock received upon the previous
exercise hereof in accordance with the notice delivered by such holder to the
Company, provided that an appropriate legend may be endorsed on this Warrant or
the certificates for such shares respecting restrictions upon transfer thereof
necessary or advisable in the opinion of counsel satisfactory to the Company to
prevent further transfers which would be in violation of Section 5 of the
Securities Act of 1933.
If, in the opinion of either of the counsel referred to in this
paragraph 7, the proposed transfer or disposition described in the written
notice given pursuant to this paragraph 7 may not be effected without
registration or qualification of this Warrant or the shares of common stock
issued upon the exercise hereof, the Company shall promptly give written notice
thereof to the holder hereof, and such holder will limit its activities in
respect to such proposed transfer or disposition as, in the opinion of both such
counsel, are permitted by law.
8. Registration Rights.
(a) If the Company proposes to claim an exemption under Section 3(b)
for a public offering of any of its securities or to register under the
Securities Act of 1933 (except for a registration statement on a form that does
not permit the inclusion of shares by its security holders including a Form S-4
or S-8 or any successor form) any of its securities, it will give written notice
to all registered holders of Warrants, and all registered holders of shares of
common stock acquired upon the exercise of Warrants of its intention to do so
and, on the written request of any such registered holders given within twenty
(20) days after receipt of any such notice (which request must be made within
five (5) years from the date of this Warrant and which notice shall specify the
shares of common stock intended to be sold or disposed of by such registered
holder and describe the nature of any proposed sale or other disposition
thereof), the Company will use its best efforts to cause all such shares, the
registered holders of which shall have requested the registration or
qualification thereof, to be included in such notification or registration
statement proposed to be filed by the Company; provided, however, that nothing
herein shall prevent the Company from, at any time, abandoning or delaying any
such registration initiated by it. If any such registration shall be
underwritten in whole or in part, the Company may require that the 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. In the event that, in the good faith judgment of the managing
underwriter of such public offering the inclusion of all of the 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 shares otherwise to
be included pursuant to this Section in the underwritten public offering may be
reduced; provided, however, that any such required reduction shall be pro rata
among all persons (other than the Company) who are participating in such
offering. Those shares which are thus excluded from the underwritten public
offering shall be withheld from the market for a period, not to exceed 90 days,
which the managing underwriter reasonably determines is necessary in order to
effect the underwritten public offering. All expenses of such offering, except
the fees of special counsel to such holders and brokers' commissions or
underwriting discounts payable by such holders, shall be borne by the Company.
(b) Further, on one occasion only, upon request by the holders of
Warrants and/or the holders of shares issued upon the exercise of the Warrants
who collectively (i) have the right to purchase at least 45,500 shares, (ii)
hold directly at least 45,500 shares purchased hereunder, or (iii) have the
right to purchase or hold directly an aggregate of at least 45,500 shares
purchasable or purchased hereunder, the Company will, at the expense of such
holders, promptly take all necessary steps to register or qualify
<PAGE>
the Warrants or such shares, or to register the issuance by the Company of
shares upon the exercise of Warrants, under the Securities Act of 1933 (and,
upon the request of such holders, under Rule 415 thereunder) and such state laws
as such holders may reasonably request; provided that (i) such request must be
made within five years from the date hereof; and (ii) the Company may delay the
filing of any registration statement requested pursuant to this section to a
date not more than ninety (90) days following the date of such request if in the
opinion of the Company's principal investment banker at the time of such request
such a delay is necessary in order not to adversely affect financing efforts
then underway at the Company or if in the opinion of the Company such a delay is
necessary or advisable to avoid disclosure of material nonpublic information.
The costs and expenses directly related to any registration requested pursuant
to this section, including but not limited to legal fees of the Company's
counsel, audit fees, printing expense, filing fees and fees and expenses
relating to qualifications under state securities or blue sky laws incurred by
the Company shall be borne entirely by the Company; provided, however, that the
persons for whose account the securities covered by such registration are sold
shall bear the expenses of underwriting commissions applicable to their shares
and fees of their legal counsel. If the holders of Warrants and the holders of
shares of Common Stock underlying the Warrants are the only persons whose shares
are included in the registration pursuant to this section, such holders shall
bear the expense of inclusion of audited financials in the registration
statement which are not dated as of the Company's normal fiscal year or are not
otherwise prepared by the Company for its own business purposes. The Company
shall keep effective and maintain any registration, qualification, notification
or approval specified in this paragraph for such period as may be necessary for
the holders of the Warrants and such common stock to dispose thereof, and from
time to time shall amend or supplement, at the holder's expense, the prospectus
or offering circular used in connection therewith to the extent necessary in
order to comply with applicable law, provided that the Company shall not be
obligated to maintain any registration for a period of more than two (2) years.
If, at the time any written request for registration is received by the
Company pursuant to this Section 8 (b), the Company has determined 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 cash of any of
its securities by it or any of its security holders, such written request shall
be deemed to have been given pursuant to Section 8(a) hereof rather than this
Section 8 (b), and the rights of the holders of Warrants and or shares issued
upon the exercise of the Warrants covered by such written request shall be
governed by Section 8(a) hereof.
The managing underwriter of an offering registered pursuant to this
Section 8(b) shall be selected by the holders of a majority of the Warrants
and/or shares issued upon the exercise of the Warrants for which registration
has been requested and shall be reasonably acceptable to the Company. Without
the written consent of the holders of a majority of the Warrants and/or shares
issued upon the exercise of the Warrants-f or which registration has been
requested pursuant to this Section 8 (b), 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 Warrants and/or shares issued upon the exercise of the Warrants
or require the exclusion of any portion of the Warrants and/or shares issued
upon the exercise of the Warrants to be registered. Shares to be excluded from
an underwritten public offering shall be selected in the manner provided in
Section 8(a) hereof.
(c) If and whenever the Company is required by the provisions of
Sections 8(a) or 8(b) hereof to effect the registration of Warrants and/or
shares issued upon the exercise of the Warrants under the Securities Act, the
Company will:
<PAGE>
(i) 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 (9) months; provided, however, that in
the event of a registration statement filed pursuant to section 8(b)
hereof, the Company shall 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 two (2) years;
(ii) 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 (9) months;
(iii) 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;
(iv) 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 in writing within 30 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;
(v) 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;
(vi) 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;
(vii) 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 Warrants or
shares by such holder;
(viii) 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;
<PAGE>
(ix) advise such holders, promptly after it shall receive
notice or obtain knowledge thereof, of 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;
(x) 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
five 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 from any liabilities
under any applicable federal or state law and such filing will not
violate applicable law; and
(xi) at the request of any such holder, furnish on the
effective date of the registration statement and, if such registration
includes an underwritten public offering, at the closing provided for
in the underwriting agreement: (i) opinions, dated such respective
dates, of the counsel representing the Company for the purposes of such
registration, addressed to the underwriters, if any, and to the holder
or holders making such request, covering such matters as such
underwriters and holder or holders may reasonably request; and (ii)
letters, dated such respective dates, from the independent certified
public accountants of the Company, addressed to the underwriters, if
any, and to the holder or holders making such request, covering such
matters as such underwriters and holder or holders may reasonably
request, in which letter such accountants shall state (without limiting
the generality of the foregoing) that they are independent certified
public accountants within the meaning of the Securities Act and that in
the opinion of such accountants the financial statements and other
financial data of the Company included in the registration statement or
the prospectus or any amendment or supplement thereto comply in all
material respects with the applicable accounting requirements of the
Securities Act.
(d) The Company hereby indemnifies the holder of this Warrant and of
any common stock issued or issuable hereunder, its officers and directors, and
any person who controls such Warrant holder or such holder of common stock
within the meaning of Section 15 of the Securities Act of 1933, against all
losses, claims, damages and liabilities caused by any untrue statement of a
material fact contained in any registration statement, prospectus, notification
or offering circular (and as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) or any preliminary prospectus
or caused by any omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, that the Company will not be liable in any such case to a holder to the
extent that any such loss, claim, damage or liability arises out of or is based
upon any untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with written information
furnished to the Company by such holder specifically for use in the preparation
of a registration statement or any post-effective amendment thereof or any
preliminary prospectus or prospectus or any such amendment thereof or supplement
thereto; and provided further, however, that the foregoing indemnity agreement
is subject to the condition that, insofar as it relates to any untrue statement,
alleged untrue statement, omission or alleged omission made in any preliminary
prospectus but eliminated or remedied in a subsequent prospectus, such indemnity
agreement shall not inure to the benefit of a holder if a copy of such
subsequent prospectus was not sent or given with or prior to the written
confirmation of the sale of any of shares, if available at or prior to such
written confirmation, to the person asserting any loss, liability, claim or
<PAGE>
damage. Each such holder by its acceptance hereof severally agrees that it will
indemnify and hold harmless the Company and each of its officers who signs such
registration statement and each of its directors and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act of
1933 with respect to losses, claims, damages or liabilities which are caused by
any untrue statement or omission contained in information furnished in writing
to the Company by such holder expressly for use therein.
9. Additional Right to Convert Warrant.
(a) The holder of this Warrant shall have the right to require the
Company to convert this Warrant (the "Conversion Right") at any time prior to
its expiration into shares of Common Stock as provided for in this Section 9.
Upon exercise of the Conversion Right, the Company shall deliver to the holder
(without payment by the holder of any Exercise Price) that number of shares of
Common stock equal to the quotient obtained by dividing (x) the value of the
Warrant at the time the Conversion Right is exercised (determined by subtracting
the aggregate Exercise Pr ice for the Warrant Shares in effect immediately prior
to the exercise. of the Conversion Right from the aggregate Fair Market Value
for the Warrant Shares immediately prior to the exercise of the Conversion
Right) by (y) the Fair Market Value of one share of Common Stock immediately
prior to the exercise of the Conversion Right.
(b) The Conversion Right may be exercised by the holder, at any time or
from time to time, prior to its expiration, on any business day by delivering a
written notice in the form attached hereto (the "Conversion Notice") to the
Company at the offices of the Company exercising the Conversion Right and
specifying (i) the total number of shares of Stock the Warrantholder will
purchase pursuant to such conversion and (ii) a place and date not less than
five nor more than twenty (20) business days from the date of the Conversion
Notice for the closing of such purchase.
(c) At any closing under Section 9(b) hereof, (i) the holder will
surrender the Warrant and (ii) the Company will deliver to the holder a
certificate or certificates for the number of shares of Common Stock issuable
upon such conversion, together with cash, in lieu of any fraction of a share,
and (iii) the Company will deliver to the holder a new warrant representing the
number of shares, if any, with respect to which the warrant shall not have been
exercised.
(d) "Fair Market Value" means, with respect to the Company's common
stock, as of any date:
(i) 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 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); or
(ii) 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 there for in the over-the-counter
market are reported by the NASDAQ system or 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 National Quotation
Bureau, Inc. (or such comparable reporting service); or
<PAGE>
(iii) 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 by the NASDAQ
system or National Quotation Bureau, Inc. (or any comparable reporting
service), such price as the Company's Board of Directors determines in
good faith in the exercise of its reasonable discretion.
IN WITNESS WHEREOF, LifeRate Systems, Inc. has caused this Warrant to
be executed by its duly authorized officers and this Warrant to be dated as of
March 23, 1995.
LIFERATE SYSTEMS, INC.
By:_________________________________
David W. Haskin
Chief Executive Officer
ATTEST:
_________________________________
<PAGE>
ASSIGNMENT FORM
(TO BE SIGNED ONLY UPON TRANSFER OF THE WARRANT)
For value received, the undersigned hereby sells, assigns and transfers
unto those individuals listed on Appendix A, attached hereto, the right
represented by the within warrant to purchase the number of shares opposite
their names of Common Stock, no par value, of LifeRate Systems, Inc. to which
the within warrant relates, and appoints Oppenheimer Wolff & Donnelly attorney
to transfer said right on the books of LifeRate Systems, Inc., with full power
of substitution in the premises.
