NON-STATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT is entered into and effective as of November 13, 1997
(the "Date of Grant"), by and between LifeRate Systems, Inc. (the "Company") and
Xxxxx X. Xxxxxxx (the "Optionee").
A. The Optionee has entered into an Employment Agreement with the
Company dated August 18, 1997, as amended on November 13, 1997 (as amended, the
"Employment Agreement"), pursuant to which the Optionee is employed by the
Company as President and Chief Executive Officer.
B. Pursuant to the Employment Agreement, the Company has agreed to
grant to the Optionee certain options to purchase shares of common stock, and
the Company desires to advance the interests of the Company by granting to the
Optionee an option to purchase shares of common stock of the Company.
C. The Company intends to issue and sell an aggregate of
approximately 9,000,000 shares of common stock ("Common Stock") at prices
ranging from $.50 to $.56 per share and warrants to purchase approximately
9,000,000 shares of Common Stock (the "Financing") to certain investors,
including Special Situations Private Equity Fund, L.P., Special Situations Fund
III, L.P. and Special Situations Cayman Fund, L.P. Upon completion of the
Financing, the Optionee will become entitled to certain options under the second
and third paragraphs of Section 5(b) of the Employment Agreement.
D. Although the option being granted pursuant to this Agreement is
not being granted under any formal stock option plan of the Company, capitalized
terms that are not defined herein shall have the meaning set forth in the
Employment Agreement or the Company's 1993 Stock Option Plan (the "Plan"), as
the case may be, as such agreement or plan may be amended from time to time.
Accordingly, the parties hereby agree as follows:
ARTICLE
1.
GRANT OF OPTION
The Company hereby grants to the Optionee the right, privilege, and
option (the "Option") to purchase Six Hundred Fifty Thousand (650,000) shares
(the "Option Shares") of the Company's common stock (the "Common Stock"),
according to the terms and subject to the conditions set forth in this
Agreement. The Option is not intended to be an "incentive stock option," as that
term is used in Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code").
ARTICLE
2.
OPTION EXERCISE PRICE
The per share price to be paid by Optionee in the event of an exercise
of the Option shall be $0.50.
ARTICLE
3.
DURATION OF OPTION AND TIME OF EXERCISE
3.1. Initial Period of Exercisability. Subject to Section 3.4, the
Option shall become exercisable with respect to the Option Shares in three
installments. Subject to Section 3.4, the rights to exercise this Option shall
be cumulative with respect to the Option Shares becoming exercisable on each
such date but in no event shall this Option be exercisable after, and this
Option shall become void and expire as to each installment of unexercised Option
Shares at, 5:00 p.m. (Minneapolis, Minnesota time) on the following dates (the
"Time of Termination"). The following table sets forth, subject to Section 3.4,
the initial dates of exercisability of each installment, the number of Option
Shares as to which this Option shall become exercisable on such dates and the
Time of Termination of each installment of Option Shares:
Initial Date of Number of Option Shares
Exercisability Available for Exercise Time of Termination
-------------- ---------------------- -------------------
August 26, 1998 216,666 August 26, 2003
August 26, 1999 216,667 August 26, 2004
August 26, 2000 216,667 August 26, 2005
3.2. Termination of Employment or Other Service.
(a) In the event that the Optionee's employment or other
service with the Company and all Subsidiaries (as defined in the Plan)
is terminated by reason of the Optionee's death, Total Disability (as
defined in the Employment Agreement) or Retirement (as defined in the
Plan), this Option shall remain exercisable to the extent exercisable
as of such termination for a period of one year after such termination
in the case of death or Total Disability or January 31, 2000, whichever
is later, and three months in the case of Retirement or January 31,
2000, whichever is later (but in no event after the Time of
Termination).