MILLER, JOHNSON & KUEHN, INCORPORATED
Dated: March 23, 1995
____________________________________________
By Paul R. Kuehn
(Signature must conform in all respects to
the name of holder as specified on the face
of the warrant)
(Address)
1660 South Highway 100, Suite 228
(City - State - Zip)
Minneapolis, Minnesota 55416
In the presence of:
<PAGE>
APPENDIX A
Name Number of Shares
---- ----------------
David B. Johnson 34,125
Paul P. Kuehn 34,125
Eldon C. Miller 11,375
Stanley D. Rahm 11,375
EXHIBIT 4.6
COMMON STOCK WARRANT
To Purchase 56,286
Shares of Common Stock of
LifeRate Systems, Inc.
December 22, 1995
THIS CERTIFIES THAT, in consideration for its payment of $50.00 to
LifeRate Systems, Inc. (the "Company"), a Minnesota corporation, Miller, Johnson
& Kuehn, Incorporated ("MJK") or its registered assigns is entitled to subscribe
for and purchase from the Company at any time after the date hereof to and
including December 22, 2005, fifty-six thousand two hundred and eighty-six
(56,286) fully paid and nonassessable shares of the Company's Common Stock, $.0l
par value, at a price of $6.50 per share:
This Warrant is subject to the following provisions, terms and
conditions:
1. Exercise; Transferability. The rights represented by this Warrant may be
exercised by the holder hereof, in whole or in part (but not as to a fractional
share of stock), by written notice of exercise delivered to the Company ten (10)
days prior to the intended date of exercise and by the surrender of this Warrant
(properly endorsed if required) at the principal office of the Company and upon
payment to it by certified or bank check or wire transfer of the purchase price
for such shares.
This Warrant may be transferred subject to the following conditions:
(i) during the first year after the date of this Warrant, it may not be sold,
transferred, assigned or hypothecated except to persons who are (x) both
officers and shareholders of MJK, or (y) both officers and employees of MJK, and
(ii) after such period, the Warrant shall be transferable without restriction,
but subject to the opinion of counsel as provided by paragraph 7 herein that
such transfer is not in violation of federal or state securities laws.
2. Issuance of Shares. The Company agrees that the shares purchased hereby
shall be and are deemed to be issued to the record holder hereof as of the close
of business on the date on which this Warrant shall have been exercised by
surrender of the Warrant and payment for the shares. Subject to the provisions
of the next succeeding paragraph, certificates for the shares of stock so
purchased shall be delivered to the holder hereof within a reasonable time, not
exceeding ten (10) days after the rights represented by this Warrant shall have
been so exercised, and, unless this Warrant has expired, a new Warrant
representing the number of shares, if any, with respect to which this Warrant
shall not then have been exercised shall also be delivered to the holder hereof
within such time.
Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for shares of stock upon exercise of this
Warrant, except in accordance with the provisions, and subject to the
limitations, of paragraph 7 hereof.
3. Covenants of Company. The Company covenants and agrees that all
shares which may be issued upon the exercise of the rights represented by this
Warrant will, upon issuance, be duly authorized and issued, fully paid,
nonassessable and free from all taxes, liens and charges with respect to the
issue
<PAGE>
thereof, and, without limiting the generality of the foregoing, the Company
covenants and agrees that it will from time to time take all such action as may
be required to assure that the par value per share of the common stock is at all
times equal to or less than the then effective purchase price per share of the
common stock issuable pursuant to this Warrant. The Company further covenants
and agrees that, during the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized, and
reserved for the purpose of issue or transfer upon exercise of the subscription
rights evidenced by this Warrant, a sufficient number of shares of its common
stock to provide for the exercise of the rights represented by this Warrant.
4. Anti-Dilution Adjustments. The above provisions are, however, subject to the
following:
(a) In case the Company shall at any time hereafter subdivide or
combine the outstanding shares of common stock or declare a dividend payable in
common stock, the exercise price of this Warrant in effect immediately prior to
the subdivision, combination or record date for such dividend payable in common
stock shall forthwith be proportionately increased, in the case of combination,
or decreased, in the case of subdivision or dividend payable in common stock.
Upon each adjustment of the exercise price, the holder of this Warrant shall
thereafter be entitled to purchase, at the exercise price resulting from such
adjustment, the number of shares obtained by multiplying the exercise price
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 exercise price resulting from such adjustment.
(b) No fractional shares of common stock are to be issued upon the
exercise of this Warrant, but the Company shall pay a cash adjustment in respect
of any fraction of a share which would otherwise be issuable in an amount equal
to the same fraction of the market price per share of common stock on the day of
exercise as determined in good faith by the Company.
(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 hereof shall thereafter have the right to
purchase and receive, upon the basis and upon the terms and conditions specified
in this Warrant and in lieu of the shares of common stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such 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 purchasable and receivable upon the exercise of the rights
represented hereby had such reorganization, reclassification, consolidation,
merger or sale not taken place, and in any such case appropriate provisions
shall be made with respect to the rights and interests of the holder of this
Warrant to the end that the provisions hereof (including without limitation
provisions for adjustments of the Warrant purchase price and of the number of
shares purchasable upon the exercise of this Warrant) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise hereof. 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 registered holder hereof
at the last address of such holder appearing on the books of the Company, the
obligation to deliver
<PAGE>
to such holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holder may be entitled to purchase.
Notwithstanding any language to the contrary set forth in this
paragraph 4 (c), if an occurrence or event described herein shall take place in
which the shareholders of the Company receive cash for their shares of common
stock of the Company and a successor corporation or corporation purchasing
assets shall survive the transaction then, at the election of the record holder
hereof, such corporation shall be obligated to purchase this Warrant (or the
unexercised part hereof) from the record holder without requiring the holder to
exercise all or part of the Warrant. If such corporation refuses to so purchase
this Warrant then the Company shall purchase the Warrant for cash. In either
case the purchase price shall be the amount per share that shareholders of the
outstanding common stock of the Company shall receive as a result of the
transaction multiplied by the number of shares covered by the Warrant, minus the
aggregate exercise price of the Warrant. Such purchase shall- be closed within
60 days following the election of the holder to sell this Warrant.
(d) Upon any adjustment of the Warrant purchase price, then, and in
each such case, the Company shall give written notice thereof, by first class
mail, postage prepaid, addressed to the registered holder of this Warrant at the
address of such holder as shown on the books of the Company, which notice shall
state the Warrant purchase price resulting from such adjustment and the increase
or decrease, if any, in the number of shares purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
(e) If any event occurs as to which in the good faith determination of
the Board of Directors of the Company the other provisions of this paragraph 4
are not strictly applicable or if strictly applicable would not fairly protect
the purchase rights of the holder of this Warrant or of common stock 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 purchase rights as aforesaid.
5. Common Stock. As used herein, the term "common stock" shall mean and include
the Company's presently authorized shares of common stock and shall also include
any capital stock of any class of the Company hereafter authorized which shall
not be limited to fixed sum or percentage in respect of the rights of the
holders thereof to participate in dividends or in the distribution, dissolution
or winding up of the Company; provided that the shares purchasable pursuant to
this Warrant shall include shares designated as common stock of the Company on
the date of original issue of this Warrant or, in the case of any
reclassification of the outstanding shares thereof, the stock, securities or
assets provided for in Section 4 above.
6. No Voting Rights. This Warrant shall not entitle the holder hereof to any
voting rights or other rights as a stockholder of the Company.
7. Transfer of Warrant or Resale of Shares. In the event the holder of this
Warrant desires to transfer this Warrant, or any common stock issued upon the
exercise hereof, the holder shall provide the Company with a written notice
describing the manner of such transfer and an opinion of counsel (reasonably
acceptable to the Company) that the proposed transfer may be effected without
registration or qualification (under any Federal or State law), whereupon such
holder shall be entitled to transfer this Warrant or to dispose of shares of
common stock received upon the previous exercise hereof in accordance with the
notice delivered by such holder to the Company; provided, that an appropriate
<PAGE>
legend may be endorsed on this Warrant or the certificates for such shares
respecting restrictions upon transfer thereof necessary or advisable in the
opinion of counsel satisfactory to the Company to prevent further transfers
which would be in violation of Section 5 of the Securities Act of 1933.
If, in the opinion of either of the counsel referred to in this paragraph 7, the
proposed transfer or disposition described in the written notice given pursuant
to this paragraph 7 may not be effected without registration or qualification of
this Warrant or the shares of common stock issued upon the exercise hereof, the
Company shall promptly give written notice thereof to the holder hereof, and
such holder will limit its activities in respect to such proposed transfer or
disposition as, in the opinion of both such counsel, are permitted by law.
8. Registration Rights.
(a) If the Company proposes to claim an exemption under Section 3 (b)
for a public offering of any of its securities or to register under the
Securities Act of 1933 (except by a claim of exemption or registration statement
on a form that does not permit the inclusion of shares by its security holders)
any of its securities, it will give written notice to all registered holders of
Warrants, and all registered holders of shares of common stock acquired upon the
exercise of Warrants (the "Common Shares") , of its intention to do so and, on
the written request of any such registered holders given within twenty (20) days
after receipt of any such notice (which request must be made within ten (10)
years from the date of this Warrant), the Company will use its best efforts to
cause all Common Shares which such holders shall have requested the registration
or qualification thereof, to be included in such notification or registration
statement proposed to be filed by the Company; provided, however, that nothing
herein shall prevent the Company from, at any time, abandoning or delaying any
such registration initiated by it. If any such registration shall be
underwritten in whole or in part, the Company may require that the 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. - In the event that, in the good faith judgment of the
managing underwriter of such public offering, the inclusion of all of the 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 shares otherwise to
be included pursuant to this Section in the underwritten public offering may be
reduced; provided, however, that any such required reduction shall be pro rata
among all persons (other than the Company) who are participating in such
offering. Those shares which are thus excluded from the underwritten public
offering shall be withheld from the market for a period, not to exceed 90 days,
which the managing underwriter reasonably determines is necessary in order to
effect the underwritten public offering. All expenses of such offering, except
the fees of special counsel to such holders and brokers' commissions or
underwriting discounts payable by such holders, shall be borne by the Company.
(b) Further, on one occasion only, commencing one year from the
effective date of the Company's initial public offering, upon request by the
holders of Warrants and/or the holders of shares issued upon the exercise of the
Warrants who collectively (i) have the right to purchase at least 50% of the
shares subject to the Warrants, (ii) hold directly at least 50% of the shares
purchased hereunder, or (iii) have the right to purchase or hold directly an
aggregate of at least 50% of the shares purchasable or purchased hereunder, the
Company will promptly take all necessary steps, at the option of such holders,
to register or qualify the sale of the Warrants or such shares by the holders
thereof, or to register the issuance by the Company of shares upon the exercise
of Warrants, under the Securities Act of 1933 (and, upon the request of such
holders, under Rule 415 thereunder) and such state laws as such holders may
reasonably request; provided that (i) such request must be made within ten years
of the date of this
<PAGE>
Warrant; and (ii) the Company may delay the filing of any registration statement
requested pursuant to this section to a date not more than ninety (90) days
following the date of such request if in the opinion of the Company's principal
investment banker at the time of such request such a delay is necessary in order
not to adversely affect financing efforts then underway at the Company or if in
the opinion of the Company such a delay is necessary or advisable to avoid
disclosure of material nonpublic information. The costs and expenses directly
related to any registration requested pursuant to this section, including but
not limited to legal fees of the Company's counsel, audit fees, printing
expense, filing fees and fees and expenses relating to qualifications under
state securities or blue sky laws incurred by the Company shall be borne
entirely by the Company; provided, however, that the persons for whose account
the securities covered by such registration are sold shall bear the expenses of
underwriting commissions applicable to their shares and fees of their legal
counsel. If the holders of Warrants and the holders of shares of common stock
underlying the Warrants are the only persons whose shares are included in the
registration pursuant to this section, such holders shall bear the expense of
inclusion of audited financial statements in the registration statement which
are not dated as of the Company's normal fiscal year or are not otherwise
prepared by the Company for its own business purposes. The Company shall keep
effective and maintain any registration, qualification, notification or approval
specified in this paragraph for such period as may be necessary for the holders
of the Warrants and such common stock to dispose thereof, and from time to time
shall amend or supplement, at the holder's expense, the prospectus or offering
circular used in connection therewith to the extent necessary in order to comply
with applicable law, provided that the Company shall not be obligated to
maintain any registration for a period of more than two (2) years.
If, at the time any written request for registration is received by the
Company pursuant to this Section 8 (b), the Company has determined 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 cash of any of
its securities by it or any of its security holders, such written request shall
be deemed to have been given pursuant to Section 8(a) hereof rather than this
Section 8 (b), and the rights of the holders of Warrants and or shares issued
upon the exercise of the Warrants covered by such written request shall be
governed by Section 8(a) hereof.
The managing underwriter of an offering registered pursuant to this
Section 8(b), if any, shall be selected by the holders of a majority of the
Warrants and/or shares issued upon the exercise of the Warrants for which
registration has been requested and shall be reasonably acceptable to the
Company. Subject to the rights of existing securityholders of the Company
granted prior to the date hereof to include securities of the Company in a
registration statement filed by the Company to register securities under the
Act, without the written consent of the holders of a majority of the Warrants
and/or shares issued upon the exercise of the Warrants for which registration
has been requested pursuant to this Section 8 (b), 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 Warrants and/or shares issued upon the exercise of
the Warrants or require the exclusion of any portion of the Warrants and/or
shares issued upon the exercise of the Warrants to be registered. Subject to the
preceding sentence, shares to be excluded from an underwritten public offering
shall be selected in the manner provided in Section 8(a) hereof.
(c) If and whenever the Company is required by the provisions of
Sections 8(a) or 8(b) hereof to effect the registration of Warrants and/or
shares issued upon the exercise of the Warrants under the Securities Act, the
Company will:
<PAGE>
(i) 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 two (2) years;
(ii) 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 two (2) years;
(iii) 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;
(iv) 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 in writing within 30 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;
(v) 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;
(vi) 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;
(vii) 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 Warrants or
shares by such holder;
(viii) 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;
(ix) advise such holders, promptly after it shall receive
notice or obtain knowledge thereof, of 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
<PAGE>
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;
(x) 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
five 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 from any liabilities
under any applicable federal or state law and such filing will not
violate applicable law; and
(xi) at the request of any such holder, furnish on the
effective date of the registration statement and, if such registration
includes an underwritten public offering, at the closing provided for
in the underwriting agreement: (i) opinions, dated such respective
dates, of the counsel representing the Company for the purposes of such
registration, addressed to the underwriters, if any, and to the holder
or holders making such request, covering such matters as such
underwriters and holder or holders may reasonably request; and (ii)
letters, dated such respective dates, from the independent certified
public accountants of the Company, addressed to the underwriters, if
any, and to the holder or holders making such request, covering such
matters as such underwriters and holder or holders may reasonably
request, in which letter such accountants shall state (without limiting
the generality of the foregoing) that they are independent certified
public accountants within the meaning of the Securities Act and that in
the opinion of such accountants the financial statements and other
financial data of the Company included in the registration statement or
the prospectus or any amendment or supplement thereto comply in all
material respects with the applicable accounting requirements of the
Securities Act.
(d) The Company hereby indemnifies the holder of this Warrant and of
any common stock issued or issuable hereunder, its officers and directors, and
any person who controls such Warrant holder or such holder of common stock
within the meaning of Section 15 of the Securities Act of 1933, against all
losses, claims, damages and liabilities caused by any untrue statement of a
material fact contained in any registration statement, prospectus, notification
or offering circular (and as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) or any preliminary prospectus
or caused by any omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading except
insofar as such losses, claims, damages or liabilities are caused by any untrue
statement or omission contained in information furnished in writing to the
Company by such Warrant holder or such holder of common stock expressly for use
therein; and provided further, however, that the foregoing indemnity agreement
is subject to the condition that, insofar as it relates to any untrue statement,
alleged untrue statement, omission or alleged omission made in any preliminary
prospectus but eliminated or remedied in a subsequent prospectus, such indemnity
agreement shall not inure to the benefit of a holder if a copy of such
subsequent prospectus was not sent or given with or prior to the written
confirmation of the sale of any of shares, if available at or prior to such
written confirmation, to the person asserting any loss, liability, claim or
damage. Each such holder by its acceptance hereof severally agrees that it will
indemnify and hold harmless the Company and each of its officers who signs such
registration statement and each of its directors and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act of
1933 with respect to losses, claims, damages or liabilities which are caused by
any untrue statement or omission contained in information furnished in writing
to the Company by such holder expressly for use therein.
<PAGE>
9. Additional Right to Convert Warrant.
(a) The holder of this Warrant shall have the right to require the
Company to convert this Warrant (the "Conversion Right") at any time prior to
its expiration into shares of Common Stock as provided for in this Section 9.
Upon exercise of the Conversion Right, the Company shall deliver to the holder
(without payment by the holder of any Exercise Price) that number of shares of
Common Stock equal to the quotient obtained by dividing (x) the value of the
Warrant at the time the Conversion Right is exercised (determined by subtracting
the aggregate Exercise Price for the Warrant Shares in effect immediately prior
to the exercise of the Conversion Right from the aggregate Fair Market Value for
the Warrant Shares immediately prior to the exercise of the Conversion Right) by
(y) the Fair Market Value of one share of Common Stock immediately prior to the
exercise of t-he Conversion Right.
(b) The Conversion Right may be exercised by the holder, at any time or
from time to time, prior to its expiration, on any business day by delivering a
written notice in the form attached hereto (the "Conversion Notice") to the
Company at the offices of the Company exercising the Conversion Right and
specifying (i) the total number of shares of Common Stock the Warrantholder will
purchase pursuant to such conversion and (ii) a place and date not less than one
nor more than 20 business days from the date of the Conversion Notice for the
closing of such purchase.
(c) At any closing under Section 9(b) hereof, (i) the holder will
surrender the Warrant and (ii) the Company will deliver to the holder a
certificate or certificates for the number of shares of Common Stock issuable
upon such conversion, together with cash, in lieu of any fraction of a share,
and (iii) the Company will deliver to the holder a new warrant representing the
number of shares, if any, with respect to which the warrant shall not have been
exercised.
(d) "Fair Market Value" means, with respect to the Company's Common
Stock, as of any date:
(i) 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 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); or
(ii) 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 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 National Quotation
Bureau, Inc. (or such comparable reporting service) ; or
(iii) 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 by the NASDAQ
system or National Quotation Bureau, Inc. (or any comparable reporting
service), such price as the Company's Board of Directors determines in
good faith in the exercise of its reasonable discretion.
<PAGE>
IN WITNESS WHEREOF, LifeRate Systems, Inc. has caused this Warrant to
be executed by its duly authorized officers and this Warrant to be dated as of
December 22, 1995.
LIFERATE SYSTEMS, INC.
By:_____________________________________
<PAGE>
EXERCISE FORM
(TO BE SIGNED ONLY UPON EXERCISE OF WARRANT)
LIFERATE SYSTEMS, INC.
The undersigned, the holder of the within warrant, hereby irrevocably
elects to exercise the purchase right represented by such warrant for, and to
purchase thereunder ______________ shares of the Common Stock, $.0l par value,
of LifeRate Systems, Inc. and herewith makes payment of $________________
therefor, and requests that the certificates for such shares be issued in the
name of _____________________________________ and be delivered to whose address
is ________________
Dated: _______________ ________________________________
(Signature must conform in all respects to the name
of holder as specified on the face of the warrant)
(Address)
(City - State - Zip)
<PAGE>
ASSIGNMENT FORM
(TO BE SIGNED ONLY UPON TRANSFER OF THE WARRANT)
For value received, the undersigned hereby sells, assigns and transfers
unto those individuals listed on Exhibit A, attached hereto, the right
represented by the within warrant to purchase the number of shares opposite
their names on the attached Exhibit A of Common Stock, $.01 par value, of
LifeRate Systems, Inc. to which the within warrant relates, and appoints
_______________________ attorney to transfer said right on the books of LifeRate
Systems, Inc., with full power of substitution in the premises.
Dated: _____________ MILLER, JOHNSON & KUEHN, INCORPORATED
1660 South Highway 100
Suite 228
Minneapolis, MN 55416
By____________________________________
In the presence of:
_____________________________________
_____________________________________
<PAGE>
CONVERSION NOTICE
(TO BE SIGNED ONLY UPON EXERCISE OF CONVERSION RIGHT
SET FORTH IN SECTION 9 OF THE WARRANT)
TO LIFERATE SYSTEMS, INC.:
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the Conversion Right set forth in Section 9 of such Warrant
and to purchase ________________ shares of the Common Stock, of LifeRate
Systems, Inc. The closing of this conversion shall take place at the offices of
the undersigned on Certificates for the shares to be delivered at the closing
shall be issued in the name of ________________ whose address is
_________________________________________________
Dated: _______________ ___________________________________________________
(Signature must conform in all respects to the name
of holder as specified on the face of the Warrant)
(Address)
(City - State - Zip)
EXHIBIT 4.7
COMMON STOCK WARRANT
To Purchase 29,555
Shares of Common Stock of
LifeRate Systems, Inc.
January 31, 1996
THIS CERTIFIES THAT, in consideration for its payment of $50.00 to
LifeRate Systems, Inc. (the "Company"), a Minnesota corporation, Miller, Johnson
& Kuehn, Incorporated ("MJK") or its registered assigns is entitled to subscribe
for and purchase from the Company at any time after the date hereof to and
including January 31, 2006, Twenty-nine Thousand, Five Hundred and Fifty-five
(29,555) fully paid and nonassessable shares of the Company's Common Stock, $.01
par value, at a price of $6.50 per share.
This Warrant is subject to the following provisions, terms and
conditions:
1. Exercise; Transferability. The rights represented by this Warrant may be
exercised by the holder hereof, in whole or in part (but not as to a fractional
share of stock), by written notice of exercise delivered to the Company ten (10)
days prior to the intended date of exercise and by r - r surrender of this
Warrant (properly endorsed if required) - the principal office of the Company
and upon payment to it by certified or bank check or wire transfer of the
purchase price for such shares.
This Warrant may be transferred subject to the following conditions:
(i) during the first year after the date of this Warrant, it may not be sold,
transferred, assigned or hypothecated except to persons who are (x) both
officers and shareholders of MJK, or (y) both officers and employees of MJK, and
(ii) after such period, the Warrant shall be transferable without restriction,
but subject to the opinion of counsel as provided by paragraph 7 herein that
such transfer is not in violation of federal or state securities laws.
2. Issuance of Shares. The Company agrees that the shares purchased hereby
shall be and are deemed to be issued to the record holder hereof as of the close
of business on the date on which this Warrant shall have been exercised by
surrender of the Warrant and payment for the shares. Subject to the provisions
of the next succeeding paragraph, certificates for the shares of stock so
purchased shall be delivered to the holder hereof within a reasonable time, not
exceeding ten (10) days after the rights represented by this Warrant shall have
been so exercised, and, unless this Warrant has expired, a new Warrant
representing the number of shares, if any, with respect to which this Warrant
shall not then have been exercised shall also be delivered to the holder hereof
within such time.
Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for shares of stock upon exercise of this
Warrant, except in accordance with the provisions, and subject to the
limitations, of paragraph 7 hereof.
3. Covenants of Company. The Company covenants and agrees that all shares which
may be issued upon the exercise of the rights represented by this Warrant will,
upon issuance, be duly authorized and issued, fully paid, nonassessable and free
from all taxes, liens and charges with respect to the issue thereof, and,
without limiting the generality of the foregoing, the Company covenants and
agrees that it
<PAGE>
will from time to time take all such action as may be required to assure that
the par value per share of the common stock is at all times equal to or less
than the then effective purchase price per share of the common stock issuable
pursuant to this Warrant. The Company further covenants and agrees that, during
the period within which the rights represented by this Warrant may be exercised,
the Company will at all times have authorized, and reserved for the purpose of
issue or transfer upon exercise of the subscription rights evidenced by this
Warrant, a sufficient number of shares of its common stock to provide for the
exercise of the rights represented by this Warrant.
4. Anti-Dilution Adjustments. The above provisions are, however, subject to the
following:
(a) In case the Company shall at any time hereafter subdivide or
combine the outstanding shares of common stock or declare a dividend payable in
common stock, the exercise price of this Warrant in effect immediately prior to
the subdivision, combination or record date for such dividend payable in common
stock shall forthwith be proportionately increased, in the case of combination,
or decreased, in the case of subdivision or dividend payable in common stock.