(b) In the event the Optionee's employment or other service
with the Company and all Subsidiaries is terminated for any reason
other than death, Total Disability or Retirement, all rights of the
Optionee under this Agreement shall immediately terminate without
notice of any kind, and this Option shall no longer be exercisable;
provided, however, that if such termination is due to any reason other
than termination by the Company or any Subsidiary "for cause" (as
defined in the Employment Agreement), this Option shall remain
exercisable to the extent exercisable
as of such termination for a period of thirty (30) days or January 31,
2000, whichever is later (but in no event after the Time of
Termination).
(c) Notwithstanding anything in this Agreement to the
contrary, in the event that the Optionee materially breaches the terms
of Sections 9 or 10 of the Employment Agreement, whether such breach
occurs before or after termination of the Optionee's employment or
other service with the Company or any Subsidiary, the Committee in its
sole discretion may immediately terminate all rights of the Optionee
under this Agreement without notice of any kind.
3.3. Change in Control.
(a) For purposes of this Section 3.3, the term "Change in
Control" shall have the meaning set forth in Section 6 of the
Employment Agreement, as may be amended from time to time, whether
before or after the date hereof.
(b) If any events constituting a Change in Control of the
Company shall occur, then this Option shall become immediately
exercisable in full until the Time of Termination, whether or not the
Optionee remains in the employ or service of the Company or any
Subsidiary. In addition, if a Change in Control of the Company shall
occur, the Committee, in its sole discretion, and without the consent
of the Optionee, may determine that the Optionee shall receive, with
respect to some or all of the Option Shares, as of the effective date
of any such Change in Control of the Company, cash in an amount equal
to the excess of the Fair Market Value (as defined in the Plan) of such
Option Shares immediately prior to the effective date of such Change in
Control of the Company over the option exercise price per share of this
Option.
(c) Notwithstanding anything in this Section 3.3 to the
contrary, if, with respect to the Optionee, acceleration of the
exercisability of this Option or the payment of cash in exchange for
all or part of this Option as provided above (which acceleration or
payment could be deemed a payment within the meaning of Section
280G(b)(2) of the Code), together with any other payments which the
Optionee has the right to receive from the Company or any corporation
which is a member of an "affiliated group" (as defined in Section
1504(a) of the Code without regard to Section 1504(b) of the Code) of
which the Company is a member, would constitute a "parachute payment"
(as defined in Section 280G(b)(2) of the Code), then the acceleration
of exercisability and the payments to the Optionee as set forth herein
shall be reduced to the largest amount as, in the sole judgment of the
Committee, will result in no portion of such payments being subject to
the excise tax imposed by Section 4999 of the Code; provided, that such
reduction shall be made only if the aggregate amount of the payments
after such reduction exceeds the difference between (A) the amount of
such payments absent such reduction minus (B) the aggregate amount of
the excise tax imposed under section 4999 of the Code attributable to
any such excess parachute payments arising in connection with such
Change in Control. The determination as to whether any such decrease in
the payments to be made in connection with this Agreement is necessary
must be made in good faith by legal counsel or
a certified public accountant selected by the Company and reasonably
acceptable to the Optionee, and such determination will be conclusive
and binding. In the event that a reduction is necessary, the Optionee
will have the right to designate the particular payments or benefits
that are to be reduced or eliminated so that no portion of the payments
or benefits to be made or provided to the Optionee will be excess
parachute payments subject to the excise tax under Code section 4999.
3.4. Cancellation of Option. This Option shall become exercisable if,
and only if, the first closing of the Financing (relating to approximately
2,500,000 shares and warrants to purchase approximately 2,500,000 shares) (the
"First Closing") is completed by December 31, 1997. If the first closing of the
Financing is not completed by such date, this Option shall become null and void,
the Optionee shall not have any right to purchase any shares of Common Stock
hereunder, and the Prior Option Agreements, as defined below, shall remain in
full force and effect.
ARTICLE
4.