Upon each adjustment of the exercise price, the holder of this Warrant shall
thereafter be entitled to purchase, at the exercise price resulting from such
adjustment, the number of shares obtained by multiplying the exercise price
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 exercise price resulting from such adjustment.
(b) No fractional shares of common stock are to be issued upon the
exercise of this Warrant, but the Company shall pay a cash adjustment in respect
of any fraction of a share which would otherwise be issuable in an amount equal
to the same fraction of the market price per share of common stock on the day of
exercise as determined in good faith by the Company.
(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 hereof shall thereafter have the right to
purchase and receive, upon the basis and upon the terms and conditions specified
in this Warrant and in lieu of the shares of common stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such 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 purchasable and receivable upon the exercise of the rights
represented hereby had such reorganization, reclassification, consolidation,
merger or sale not taken place, and in any such case appropriate provisions
shall be made with respect to the rights and interests of the holder of this
Warrant to the end that the provisions hereof (including without limitation
provisions for adjustments of the Warrant purchase price and of the number of
shares purchasable upon the exercise of this Warrant) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise hereof. 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 registered holder hereof
at the last address of such holder appearing on the books of the Company, the
obligation to deliver to such holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such holder may be entitled to
purchase.
<PAGE>
Notwithstanding any language to the contrary set forth in this
paragraph 4 (c), if an occurrence or event described herein shall take place in
which the shareholders of the Company receive cash for their shares of common
stock of the Company and a successor corporation or corporation purchasing
assets shall survive the transaction then, at the election of the record holder
hereof, such corporation shall be obligated to purchase this Warrant (or the
unexercised part hereof) from the record holder without requiring the holder to
exercise all or part of the Warrant. If such corporation refuses to so purchase
this Warrant then the Company shall purchase the Warrant for cash. In either
case the purchase price shall be the amount per share that shareholders of the
outstanding common stock of the Company shall receive as a result of the
transaction multiplied by the number of shares covered by the Warrant, minus the
aggregate exercise price of the Warrant. Such purchase shall be closed within 60
days following the election of the holder to sell this Warrant.
(d) Upon any adjustment of the Warrant purchase price, then, and in
each such case, the Company shall give written notice thereof, by first class
mail, postage prepaid, addressed to the registered holder of this Warrant at the
address of such holder as shown on the books of the Company, which notice shall
state the Warrant purchase price resulting from such adjustment and the increase
or decrease, if any, in the number of shares purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
(e) If any event occurs as to which in the good faith determination of
the Board of Directors of the Company the other provisions of this paragraph 4
are not strictly applicable or if strictly applicable would not fairly protect
the purchase rights of the holder of this Warrant or of common stock 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 purchase rights as aforesaid.
5. Common Stock. As used herein, the term "common stock" shall mean and include
the Company's presently authorized shares of common stock and shall also include
any capital stock of any class of the Company hereafter authorized which shall
not be limited to fixed sum or percentage in respect of the rights of the
holders thereof to participate in dividends or in the distribution, dissolution
or winding up of the Company; provided that the shares purchasable pursuant to
this Warrant shall include shares designated as common stock of the Company on
the date of original issue of this Warrant or, in the case of any
reclassification of the outstanding shares thereof, the stock, securities or
assets provided for in Section 4 above.
6. No Voting Rights. This Warrant shall not entitle the holder hereof to any
voting rights or other rights as a stockholder of the Company.
7. Transfer of Warrant or Resale of Shares. In the event the holder of this
Warrant desires to transfer this Warrant, or any common stock issued upon the
exercise hereof, the holder shall provide the Company with a written notice
describing the manner of such transfer and an opinion of counsel (reasonably
acceptable to the Company) that the proposed transfer may be effected without
registration or qualification (under any Federal or State law), whereupon such
holder shall be entitled to transfer this Warrant or to dispose of shares of
common stock received upon the previous exercise hereof in accordance with the
notice delivered by such holder to the Company; provided, that an appropriate
legend may be endorsed on this Warrant or the certificates for such shares
respecting restrictions upon transfer thereof necessary or advisable in the
opinion of counsel satisfactory to the Company to prevent further transfers
which would be in violation of Section 5 of the Securities Act of 1933.
<PAGE>
If, in the opinion of either of the counsel referred to in this
paragraph 7, the proposed transfer or disposition described in the written
notice given pursuant to this paragraph 7 may not be effected without
registration or qualification of this Warrant or the shares of common stock
issued upon the exercise hereof, the Company shall promptly give written notice
thereof to the holder hereof, and such holder will limit its activities in
respect to such proposed transfer or disposition as, in the opinion of both such
counsel, are permitted by law.
8. Registration Rights.
(a) If the Company proposes to claim an exemption under Section 3 (b)
for a public offering of any of its securities or to register under the
Securities Act of 1933 (except by a claim of exemption or registration statement
on a form that does not permit the inclusion of shares by its security holders)
any of its securities, it will give written notice to all registered holders of
Warrants, and all registered holders of shares of common stock acquired upon the
exercise of Warrants (the "Common Shares"), of its intention to do so and, on
the written request of any such registered holders given within twenty (20) days
after receipt of any such notice (which request must be made within ten (10)
years from the date of this Warrant), the Company will use its best efforts to
cause all Common Shares which such holders shall have requested the registration
or qualification thereof, to be included in such notification or registration
statement proposed to be filed by the Company; provided, however, that nothing
herein shall prevent the Company from, at any time, abandoning or delaying any
such registration initiated by it. If any such registration shall be
underwritten in whole or in part, the Company may require that the 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. r In the event that, in the good faith judgment of the
managing underwriter of such public offering, the inclusion of all of the 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 shares otherwise to
be included pursuant to this Section in the underwritten public offering may be
reduced; provided, however, that any such required reduction shall be pro rata
among all persons (other than the Company) who are participating in such
offering. Those shares which are thus excluded from the underwritten public
offering shall be withheld from the market for a period, not to exceed 90 days,
which the managing underwriter reasonably determines is necessary in order to
effect the underwritten public offering. All expenses of such offering, except
the fees of special counsel to such holders and brokers' commissions or
underwriting discounts payable by such holders, shall be borne by the Company.
(b) Further, on one occasion only, commencing one year from the
effective date of the Company's initial public offering, upon request by the
holders of Warrants and/or the holders of shares issued upon the exercise of the
Warrants who collectively (i) have the right to purchase at least 50% of the
shares subject to the Warrants, (ii) hold directly at least 50% of the shares
purchased hereunder, or (iii) have the right to purchase or hold directly an
aggregate of at least 50% of the shares purchasable or purchased hereunder, the
Company will promptly take all necessary steps, at the option of such holders,
to register or qualify the sale of the Warrants or such shares by the holders
thereof, or to register the issuance by the Company of shares upon the exercise
of Warrants, under the Securities Act of 1933 (and, upon the request of such
holders, under Rule 415 thereunder) and such state laws as such holders may
reasonably request; provided that (i) such request must be made within ten years
of the date of this Warrant; and (ii) the Company may delay the filing of any
registration statement requested pursuant to this section to a date not more
than ninety (90) days following the date of such request if in the opinion of
the Company's principal investment banker at the time of such request such a
delay is necessary in order not to adversely affect financing efforts then
underway at the Company or if in the opinion of the
<PAGE>
Company such a delay is necessary or advisable to avoid disclosure of material
nonpublic information. The costs and expenses directly related to any
registration requested pursuant to this section, including but not limited to
legal fees of the Company's counsel, audit fees, printing expense, filing fees
and fees and expenses relating to qualifications under state securities or blue
sky laws incurred by the Company shall be borne entirely by the Company;
provided, however, that the persons for whose account the securities covered by
such registration are sold shall bear the expenses of underwriting commissions
applicable to their shares and fees of their legal counsel. If the holders of
Warrants and the holders of shares of common stock underlying the Warrants are
the only persons whose shares are included in the registration pursuant to this
section, such holders shall bear the expense of inclusion of audited financial
statements in the registration statement which are not dated as of the Company's
normal fiscal year or are not otherwise prepared by the Company for its own
business purposes. The Company shall keep effective and maintain any
registration, qualification, notification or approval specified in this
paragraph for such period as may be necessary for the holders of the Warrants
and such common stock to dispose thereof, and from time to time shall amend or
supplement, at the holder's expense, the prospectus or offering circular used in
connection therewith to the extent necessary in order to comply with applicable
law, provided that the Company shall not be obligated to maintain any
registration for a period of more than two (2) years.
If, at the time any written request for registration is received by the
Company pursuant to this Section 8 (b), the Company has determined 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 cash of any of
its securities by it or any of its security holders, such written request shall
be deemed to have been given pursuant to Section 8 (a) hereof rather than this
Section 8(b), and the rights of the holders of Warrants and or shares issued
upon the exercise of the Warrants covered by such written request shall be
governed by Section 8(a) hereof.
The managing underwriter of an offering registered pursuant to this
Section 8(b), if any, shall be selected by the holders of a majority of the
Warrants and/or shares issued upon the exercise of the Warrants for which
registration has been requested and shall be reasonably acceptable to the
Company. Subject to the rights of existing securityholders of the Company
granted prior to the date hereof to include securities of the Company in a
registration statement filed by the Company to register securities under the
Act, without the written consent of the holders of a majority of the Warrants
and/or shares issued upon the exercise of the Warrants for which registration
has been requested pursuant to this Section 8 (b), 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 Warrants and/or shares issued upon the exercise of
the Warrants or require the exclusion of any portion of the Warrants and/or
shares issued upon the exercise of the Warrants to be registered. Subject to the
preceding sentence, shares to be excluded from an underwritten public offering
shall be selected in the manner provided in Section 8(a) hereof.
(c) If and whenever the Company is required by the provisions of
Sections 8(a) or 8(b) hereof to effect the registration of Warrants and/or
shares issued upon the exercise of the Warrants under the Securities Act, the
Company will:
(i) 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 two (2) years;
<PAGE>
(ii) 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 two (2) years;
(iii) 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;
(iv) 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 in writing within 30 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;
(v) 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;
(vi) 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;
(vii) 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 Warrants or
shares by such holder;
(viii) 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;
(ix) advise such holders, promptly after it shall receive
notice or obtain knowledge thereof, of 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;
(x) 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
<PAGE>
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 five 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
from any liabilities under any applicable federal or state law and such
filing will not violate applicable law; and
(xi) at the request of any such holder, furnish on the
effective date of the registration statement and, if such registration
includes an underwritten public offering, at the closing provided for
in the underwriting agreement: (i) opinions, dated such respective
dates, of the counsel representing the Company for the purposes of such
registration, addressed to the underwriters, if any, and to the holder
or holders making such request, covering such matters as such
underwriters and holder or holders may reasonably request; and (ii)
letters, dated such respective' dates, from the independent certified
public accountants of the Company, addressed to the underwriters, if
any, and to the holder or holders making such request, covering such
matters as such underwriters and holder or holders may reasonably
request, in which letter such accountants shall state (without limiting
the generality of the foregoing) that they are Independent certified
public accountants within the meaning of the Securities Act and that in
the opinion of such accountants the financial statements and other
financial data of the Company included in the registration statement or
the prospectus or any amendment or supplement thereto comply in all
material respects with the applicable accounting requirements of the
Securities Act.
(d) The Company hereby indemnifies the holder of this Warrant and of
any common stock issued or issuable hereunder, its officers and directors, and
any person who controls such Warrant holder or such holder of common stock
within the meaning of Section 15 of the Securities Act of 1933, against all
losses, claims, damages and liabilities caused by any untrue statement of a
material fact contained in any registration statement, prospectus, notification
or offering circular (and as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) or any preliminary prospectus
or caused by any omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading except
insofar as such losses, claims, damages or liabilities are caused by any untrue
statement or omission contained in information furnished in writing to the
Company by such Warrant holder or such holder of common stock expressly for use
therein; and provided further, however, that the foregoing indemnity agreement
is subject to the condition that, insofar as it relates to any untrue statement,
alleged untrue statement, omission or alleged omission made in any preliminary
prospectus but eliminated or remedied in a subsequent prospectus, such indemnity
agreement shall not inure to the benefit of a holder if a copy of such
subsequent prospectus was not sent or given with or prior to the written
confirmation of the sale of any of shares, if available at or prior to such
written confirmation, to the person asserting any loss, liability, claim or
damage. Each such holder by its acceptance hereof severally agrees that it will
indemnify and hold harmless the Company and each of its officers who signs such
registration statement and each of its directors and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act of
1933 with respect to losses, claims, damages or liabilities which are caused by
any untrue statement or omission contained in information furnished in writing
to the Company by such holder expressly for use therein.
9. Additional Right to Convert Warrant.
(a) The holder of this Warrant shall have the right to require the
Company to convert this Warrant (the "Conversion Right") at any time prior to
its expiration into shares of Common Stock as
<PAGE>
provided for in this Section 9. Upon exercise of the Conversion Right, the
Company shall deliver to the holder (without payment by the holder of any
Exercise Price) that number of shares of Common Stock equal to the quotient
obtained by dividing (x) the value of the Warrant at the time the Conversion
Right is exercised (determined by subtracting the aggregate Exercise Price for
the Warrant Shares in effect immediately prior to the exercise of the Conversion
Right from the aggregate Fair Market Value for the Warrant Shares immediately
prior to the exercise of the Conversion Right) by (y) the Fair Market Value for
one share of Common Stock immediately prior to the exercise of the Conversion
Right.
(b) The Conversion Right may be exercised by the holder, at any time or
from time to time, prior to its expiration, on any business day by delivering a
written notice in the form attached hereto (the "Conversion Notice") to the
Company at the offices of the Company exercising the Conversion Right and
specifying (i) the total number of shares of Common Stock the Warrantholder will
purchase pursuant to such conversion and (ii) a place and date not less than one
nor more than 20 business days from the date of the Conversion Notice for the
closing of such purchase.
(c) At any closing under Section 9(b) hereof, (i) the holder will
surrender the Warrant and (ii) the Company will deliver to the holder a
certificate or certificates for the number of shares of Common Stock issuable
upon such conversion, together with cash, in lieu of any fraction of a share,
and (iii) the Company will deliver to the holder a new warrant representing the
number of shares, if any, with respect to which the warrant shall not have been
exercised.
(d) "Fair Market Value" means, with respect to the Company's Common
Stock, as of any date:
(i) 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 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); or
(ii) 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 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 National
Quotation Bureau, Inc. (or such comparable reporting service); or
(iii) 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 by the NASDAQ
system or National Quotation Bureau, Inc. (or any comparable reporting
service), such price as the Company's Board of Directors determines in
good faith in the exercise of its reasonable discretion.
IN WITNESS WHEREOF, LifeRate Systems, Inc. has caused this Warrant to
be executed by its duly authorized officers and this Warrant to be dated as of
January 31, 1996.
LIFERATE SYSTEMS, INC.
<PAGE>
By___________________________
<PAGE>
EXERCISE FORM
(TO BE SIGNED ONLY UPON EXERCISE OF WARRANT)
LIFERATE SYSTEMS, INC.
The undersigned, the holder of the within warrant, hereby irrevocably
elects to exercise the purchase right represented by such warrant for, and to
purchase thereunder _______________ shares of the Common Stock, $.01 par value,
of LifeRate Systems, Inc. and herewith makes payment of $_________________
therefor, and requests that the certificates for such shares be issued in the
name of _____________________________________ and be delivered to whose address
is ________________
Dated: _______________ __________________________________________________
(Signature must conform in all respects to the name
of holder as specified on the face of the warrant)
(Address)
(City - State - Zip)
<PAGE>
ASSIGNMENT FORM
(TO BE SIGNED ONLY UPON TRANSFER OF THE WARRANT)
For value received, the undersigned hereby sells, assigns and transfers
unto those individuals listed on Exhibit A, attached hereto, the right
represented by the within warrant to purchase the number of shares opposite
their names on the attached Exhibit A of Common Stock, $.01 par value, of
LifeRate Systems, Inc. to which the within warrant relates, and appoints
_______________________ attorney to transfer said right on the books of LifeRate
Systems, Inc., with full power of substitution in the premises.
Dated: _______________ MILLER, JOHNSON & KUEHN, INCORPORATED
1660 South Highway 100
Suite 228
Minneapolis, MN 55416
By____________________________________
In the presence of:
__________________________________
__________________________________
<PAGE>
CONVERSION NOTICE
(TO BE SIGNED ONLY UPON EXERCISE OF CONVERSION RIGHT
SET FORTH IN SECTION 9 OF THE WARRANT)
TO LIFERATE SYSTEMS, INC.:
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the Conversion Right set forth in Section 9 of such Warrant
and to purchase _________________ shares of the Common Stock, of LifeRate
Systems, Inc. The closing of this conversion shall take place at the offices of
the undersigned on _____________________ Certificates for the shares to be
delivered at the closing shall be issued in the name of ________________ whose
address is _____________________
Dated: _______________ _______________________________________________
(Signature must conform in all respects to the name
of holder as specified on the face of the Warrant)
(Address)
(City - State - Zip)
EXHIBIT 4.9
THIS WARRANT, AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF, HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS AND MAY NOT BE REOFFERED OR SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO (1) REGISTRATION OR
(2) AN OPINION OF COUNSEL FOR THE COMPANY OR OTHER COUNSEL REASONABLY ACCEPTABLE
TO THE COMPANY TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT
To Purchase _________
Shares of Common Stock of
LIFERATE SYSTEMS, INC.
___________, 1997
LifeRate Systems, Inc., a Minnesota corporation (the "Company"), for
value received, hereby certifies that ____________________________, or its
registered assigns (the "Holder"), is entitled, subject to the terms set forth
below, upon exercise of this Warrant to purchase from the Company, at any time
or from time to time after the date hereof and on or before 11:59 p.m.
(Minneapolis, Minnesota time) on ___________, 2002 (the five-year anniversary of
the date hereof), up to ________________________ (___________) shares of Common
Stock, without par value, of the Company ("Common Stock"), at a purchase price
(subject to adjustment in accordance with Section 4 hereof) equal to the lesser
of (i) $2.00 per share or (ii) the average price per share of Common Stock
(reflecting conversion of any convertible preferred stock) paid by all
purchasers of Common Stock in the Next Equity Financing. For these purposes, the
"Next Equity Financing" shall mean the Company's receipt in one or more
transactions of an aggregate Five Million Dollars ($5,000,000) or more of new
cash funds from the sale of Common Stock or securities convertible into Common
Stock pursuant to a private placement financing, as described in greater detail
in the $______________ Convertible Promissory Note (the "Note") dated the date
hereof, issued by the Company in favor of the Holder. The shares issuable upon
exercise or conversion of this Warrant, and the purchase price per share, each
as adjusted from time to time pursuant to the provisions of this Warrant, are
hereinafter referred to as the "Warrant Shares" and the "Exercise Price,"
respectively.
This Warrant is being issued in connection with the execution and
delivery of the Note on the date hereof.
This Warrant is further subject to the following provisions, terms and
conditions:
<PAGE>
1. Exercise of Warrant. This Warrant may be exercised by the Holder, in
whole or in part (but not as to any fraction of a share of Common Stock), by
surrendering this Warrant, with the Exercise Form attached hereto as Exhibit A
completed and duly executed by such Holder or by such Holder's duly authorized
attorney, to the Company at its principal office accompanied by payment of the
Exercise Price in the form of a cashier's or certified check or wire transfer in
the amount of the Exercise Price multiplied by the number of shares as to which
the Warrant is being exercised.
2. Conversion of Warrant.
(a) In lieu of exercising its rights under Section 1 hereof, the Holder
shall also have the right (the "Conversion Right") to convert all or any portion
of this Warrant into such number of shares (rounded to the nearest whole share)
of Company Common Stock equal to the quotient obtained by dividing (i) the
"Aggregate Warrant Spread" as of the close of business on the date the
Conversion Right is exercised, by (ii) the "Market Price of the Common Stock" as
of the close of business on the date the Conversion Right is exercised. The
Conversion Right shall be exercisable at any time or from time to time prior to
expiration of this Warrant by surrendering this Warrant with the Conversion Form
attached hereto as Exhibit B completed and duly executed by such Holder or by
such Holder's duly authorized attorney to the Company at its principal office.
(b) For purposes of this Section 2, the "Aggregate Warrant Spread" of
all or a portion of this Warrant as of a particular date shall equal (i) the
Market Price of the Common Stock multiplied by the number of shares of Common
Stock purchasable upon exercise of all or such portion of this Warrant on such
date, minus (ii) the Exercise Price multiplied by the number of shares of Common
Stock purchasable upon exercise of all or such portion of this Warrant on such
date. For purposes of this Section 2, the "Market Price of the Common Stock" as
of a particular date shall equal: (i) if the Common Stock is traded on an
exchange or is quoted on the Nasdaq National Market, then the average closing or
last sale prices, respectively, reported for the 10 trading days immediately
preceding such date, or (ii) if the Common Stock is not traded on an exchange or
on the Nasdaq National Market but is traded on the Nasdaq SmallCap Market, then
the average of the mid-points between the closing bid and asked prices reported
for the 10 trading days immediately preceding such date, or (iii) if the Common
Stock is not traded on an exchange, the Nasdaq National Market, or the Nasdaq
SmallCap Market but is traded in the local over-the-counter market, then the
average of the mid-points between the highest bid and lowest asked quotations
for each of the 10 trading days immediately preceding such date.
3. Effective Date of Exercise or Conversion. Each exercise or
conversion of this Warrant shall be deemed effective as of the close of business
on the day on which this Warrant is surrendered to the Company as provided in
Section 1 or Section 2(a) above. At such time, the person or persons in whose
name or names any certificates for Warrant Shares shall be issuable upon such
exercise or conversion shall be deemed to have become the holder or holders of
record of the Warrant Shares represented by such certificates. Within 10 days
after the exercise or conversion of this Warrant in full or in part, the Company
will, at its expense, cause to be issued in the name of and delivered to the
Holder or such other person as the Holder may (upon
<PAGE>
payment by such Holder of any applicable transfer taxes) direct: (i) a
certificate or certificates for the number of full Warrant Shares to which such
Holder is entitled upon such exercise or conversion, and (ii) unless this
Warrant has expired, a new Warrant or Warrants (dated the date hereof and in
form identical hereto) representing the right to purchase the remaining number
of shares of Common Stock, if any, with respect to which this Warrant has not
then been exercised or converted.
4. Adjustments to Exercise Price. The above provisions are subject to
the following:
(a) (i) If the Company shall at anytime after the date of this
Warrant subdivide or combine the outstanding shares of Common Stock or declare a
dividend payable in Common Stock, then the number of shares of Common Stock for
which this Warrant may be exercised as of immediately prior to the subdivision,
combination or record date for such dividend payable in Common Stock shall
forthwith be proportionately decreased, in the case of combination, or
increased, in the case of subdivision or dividend payable in Common Stock.
(ii) If the Company shall at anytime after the date of this
Warrant subdivide or combine the outstanding shares of Common Stock or declare a
dividend payable in Common Stock, the Exercise Price in effect immediately prior
to the subdivision, combination or record date for such dividend payable in
Common Stock shall forthwith be proportionately increased, in the case of
combination, or decreased, in the case of subdivision or dividend payable in
Common Stock.
(b) 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 shall hereafter have the right to receive upon
the basis and upon the terms and conditions specified in this Warrant and in
lieu of the shares of the Common Stock of the Company into which this Warrant
was immediately theretofore exercisable or convertible, 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 into which this Warrant was immediately theretofore
exercisable had such reorganization, reclassification, consolidation, merger or
sale not taken place, and in any such case appropriate provisions shall be made
with respect to the rights and interests of Holder to the end that the
provisions hereof (including without limitation provisions for adjustments of
the Exercise Price and of the number of shares purchasable upon exercise or
conversion of this Warrant) shall thereafter be applicable, as nearly as may be,
in relation to any shares of stock, securities or assets thereafter deliverable
upon the conversion hereof. 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 at the last address of such Holder
appearing on the books of the Company, the obligation to deliver
<PAGE>
to such Holder such shares of stock, securities or assets into which, in
accordance with the foregoing provisions, such Holder may be entitled to convert
this Warrant.