MANNER OF OPTION EXERCISE
4.1. Notice. This Option may be exercised by the Optionee in whole or
in part from time to time, subject to the conditions contained herein, by
delivery, in person or by registered mail, to the Company at its principal
executive office in Edina, Minnesota (Attention: Chief Financial Officer), of a
written notice of exercise. Such notice shall be in a form satisfactory to the
Committee, shall identify the Option, shall specify the number of Option Shares
with respect to which the Option is being exercised, and shall be signed by the
person or persons so exercising the Option. Such notice shall be accompanied by
payment in full of the total purchase price of the Option Shares purchased. In
the event that the Option is being exercised by any person or persons other than
the Optionee (such as by the Optionee's heir(s) or legal representative(s), in
the event of death or disability of Optionee), the notice shall be accompanied
by appropriate proof of right of such person or persons to exercise the Option.
As soon as practicable after the effective exercise of the Option, the Optionee
shall be recorded on the stock transfer books of the Company as the owner of the
Option Shares purchased, and the Company shall deliver to the Optionee one or
more duly issued stock certificates evidencing such ownership.
4.2. Payment. At the time of exercise of this Option, the Optionee
shall pay the total purchase price of the Option Shares to be purchased solely
in cash (including a personal check or a certified or bank cashier's check,
payable to the order of the Company); provided, however, that the Committee, in
its sole discretion, may allow such payments to be made, in whole or in part, by
delivery of a Broker Exercise Notice or a promissory note (containing such terms
and conditions as the Committee may in its discretion determine), by transfer
from the Optionee to the Company of Previously Acquired Shares, or by a
combination thereof. For purposes of this Agreement, the terms "Broker Exercise
Notice" and "Previously Acquired Shares" shall have the meanings set forth in
the Plan. In the event the Optionee is permitted to pay the total purchase price
of this Option in whole or in part with Previously Acquired Shares, the value of
such shares shall be equal to their Fair Market Value on the date of exercise of
this Option.
4.3. Investment Purpose. The Company shall not be required to issue or
deliver any shares of Common Stock under this Option unless (1)(a) such shares
are covered by an effective and current registration statement under the
Securities Act of 1933 and applicable state securities laws or (b) if the
Committee has determined not to so register such shares, exemptions from
registration under the Securities Act of 1933 and applicable state securities
laws are available for such issuance (as determined by counsel to the Company)
and the Company has received from the Optionee (or, in the event of death or
disability, the Optionee's heir(s) or legal representative(s)) any
representations or agreements requested by the Company in order to permit such
issuance to be made pursuant to such exemptions, and (2) the Company has
obtained any other consent, approval or permit from any state or federal
governmental agency which the Committee shall, in its sole discretion upon the
advice of counsel, deem necessary or advisable. In the event that, at the time
of the attempted exercise of this Option, any of these conditions to the
issuance of a certificate for shares of Common Stock have not been satisfied,
such exercise shall be deemed withdrawn and the Company shall return any
payments made with respect thereto unless the Optionee, within 15 days after
being informed of the nonsatisfaction of such conditions, gives the Company
written notice that he or she wants such exercise to remain suspended (in which
event such exercise shall be deemed to be effective on the earliest date upon
which such conditions have been satisfied). Unless a registration statement
under the Securities Act of 1933 is in effect with respect to the issuance or
transfer of Option Shares, each certificate representing any such shares shall
be restricted by the Company as to transfer unless the Company receives an
opinion of counsel satisfactory to the Company to the effect that registration
under the Securities Act of 1933 and applicable state securities laws is not
required with respect to such transfer.
ARTICLE
5.
NONTRANSFERABILITY
Other than pursuant to a qualified domestic relations order (as defined
in the Code), no right or interest of the Optionee in this Option prior to the
exercise of such Option shall be assignable or transferable, or subjected to any
lien, during the lifetime of the Optionee, either voluntarily or involuntarily,
directly or indirectly, by operation of law or otherwise, including execution,
levy, garnishment, attachment, pledge, divorce or bankruptcy. The Optionee
shall, however, be entitled to designate a beneficiary to receive the Option
upon such Optionee's death. In the event of the Optionee's death, such
Optionee's rights and interest in the Option shall be transferable by
testamentary will or the laws of descent and distribution, and exercise of the
Option may be made by the Optionee's legal representatives, heirs or legatees.