(c) If at anytime after the date of this Warrant the Company
distributes to all holders of Common Stock any assets (excluding ordinary cash
dividends), debt securities, or any rights or warrants to purchase debt
securities, assets or other securities (including Common Stock), the Exercise
Price shall be adjusted in accordance with the formula:
E(1) = E x (O x M) - F
---------------
O x M
where:
E(1) = the adjusted Exercise Price.
E = the current Exercise Price.
M = the average market price of Common Stock
for the 30 consecutive trading days
commencing 45 trading days before the record
date mentioned below.
O = the number of shares of Common Stock
outstanding on the record date mentioned
below.
F = the fair market value on the record date
of the aggregate of all assets, securities,
rights or warrants distributed. The
Company's Board of Directors shall determine
the fair market value in the exercise of its
reasonable judgment.
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of shareholders entitled to receive the distribution.
(d) If at any time after the date of this Warrant the Company issues or
sells any shares of Common Stock (other than dividends payable in shares of
Common Stock) or any options, warrants, convertible securities and other rights
to subscribe to or otherwise acquire Common Stock (such rights referred to as
"Options") for a consideration per share less than the Exercise Price then in
effect, then the Exercise Price in effect immediately prior to such issuance or
sale shall be reduced so as to equal such per share consideration. If the
Exercise Price is adjusted as the result of the issuance of any Options, no
further adjustments of such Exercise Price shall be made at the time of the
exercise or conversion of such Options. The consideration per share for any
issuance of Common Stock or Options shall equal a fraction, the numerator of
which is equal to the sum of (i) the total amount received or receivable by the
Company as consideration for such issuance, plus (ii) the minimum aggregate
amount of additional consideration (as set forth in the instruments relating
thereto, without regard to any provision contained therein for a subsequent
adjustment of such consideration) payable to the Company upon the exercise,
conversion or exchange of any Options included in such issuance, and the
denominator of which is equal to the total number of shares of Common Stock
issued, or issuable upon the exercise, conversion or exchange of Options issued,
in such issuance. If the Company issues or sells any shares of Common Stock or
any Options for consideration other than cash, the amount of the
<PAGE>
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.
(e) Notwithstanding Section 4(d) above, no adjustment of the Exercise
Price shall be made pursuant to Section 4(d) above as a result of issuances,
sales or grants of: (i) up to 432,395 shares of Common Stock (subject to
adjustment in the event of any stock splits, stock dividends or other
recapitalization of the Common Stock) issuable upon exercise of Warrants
outstanding on the date hereof; (ii) shares issued upon the conversion of the
Convertible Subordinated Note, dated March 28, 1997, in the principal amount of
$2,250,000, issued by the Company to The Atlanta Cardiology Group, P.C.; (iii)
shares issuable upon the exercise of the Non-Statutory Stock Option Agreement,
dated as of March 4, 1997, between the Company and APF LLC covering 550,000
shares of Common Stock (subject to adjustment in the event of any stock splits,
stock dividends, other recapitalization of the Common Stock, or antidilution
adjustments set forth in such option); (iv) shares issuable pursuant to the
Company's Employee Stock Purchase Plan, as may be amended from time to time by
the Company's Board of Directors; (v) securities issued for the acquisition of
another corporation by the Company by merger, purchase of substantially all the
assets of such corporation or another reorganization resulting in the ownership
by the Company of not less than a majority of the voting power of such
corporation; (vi) options to purchase not more than 750,000 shares of Common
Stock (subject to adjustment in the event of any stock splits, stock dividends
or other recapitalization of the Common Stock) issued to employees of or
consultants to the Company pursuant to the Company's 1993 Stock Option Plan (and
the Common Stock issuable upon exercise thereof); (vii) securities issued as a
result of any stock split, stock dividend or reclassification of Common Stock,
distributable on a pro rata basis to all holders of Common Stock; or (viii)
shares of Common Stock issued in the Next Equity Financing or pursuant to the
Note or any other note of like tenor issued by the Company.
(f) Upon any adjustment of the Exercise Price, then and in each such
case, the Company shall give written notice thereof, by first class mail,
postage prepaid, addressed to the Holder of this Warrant at the address of such
Holder as shown on the books of the Company, which notice shall state the
Exercise Price resulting from such adjustment and the increase or decrease, if
any, in the number of shares for which this Warrant may be exercised, setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based.
5. Common Stock. As used herein, the term "Common Stock" shall mean and
include the Company's presently authorized shares of common stock and shall also
include any capital stock of any class of the Company hereafter authorized that
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,
dissolution or winding up of the Company.
6. No Voting Rights. This Warrant shall not entitle the Holder to any
voting rights or other rights as a shareholder of the Company unless and until
exercised or converted pursuant to the provisions hereof.
<PAGE>
7. Exercise or Transfer of Warrant or Resale of Common Stock. The
Holder, by acceptance hereof, agrees to give written notice to the Company
before transferring this Warrant, in whole or in part, or transferring any
shares of Common Stock issued upon the exercise or conversion hereof, of such
Holder's intention to do so, describing briefly the manner of any proposed
transfer. Such notice shall include an opinion of counsel reasonably
satisfactory to the Company that (i) the proposed exercise or transfer may be
effected without registration or qualification under the Securities Act of 1933,
as amended (the "Act") and any applicable state securities or blue sky laws, or
(ii) the proposed exercise or transfer has been registered under such laws. Upon
delivering such notice, such Holder shall be entitled to transfer this Warrant
or such Warrant Shares, all in accordance with the terms of the notice delivered
by such Holder to the Company, provided that an appropriate legend may be
endorsed on the certificates for such shares respecting restrictions upon
transfer thereof necessary or advisable in the opinion of counsel to the Company
to prevent further transfer that would be in violation of Section 5 of the Act
and applicable state securities or blue sky laws.
If in the opinion of counsel to the Company or other counsel reasonably
acceptable to the Company the proposed transfer or disposition of this Warrant
or the Warrant Shares described in the written notice given pursuant to this
Section 7 may not be effected without registration of this Warrant or the
Warrant Shares, the Company shall promptly give written notice thereof to the
Holder within 10 days after the Company receives such notice, and such holder
will limit its activities in respect to such as, in the opinion of such counsel,
is permitted by law.
8. Covenants of the Company. The Company covenants and agrees that all
shares that may be issued upon conversion of this Warrant will, upon issuance,
be duly authorized and issued, fully paid, nonassessable and free from all
taxes, liens and charges with respect to the issue thereof. The Company further
covenants and agrees that the Company will at all times have authorized, and
reserved for the purpose of issue upon exercise hereof, a sufficient number of
shares of its Common Stock to provide for the exercise of this Warrant.
9. Certain Notices. The Holder shall be entitled to receive from the
Company immediately upon declaration thereof and at least 30 days prior to the
record date for determination of shareholders entitled thereto or to vote
thereon (or if no record date is set, prior to the event), written notice of any
event that could require an adjustment pursuant to Section 4 hereof or of the
dissolution or liquidation of the Company. All notices hereunder shall be in
writing and shall be delivered personally or by telecopy (receipt confirmed) to
such party (or, in the case of an entity, to an executive officer of such party)
or shall be sent by a reputable express delivery service or by certified mail,
postage prepaid with return receipt requested, addressed as follows:
if to Holder to:
____________________
____________________
____________________
____________________
<PAGE>
if to the Company to:
LifeRate Systems, Inc.
7210 Metro Boulevard
Edina, Minnesota 55439
Attention: Chief Executive Officer
FAX (612) 844-0797
Any party may change the above-specified recipient and/or mailing
address by notice to all other parties given in the manner herein prescribed.
All notices shall be deemed given on the day when actually delivered as provided
above (if delivered personally or by telecopy) or on the day shown on the return
receipt (if delivered by mail or delivery service).
10. Registration Rights. The Holder of this Warrant and the Warrant
Shares shall be entitled to identical registration rights granted to investors
in the Next Equity Financing; provided, however, that if the Company does not
complete such financing by November 30, 1997, the Holder of this Warrant and the
Warrant Shares shall be entitled to the registration rights set forth on Exhibit
C.
11. Miscellaneous.
(a) No amendment, modification or waiver of any provision of this
Warrant shall be effective unless the same shall be in writing and signed by the
holder hereof.
(b) This Warrant shall be governed by and construed in accordance with
the laws of the State of Minnesota.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its authorized officers and dated as of the date stated above.
LIFERATE SYSTEMS, INC.
By_________________________________
Its________________________________
<PAGE>
Exhibit A
NOTICE OF EXERCISE OF WARRANT -- To Be Executed by the Registered Holder in
Order to Exercise the Warrant
The undersigned hereby irrevocably elects to exercise the attached
Warrant to purchase, for cash pursuant to Section 1 thereof, ________________
shares of Common Stock issuable upon the exercise of such Warrant. The
undersigned requests that certificates for such shares be issued in the name of
__________________________________. If this Warrant is not fully exercised, the
undersigned requests that a new Warrant to purchase the balance of shares
remaining purchasable hereunder be issued in the name of
______________________________.
Date: _____________, ______ _____________________________________
[name of registered Holder]
_____________________________________
[signature]
_____________________________________
[street address]
_____________________________________
[city, state, zip]
_____________________________________
[tax identification number]
<PAGE>
Exhibit B
NOTICE OF CONVERSION OF WARRANT -- To Be Executed by the Registered Holder in
Order to Convert the Warrant on a
Cashless Basis
The undersigned hereby irrevocably elects to convert, on a cashless
basis, a total of ______________ shares of Common Stock otherwise purchasable
upon exercise of the attached Warrant into such lesser number of shares of
Common Stock as determined by Section 2 of the Warrant. The undersigned requests
that certificates for such shares be issued in the name of
__________________________________. If this Warrant is not fully converted, the
undersigned requests that a new Warrant to purchase the balance of shares
remaining purchasable hereunder be issued in the name of
____________________________.
Date: _____________, _____ _____________________________________
[name of registered Holder]
_____________________________________
[signature]
_____________________________________
[street address]
_____________________________________
[city, state, zip]
_____________________________________
[tax identification number]
EXHIBIT 4.10
COMMON STOCK WARRANT
To Purchase
Shares of Common Stock of
LifeRate Systems, Inc.
July 21, 1997
THIS CERTIFIES THAT, in consideration for its payment of $50.00 to LifeRate
Systems, Inc. (the "Company"). a Minnesota corporation, Miller, Johnson & Kuehn
Incorporated ("MJK") or its registered assigns is entitled to subscribe for and
purchase from the Company, at a price of $2.00 per share, at any time after the
date hereof to and including July 21, 2007, a number of fully paid and
nonassessable shares of the Company's Common Stock, no par value, equal to 10%
of the number of shares into which the Convertible Promissory Notes of the
Company, dated July 21, 1997 issued in the aggregate principal amount of
$500,000, are convertible:
This Warrant is subject to the following provisions, terms and conditions:
1. Exercise; Transferability. The rights represented by this Warrant may be
exercised by the holder hereof, in whole or in part (but not as to a
_____________ share of stock), by written notice of exercise delivered to the
Company ten (10) days prior to the intended date of exercise and by the
surrender of this Warrant (properly endorsed if required) at the principal
office of the Company and upon payment to it by certified or bank check or wire
transfer of the purchase price for such shares.
This Warrant may be transferred subject to the following conditions: (i)
during the first year after the date of this Warrant, it ________ ________ be
sold, transferred, assigned or hypothecated except to persons who are (x) both
officers and shareholders of MJK, or (y) both officers and employees of MJK, and
(ii) after such period, the Warrant shall be transferable without restriction,
but subject to the opinion of counsel as provided by paragraph 7 herein that
such transfer is not in violation of federal or state securities laws.
2. Issuance of Shares. The Company agrees that the shares purchased hereby shall
be and are deemed to be issued to the record holder hereof as of the close of
business on the date on which this Warrant shall have been exercised by
surrender of the Warrant and payment for the shares. Subject to the provisions
of the next succeeding paragraph, certificates for the shares of stock so
purchased shall be delivered to the holder hereof within a reasonable time, not
exceeding ten (10) days after the rights represented by this Warrant shall have
been so exercised, and, unless this Warrant has expired, a new Warrant
representing the number of shares, if any, with respect to which this Warrant
shall not then have been exercised shall also be delivered to the holder hereof
within such time.
Notwithstanding the foregoing, however, the Company shall not be required
to deliver any certificate for shares of stock upon exercise of this Warrant,
except in accordance with the provisions, and subject to the limitations, of
paragraph 7 hereof.
3. Covenants of Company. The Company covenants and agrees that all shares which
may be issued upon the exercise of the rights represented by this Warrant will,
upon issuance, be duly authorized and
<PAGE>
issued, fully paid, nonassessable and free from all taxes, liens and charges
with respect to the issue thereof, and, without limiting the generality of the
foregoing, the Company covenants and agrees that it will from time to time take
all such action as may be required to assure that the par value per share of the
common stock is at all times equal to or less than the then effective purchase
price per share of the common stock issuable pursuant to this Warrant. The
Company further covenants and agrees that, during the period within which the
rights represented by this Warrant may be exercised, the Company will at all
times have authorized, and reserved for the purpose of issue or transfer upon
exercise of the subscription rights evidenced by this Warrant, a sufficient
number of shares of its common stock to provide for the exercise of the rights
represented by this Warrant.
4. Anti-Dilution Adjustments. The above provisions are, however, subject to the
following:
(a) In case the Company shall at any time hereafter subdivide or combine
the outstanding shares of common stock or declare a dividend payable in common
stock, the exercise price of this Warrant in effect immediately prior to the
subdivision, combination or record date for such dividend payable in common
stock shall forthwith be proportionately increased, in the case of combination,
or decreased, in the case of subdivision or dividend payable in common stock.
Upon each adjustment of the exercise price, the holder of this Warrant shall
thereafter be entitled to purchase, at the exercise price resulting from such
adjustment, the number of shares obtained by multiplying the exercise price
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 exercise price resulting from such adjustment.
(b) No fractional shares of common stock are to be issued upon the exercise
of this Warrant, but the Company shall pay a cash adjustment in respect of any
fraction of a share which would otherwise be issuable in an amount equal to the
same fraction of the market price per share of common stock on the day of
exercise as determined in good faith by the Company.
(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 hereof shall thereafter have the right to
purchase and receive, upon the basis and upon the terms and conditions specified
in this Warrant and in lieu of the shares of common stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such 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 purchasable and receivable upon the exercise of the rights
represented hereby had such reorganization, reclassification, consolidation,
merger or sale not taken place, and in any such case appropriate provisions
shall be made with respect to the rights and interests of the holder of this
Warrant to the end that the provisions hereof (including without limitation
provisions for adjustments of the Warrant purchase price and of the number of
shares purchasable upon the exercise of this Warrant) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise hereof. 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 registered holder hereof
at the last address of such holder appearing on the books of the Company, the
obligation to deliver
<PAGE>
to such holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holder may be entitled to purchase.
Notwithstanding any language to the contrary set forth in this paragraph 4
(c), if an occurrence or event described herein shall take place in which the
shareholders of the Company receive cash for their shares of common stock of the
Company and a successor corporation or corporation purchasing assets shall
survive the transaction then, at the election of the record holder hereof, such
corporation shall be obligated to purchase this Warrant (or the unexercised part
hereof) from the record holder without requiring the holder to exercise all or
part of the Warrant. If such corporation refuses to so purchase this Warrant
then the Company shall purchase the Warrant for cash. In either case the
purchase price shall be the amount per share that shareholders of the
outstanding common stock of the Company shall receive as a result of the
transaction multiplied by the number of shares covered by the Warrant, minus the
aggregate exercise price of the Warrant. Such purchase shall be closed within 60
days following the election of the holder to sell this Warrant.
(d) Upon any adjustment of the Warrant purchase price, then, and in each
such case, the Company shall give written notice thereof, by first class mail,
postage prepaid, addressed to the registered holder of this Warrant at the
address of such holder as shown on the books of the Company, which notice shall
state the Warrant purchase price resulting from such adjustment and the increase
or decrease, if any, in the number of shares purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
(e) If any event occurs as to which in the good faith determination of the
Board of Directors of the Company the other provisions of this paragraph 4 are
not strictly applicable or if strictly applicable would not fairly protect the
purchase rights of the holder of this Warrant or of common stock 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
purchase rights as aforesaid.
5. Common Stock. As used herein, the term "common stock" shall mean and include
the Company's presently authorized shares of common stock and shall also include
any capital stock of any class of the Company hereafter authorized which shall
not be limited to fixed sum or percentage in respect of the rights of the
holders thereof to participate in dividends or in the distribution, dissolution
or winding up of the Company; provided that the shares purchasable pursuant to
this Warrant shall include shares designated as common stock of the Company on
the date of original issue of this Warrant or, in the case of any
reclassification of the outstanding shares thereof, the stock, securities or
assets provided for in Section 4 above.
6. No Voting Rights. This Warrant shall not entitle the holder hereof to any
voting rights or other rights as a stockholder of the Company.
7. Transfer of Warrant or Resale of Shares. In the event the holder of this
Warrant desires to transfer this Warrant, or any common stock issued upon the
exercise hereof, the holder shall provide the Company with a written notice
describing the manner of such transfer and an opinion of counsel (reasonably
acceptable to the Company) that the proposed transfer may be effected without
registration or qualification (under any Federal or State law), whereupon such
holder shall be entitled to transfer this Warrant or to dispose of shares of
common stock received upon the previous exercise hereof in accordance with the
notice delivered by such holder to the Company; provided, that an appropriate
<PAGE>
legend may be endorsed on this Warrant or the certificates for such shares
respecting restrictions upon transfer thereof necessary or advisable in the
opinion of counsel satisfactory to the Company to prevent further transfers
which would be in violation of Section 5 of the Securities Act of 1933.
If, in the opinion of either of the counsel referred to in this paragraph
7, the proposed transfer or disposition described in the written notice given
pursuant to this paragraph 7 may not be effected without registration or
qualification of this Warrant or the shares of common stock issued upon the
exercise hereof, the Company shall promptly give written notice thereof to the
holder hereof, and such holder will limit its activities in respect to such
proposed transfer or disposition as, in the opinion of both such counsel, are
permitted by law.
8. Registration Rights.
(a) If the Company proposes to claim an exemption under Section 3(b) for a
public offering of any of its securities or to register under the Securities Act
of 1933 (except by a claim of exemption or registration statement on a form that
does not permit the inclusion of shares by its security holders) any of its
securities, it will give written notice to all registered holders of Warrants,
and all registered holders of shares of common stock acquired upon the exercise
of Warrants (the "Common Shares"), of its intention to do so and, on the written
request of any such registered holders given within twenty (20) days after
receipt of any such notice (which request must be made within ten (10) years
from the date of this Warrant), the Company will use its best efforts to cause
all Common Shares which such holders shall have requested the registration or
qualification thereof, to be included in such notification or registration
statement proposed to be filed by the Company; provided, however, that nothing
herein shall prevent the Company from, at any time, abandoning or delaying any
such registration initiated by it. If any such registration shall be
underwritten in whole or in part, the Company may require that the 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. In the event that, in the good faith judgment of the managing
underwriter of such public offering, the inclusion of all of the 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 shares otherwise to
be included pursuant to this Section in the underwritten public offering may be
reduced; provided, however, that any such required reduction shall be pro rata
among all persons (other than the Company) who are participating in such
offering. Those shares which are thus excluded from the underwritten public
offering shall be withheld from the market for a period, not to exceed 90 days,
which the managing underwriter reasonably determines is necessary in order to
effect the underwritten public offering. All expenses of such offering, except
the fees of special counsel to such holders and brokers' commissions or
underwriting discounts payable by such holders, shall be borne by the Company.
(b) Further, on one occasion only, upon request by the holders of Warrants
and/or the holders of shares issued upon the exercise of the Warrants who
collectively (i) have the right to purchase at least 50% of the shares subject
to the Warrants, (ii) hold directly at least 50% of the shares purchased
hereunder, or (iii) have the right to purchase or hold directly an aggregate of
at least 50% of the shares purchasable or purchased hereunder, the Company will
promptly take all necessary steps, at the option of such holders, to register or
qualify the sale of the Warrants or such shares by the holders thereof, or to
register the issuance by the Company of shares upon the exercise of Warrants,
under the Securities Act of 1933 (and, upon the request of such holders, under
Rule 415 thereunder) and such state laws as such holders may reasonably request;
provided that (i) such request must be made within ten years of the date of this
Warrant; and (ii) the Company may delay the filing of any registration statement
requested
<PAGE>
pursuant to this section to a date not more than ninety (90) days following the
date of such request if in the opinion of the Company's principal investment
banker at the time of such request such a delay is necessary in order not to
adversely affect financing efforts then underway at the Company or if in the
opinion of the Company such a delay is necessary or advisable to avoid
disclosure of material nonpublic information. The costs and expenses directly
related to any registration requested pursuant to this section, including but
not limited to legal fees of the Company's counsel, audit fees, printing
expense, filing fees and fees and expenses relating to qualifications under
state securities or blue sky laws incurred by the Company shall be borne
entirely by the Company; provided, however, that the persons for whose account
the securities covered by such registration are sold shall bear the expenses of
underwriting commissions applicable to their shares and fees of their legal
counsel. If the holders of Warrants and the holders of shares of common stock
underlying the Warrants are the only persons whose shares are included in the
registration pursuant to this section, such holders shall bear the expense of
inclusion of audited financial statements in the registration statement which
are not dated as of the Company's normal fiscal year or are not otherwise
prepared by the Company for its own business purposes. The Company shall keep
effective and maintain any registration, qualification, notification or approval
specified in this paragraph for such period as may be necessary for the holders
of the Warrants and such common stock to dispose thereof, and from time to time
shall amend or supplement, at the holder's expense, the prospectus or offering
circular used in connection therewith to the extent necessary in order to comply
with applicable law, provided that the Company shall not be obligated to
maintain any registration for a period of more than two (2) years.
If, at the time any written request for registration is received by the
Company pursuant to this Section 8(b), the Company has determined 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 cash of any of
its securities by it or any of its security holders, such written request shall
be deemed to have been given pursuant to Section 8(a) hereof rather than this
Section 8(b), and the rights of the holders of Warrants and or shares issued
upon the exercise of the Warrants covered by such written request shall be
governed by Section 8(a) hereof.
The managing underwriter of an offering registered pursuant to this Section
8(b), if any, shall be selected by the holders of a majority of the Warrants
and/or shares issued upon the exercise of the Warrants for which registration
has been requested and shall be reasonably acceptable to the Company. Subject to
the rights of existing securityholders of the Company granted prior to the date
hereof to include securities of the Company in a registration statement filed by
the Company to register securities under the Act, without the written consent of
the holders of a majority of the Warrants and/or shares issued upon the exercise
of the Warrants for which registration has been requested pursuant to this
Section 8(b), 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 Warrants
and/or shares issued upon the exercise of the Warrants or require the exclusion
of any portion of the Warrants and/or shares issued upon the exercise of the
Warrants to be registered. Subject to the preceding sentence, shares to be
excluded from an underwritten public offering shall be selected in the manner
provided in Section 8(a) hereof.
(c) If and whenever the Company is required by the provisions of Sections
8(a) or 8(b) hereof to effect the registration of Warrants and/or shares issued
upon the exercise of the Warrants under the Securities Act, the Company will:
<PAGE>
(i) 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 two (2) years;
(ii) 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 two (2) years;
(iii) 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;
(iv) 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 in writing within 30 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;
(v) 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;
(vi) 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;
(vii) 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 Warrants or shares by such holder;
(viii) 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;
(ix) advise such holders, promptly after it shall receive notice or
obtain knowledge thereof, of 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
<PAGE>
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;
(x) 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 five 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 from any liabilities under any applicable federal or state law and
such filing will not violate applicable law; and
(xi) at the request of any such holder, furnish on the effective date
of the registration statement and, if such registration includes an
underwritten public offering, at the closing provided for in the
underwriting agreement: (i) opinions, dated such respective dates, of the
counsel representing the Company for the purposes of such registration,
addressed to the underwriters, if any, and to the holder or holders making
such request, covering such matters as such underwriters and holder or
holders may reasonably request; and (ii) letters, dated such respective
dates, from the independent certified public accountants of the Company,
addressed to the underwriters, if any, and to the holder or holders making
such request, covering such matters as such underwriters and holder or
holders may reasonably request, in which letter such accountants shall
state (without limiting the generality of the foregoing) that they are
independent certified public accountants within the meaning of the
Securities Act and that in the opinion of such accountants the financial
statements and other financial data of the Company included in the
registration statement or the prospectus or any amendment or supplement
thereto comply in all material respects with the applicable accounting
requirements of the Securities Act.