Any attempt to transfer or encumber this Option other than in accordance with
this Agreement shall be null and void and shall void this Option.
ARTICLE
6.
LIMITATION OF LIABILITY
Nothing in this Agreement shall be construed to (a) limit in any way
the right of the Company to terminate the employment or service of the Optionee
at any time, or (b) be evidence of any agreement or understanding, express or
implied, that the Company will retain the Optionee in any particular position,
at any particular rate of compensation or for any particular period of time.
ARTICLE
7.
WITHHOLDING TAXES
The Company is entitled to (a) withhold and deduct from future wages of
the Optionee (or from other amounts which may be due and owing to the Optionee
from the Company), or make other arrangements for the collection of, all legally
required amounts necessary to satisfy any federal, state or local withholding
and employment-related tax requirements attributable to the grant or exercise of
this Option or otherwise incurred with respect to this Option, or (b) require
the Optionee promptly to remit the amount of such withholding to the Company
before acting on the Optionee's notice of exercise of this Option. In the event
that the Company is unable to withhold such amounts, for whatever reason, the
Optionee hereby agrees to pay to the Company an amount equal to the amount the
Company would otherwise be required to withhold under federal, state or local
law.
ARTICLE
8.
ADJUSTMENTS
In the event of any reorganization, merger, consolidation,
recapitalization, liquidation, reclassification, stock dividend, stock split,
combination of shares, rights offering, extraordinary dividend or divestiture
(including a spin-off) or any other change in the corporate structure or shares
of the Company, the Committee (or, if the Company is not the surviving
corporation in any such transaction, the board of directors of the surviving
corporation), in order to prevent dilution or enlargement of the rights of the
Optionee, shall make appropriate adjustment (which determination shall be
conclusive) as to the number, kind and exercise price of securities subject to
this Option.
ARTICLE
9.
MISCELLANEOUS
9.1. Binding Effect. This Agreement shall be binding upon the heirs,
executors, administrators and successors of the parties hereto.
9.2. Governing Law. This Agreement and all rights and obligations
hereunder shall be governed by the laws of the State of Minnesota.
9.3. Entire Agreement. This Agreement and the Employment Agreement set
forth the entire agreement and understanding of the parties hereto with respect
to the grant and exercise of this Option and supersede all prior agreements,
arrangements, plans and understandings relating to the grant and exercise of
options to purchase shares of Common Stock. The Non-Statutory Stock Option
Agreements, dated August 26, 1997, between the Company and the Optionee,
covering 200,000 and 100,000 shares, respectively (the "Prior Option
Agreements"), shall be canceled effective upon completion of the First Closing,
provided that such First Closing occurs by December 31, 1997. The Company and
the Optionee acknowledge that this Option satisfies the Company's obligation to
issue options under the second and third paragraphs of Section 5(b) of the
Employment Agreement as a result of the Financing.
9.4. Amendment and Waiver. This Agreement may be amended, waived,
modified or canceled only by a written instrument executed by the parties hereto
or, in the case of a waiver, by the party waiving compliance.
9.5. Registration. The Company shall cause the Option Shares to be
registered under the Securities Act of 1933 on a Registration Statement on Form
S-8 (or any successor form); provided that the Company shall not be required to
file such Form S-8 prior to January 1, 2000.
The parties hereto have executed this Agreement effective the day and
year first above written.
LIFERATE SYSTEMS, INC.
By /s/ Xxxxxxx X. Xxxxxxx
------------------------
Its Chairman of the Board
------------------------
[By execution hereof, the Optionee
acknowledges having receive a copy
of the Plan.] /s/ Xxxxx X. Xxxxxxx
----------------------------
Xxxxx X. Xxxxxxx