(d) The Company hereby indemnifies the holder of this Warrant and of any
common stock issued or issuable hereunder, its officers and directors, and any
person who controls such Warrant holder or such holder of common stock within
the meaning of Section 15 of the Securities Act of 1933, against all losses,
claims, damages and liabilities caused by any untrue statement of a material
fact contained in any registration statement, prospectus, notification or
offering circular (and as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) or any preliminary prospectus
or caused by any omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading except
insofar as such losses, claims, damages or liabilities are caused by any untrue
statement or omission contained in information furnished in writing to the
Company by such Warrant holder or such holder of common stock expressly for use
therein; and provided further, however, that the foregoing indemnity agreement
is subject to the condition that, insofar as it relates to any untrue statement,
alleged untrue statement, omission or alleged omission made in any preliminary
prospectus but eliminated or remedied in a subsequent prospectus, such indemnity
agreement shall not inure to the benefit of a holder if a copy of such
subsequent prospectus was not sent or given with or prior to the written
confirmation of the sale of any of shares, if available at or prior to such
written confirmation, to the person asserting any loss, liability, claim or
damage. Each such holder by its acceptance hereof severally agrees that it will
indemnify and hold harmless the Company and each of its officers who signs such
registration statement and each of its directors and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act of
1933 with respect to losses, claims, damages or liabilities which are caused by
any untrue statement or omission contained in information furnished in writing
to the Company by such holder expressly for use therein.
<PAGE>
9. Additional Right to Convert Warrant.
(a) The holder of this Warrant shall have the right to require the Company
to convert this Warrant (the "Conversion Right") at any time prior to its
expiration into shares of Common Stock as provided for in this Section 9. Upon
exercise of the Conversion Right, the Company shall deliver to the holder
(without payment by the holder of any Exercise Price) that number of shares of
Common Stock equal to the quotient obtained by dividing (x) the value of the
Warrant at the time the Conversion Right is exercised (determined by subtracting
the aggregate Exercise Price for the Warrant Shares in effect immediately prior
to the exercise of the Conversion Right from the aggregate Fair Market Value for
the Warrant Shares immediately prior to the exercise of the Conversion Right) by
(y) the Fair Market Value of one share of Common Stock immediately prior to the
exercise of the Conversion Right.
(b) The Conversion Right may be exercised by the holder, at any time or
from time to time, prior to its expiration, on any business day by delivering a
written notice in the form attached hereto (the "Conversion Notice") to the
Company at the offices of the Company exercising the Conversion Right and
specifying (i) the total number of shares of Common Stock the Warrantholder will
purchase pursuant to such conversion and (ii) a place and date not less than one
nor more than 20 business days from the date of the Conversion Notice for the
closing of such purchase.
(c) At any closing under Section 9(b) hereof, (i) the holder will surrender
the Warrant and (ii) the Company will deliver to the holder a certificate or
certificates for the number of shares of Common Stock issuable upon such
conversion, together with cash, in lieu of any fraction of a share, and (iii)
the Company will deliver to the holder a new warrant representing the number of
shares, if any, with respect to which the warrant shall not have been exercised.
(d) "Fair Market Value" means, with respect to the Company's Common Stock,
as of any date:
(i) 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 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); or
(ii) 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 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 National Quotation Bureau, Inc. (or such comparable
reporting service); or
(iii) 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 by the NASDAQ system or
National Quotation Bureau, Inc. (or any comparable reporting service), such
price as the Company's Board of Directors determines in good faith in the
exercise of its reasonable discretion.
<PAGE>
IN WITNESS WHEREOF, LifeRate Systems, Inc. has caused this Warrant to be
executed by its duly authorized officers and this Warrant to be dated as of July
21, 1997.
LIFERATE SYSTEMS, INC.
By_______________________________________
Its Chairman of the Board
<PAGE>
EXERCISE FORM
(TO BE SIGNED ONLY UPON EXERCISE OF WARRANT)
LIFERATE SYSTEMS, INC.
The undersigned, the holder of the within warrant, hereby irrevocably
elects to exercise the purchase right represented by such warrant for, and to
purchase thereunder _______________ shares of the Common Stock, $.01 par value,
of LifeRate Systems, Inc. and herewith makes payment of $____________________
therefor, and requests that the certificates for such shares be issued in the
name of ______________________________ and be delivered to
_______________________________ whose address is ___________________________.
Dated: _________________ ______________________________________________
(Signature must conform in all respects to the
name of holder as specified on the face of the
warrant)
(Address)
(City - State - Zip)
<PAGE>
ASSIGNMENT FORM
(TO BE SIGNED ONLY UPON TRANSFER OF THE WARRANT)
For value received, the undersigned hereby sells, assigns and transfers
unto those individuals listed on Exhibit A, attached hereto, the right
represented by the within warrant to purchase the number of shares opposite
their names on the attached Exhibit A of Common Stock, $.01 par value, of
LifeRate Systems, Inc. to which the within warrant relates, and appoints
_______________________ attorney to transfer said right on the books of LifeRate
Systems, Inc., with full power of substitution in the premises.
Dated: ___________ MILLER, JOHNSON & KUEHN INCORPORATED
5500 Wayzata Boulevard
Suite 800 - 8th Floor
Minneapolis, MN 55416
By________________________________________
In the presence of:
___________________________
___________________________
<PAGE>
CONVERSION NOTICE
(TO BE SIGNED ONLY UPON EXERCISE OF CONVERSION RIGHT
SET FORTH IN SECTION 9 OF THE WARRANT)
TO LIFERATE SYSTEMS, INC.:
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the Conversion Right set forth in Section 9 of such Warrant
and to purchase ________________ shares of the Common Stock, of LifeRate
Systems, Inc. The closing of this conversion shall take place at the offices of
the undersigned on ______________________. Certificates for the shares to be
delivered at the closing shall be issued in the name of ___________________
whose address is
Dated: _________________ ________________________________________________
(Signature must conform in all respects to the
name of holder as specified on the face of the
warrant)
(Address)
(City - State - Zip)
<PAGE>
ASSIGNMENT FORM
(TO BE SIGNED ONLY UPON TRANSFER OF THE WARRANT)
For value received, the undersigned hereby sells, assigns and transfers
unto those individuals listed on Exhibit A, attached hereto, the right
represented by the within warrant to purchase the number of shares opposite
their names on the attached Exhibit A of Common Stock, $.01 par value, of
LifeRate Systems, Inc. to which the within warrant relates, and appoints
_______________________ attorney to transfer said right on the books of LifeRate
Systems, Inc., with full power of substitution in the premises.
Dated: ___________ MILLER, JOHNSON & KUEHN INCORPORATED
5500 Wayzata Boulevard
Suite 800 - 8th Floor
Minneapolis, MN 55416
By______________________________________________
In the presence of:
____________________________
____________________________
<PAGE>
EXHIBIT A
Name Percentage of Shares
---- --------------------
Paul R. Kuehn 37.5%
David B. Johnson 37.5%
Stanley D. Rahm 12.5%
Eldon C. Miller 12.5%
TOTAL 100%
EXHIBIT 5.1
[OPPENHEIMER WOLFF & DONNELLY LETTERHEAD]
December 12, 1997
Board of Directors
LifeRate Systems, Inc.
7210 Metro Boulevard
Minneapolis, MN 55439
RE: REGISTRATION STATEMENT ON FORM SB-2
Ladies and Gentlemen:
We have acted as counsel to LifeRate Systems, Inc., a Minnesota corporation (the
"Company"), in connection with the registration by the Company of the resale of
an aggregate of 8,788,000 shares (the "Shares") of the Company's common stock,
no par value (the "Common Stock"), pursuant to the Company's Registration
Statement on Form SB-2 filed with the Securities and Exchange Commission on
December 12, 1997 (the "Registration Statement") on behalf of certain selling
shareholders named therein (the "Selling Shareholders"). The Shares consist of
an aggregate of 4,394,000 shares of Common Stock (the "Issued Shares") currently
outstanding and beneficially owned by the Selling Shareholders and an aggregate
of 4,394,000 shares of Common Stock issuable pursuant to outstanding warrants
held by the Selling Shareholders (the "Unissued Shares").
In acting as counsel for the Company and arriving at the opinions expressed
below, we have examined and relied upon originals or copies, certified or
otherwise identified to our satisfaction, of such records of the Company,
agreements and other instruments, certificates of officers and representatives
of the Company, certificates of public officials and other documents as we have
deemed necessary or appropriate as a basis for the opinions expressed herein. In
connection with our examination, we have assumed the genuiness of all
signatures, the authenticity of all documents tendered to us as originals, the
legal capacity of all natural persons and the conformity to original documents
of all documents submitted to us as certified or photostatic copies.
Based on the foregoing, and subject to the qualifications and limitations stated
herein, it is our opinion that:
1. The Company had the corporate authority to issue the Issued Shares and
has the corporate authority to issue the Nonissued Shares in the manner
and under the terms set forth in the Registration Statement.
<PAGE>
Board of Directors
LifeRate Systems, Inc.
December 12, 1997
Page 2
2. The Issued Shares being registered for resale by the Selling
Shareholders under the Registration Statement have been duly authorized
and are validly issued, fully paid and nonassessable. The Nonissued
Shares being registered for resale by the Selling Shareholders under
the Registration Statement have been duly authorized, and when issued,
delivered and paid for in accordance with the Warrant Agreements, will
be validly issued, fully paid and nonassessable.
We express no opinion with respect to laws other than those of the State of
Minnesota and the federal law of the United States of America, and we assume no
responsibility as to the applicability thereto, or the effect thereon, of the
laws of any other jurisdiction.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement, to its use as part of the Registration Statement, and to
the use of our name under the caption "Validity of Shares" in the Prospectus
constituting a part of the Registration Statement.
We are furnishing this opinion to the Company solely for its benefit in
connection with the Registration Statement as described above. It is not to be
used, circulated, quoted or otherwise referred to for any other purpose. Other
than the Company, no one is entitled to rely on this opinion.
Very truly yours,
/s/ Oppenheimer Wolff & Donnelly
OPPENHEIMER WOLFF & DONNELLY
Plaza VII
45 South Seventh Street
Suite 3400
Minneapolis, MN 55402
Exhibit 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our report dated February 13, 1997, except
for Note 9 as to which the date is April 1, 1997, in the Registration Statement
(Form SB-2) and related Prospectus of LifeRate Systems, Inc. for the
registration of 8,788,000 shares of its Common Stock.
/s/Ernst & Young LLP
Minneapolis, Minnesota
December 11, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENTS OF EARNINGS AND THE BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 SEP-30-1997
<CASH> 2072 81
<SECURITIES> 0 0
<RECEIVABLES> 202 217
<ALLOWANCES> 60 23
<INVENTORY> 0 0
<CURRENT-ASSETS> 2337 427
<PP&E> 1015 1047
<DEPRECIATION> 326 547
<TOTAL-ASSETS> 3076 926
<CURRENT-LIABILITIES> 504 2174
<BONDS> 0 0
0 0
0 0
<COMMON> 17,261 17,300
<OTHER-SE> (17,108) (21,164)
<TOTAL-LIABILITY-AND-EQUITY> 3076 926
<SALES> 616 366
<TOTAL-REVENUES> 616 366
<CGS> 180 508
<TOTAL-COSTS> 10,745 4262
<OTHER-EXPENSES> (262) (26)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6 185
<INCOME-PRETAX> (9874) (4056)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (9874) (4056)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (9874) (4056)
<EPS-PRIMARY> (2.61) (1.06)
<EPS-DILUTED> (2.61) (1.06)
</TABLE>
